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Taxes | 12 Months Ended
--- | ---
Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Taxes | Taxes Domestic income from continuing operations before taxes was $39,042,000 in 2018, $30,345,000 in 2017, and $23,939,000 in 2016. Foreign income from continuing operations before taxes was $195,532,000 in 2018, $236,119,000 in 2017, and $138,138,000 in 2016. Income tax expense on continuing operations consisted of the following (in thousands):
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Current: |
Federal | $ | 10,624 |  |  | $ | 78,152 |  |  | $ | 14,459 |
State | (879 | ) |  | 2,687 |  |  | (617 | )
Foreign | 6,307 |  |  | 7,624 |  |  | 7,309 |
| 16,052 |  |  | 88,463 |  |  | 21,151 |
Deferred: |  |  |  |  |
Federal | (1,271 | ) |  | 1,569 |  |  | (3,031 | )
State | 554 |  |  | (639 | ) |  | 1,066 |
Foreign | (28 | ) |  | 359 |  |  | (1,058 | )
| (745 | ) |  | 1,289 |  |  | (3,023 | )
| $ | 15,307 |  |  | $ | 89,752 |  |  | $ | 18,128 |
A reconciliation of the U.S. federal statutory corporate tax rate to the Company’s income tax expense on continuing operations, or effective tax rate, was as follows:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Income tax expense at U.S. federal statutory corporate tax rate | 21 | % |  | 35 | % |  | 35 | %
State income taxes, net of federal benefit | 1 |  |  | — |  |  | 1 |
Foreign tax rate differential | (9 | ) |  | (27 | ) |  | (17 | )
Tax credit | — |  |  | (1 | ) |  | (1 | )
Discrete tax benefit related to employee stock option exercises | (4 | ) |  | (14 | ) |  | (7 | )
Discrete tax expense (benefit) related to 2017 Tax Act | (3 | ) |  | 36 |  |  | — |
Discrete tax expense related to write-down of deferred tax assets | — |  |  | 5 |  |  | — |
Other discrete tax events | — |  |  | (1 | ) |  | — |
Other | 1 |  |  | 1 |  |  | — |
Income tax expense on continuing operations | 7 | % |  | 34 | % |  | 11 | %
The Tax Act On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (Tax Act) was signed into law. The Tax Act resulted in a decrease in the U.S. federal statutory corporate tax rate from 35% to 21%. As a result of the reduction in anticipated tax rate, the Company remeasured its deferred tax positions as of December 31, 2017 at the new enacted tax rate, and accordingly, recorded tax expense of $12,523,000 in 2017 from the associated write-down of its deferred tax assets. In 2018, the Company recorded an increase in tax expense of $3,240,000 f rom the write-down of its deferred tax assets primarily relating to guidance under the Tax Act regarding stock-based compensation. The Tax Act subjects unrepatriated foreign earnings to a one-time transition tax, regardless of the Company's financial statement assertion related to indefinite reinvestment or whether the Company ultimately repatriates any of the foreign earnings, for which the Company recorded estimated tax expense of $101,379,000 in 2017. In 2018, the Company revised its estimate of the one-time transition tax and recorded a decrease in tax expense of $11,028,000, which resulted in a revised estimate for the one-time transition tax of $90,351,000 payable over eight years. The Tax Act replaces the current system of taxing U.S. corporations on repatriated foreign earnings with a partial territorial system that provides a 100% dividends-received deduction to domestic corporations for foreign-source dividends received from 10% or more owned foreign corporations. The Company recorded a decrease in tax expense of $3,843,000 in 2017 from the reversal of the tax effect of a 2016 dividend paid in 2017 from a wholly-owned foreign subsidiary to its domestic entity. The Company will continue to gather and analyze information on historical unrepatriated foreign earnings and monitor state laws relating to this income to finalize both the federal and state tax impact. The Tax Act limits certain deductions and these limitations may impact the value of existing deferred tax assets. The Company will continue to review the impact of these limitations as regulatory guidance is issued. Other Discrete Tax Items The effective tax rate also included a decrease in tax expense of $8,488,000 in 2018, $38,569,000 in 2017, and $11,889,000 in 2016 from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises. The Company cannot predict the level of stock option exercises by employees in future periods. In 2018, tax expense included a provision for state income taxes of $620,000 from a change in management's financial statement assertion related to the indefinite reinvestment of foreign earnings. Management has determined that earnings from its legal entity in China will remain indefinitely reinvested to provide sufficient local funding for growth, and that earnings from all other jurisdictions will not be indefinitely reinvested resulting in the additional state income tax provision. As of December 31, 2018 and 2017, $446,346,000 and $498,653,000, respectively, of the Company’s cash, cash equivalents, and investments were held by foreign subsidiaries and were primarily denominated in U.S. Dollars. Other discrete tax events resulted in a net decrease in tax expense of $1,847,000 in 2018 and a net decrease in tax expense of $2,502,000 in 2017, consisting primarily of i) the final true-up of the prior year's tax accrual upon filing the related tax returns and ii) the expiration of the statutes of limitations for certain reserves for income tax uncertainties. The Company is tax resident in numerous jurisdictions around the world and has identified its major tax jurisdictions as the United States, Ireland, and China. The statutory tax rate is 12.5% in Ireland and 25% in China, compared to the U.S. federal statutory corporate tax rate of 21%. International rights to certain of the Company’s intellectual property are held by a subsidiary whose legal jurisdiction does not tax this income, resulting in a foreign effective tax rate lower than the above mentioned statutory rates. Interest and penalties included in income tax expense was $91,000, $71,000, and $92,000 in 2018, 2017, and 2016, respectively. On January 1, 2018, the Company adopted Accounting Standard Update (ASU) 2016-16, "Income Taxes - Intra-Entity Transfers of Assets Other than Inventory." This ASU requires the recognition of deferred income taxes for an intra-entity transfer of an asset other than inventory. As a result of this ASU, the Company recorded $5,961,000 through a cumulative-effect adjustment directly to retained earnings at the beginning of fiscal year 2018. Tax Reserves The changes in the reserve for income taxes, excluding gross interest and penalties, were as follows (in thousands):
Balance of reserve for income taxes as of December 31, 2016 | $ | 5,719 |
Gross amounts of decreases in unrecognized tax benefits as a result of tax positions taken in prior periods | (56 | )
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period | 1,993 |
Gross amounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities | (116 | )
Gross amounts of decreases in unrecognized tax benefits as a result of the expiration of the applicable statutes of limitations | (791 | )
Balance of reserve for income taxes as of December 31, 2017 | 6,749 |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in prior periods | 69 |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period | 1,499 |
Gross amounts of decreases in unrecognized tax benefits as a result of the expiration of the applicable statutes of limitations | (1,023 | )
Balance of reserve for income taxes as of December 31, 2018 | $ | 7,294 |
The Company’s reserve for income taxes, including gross interest and penalties, was $8,134,000 as of December 31, 2018, which included $7,106,000 classified as a non-current liability and $1,028,000 recorded as a reduction to non-current deferred tax assets. The Company's reserve for income taxes, including gross interest and penalties, was $7,516,000 as of December 31, 2017, which included $6,488,000 classified as a non-current liability and $1,028,000 recorded as a reduction to non-current deferred tax assets. The amount of gross interest and penalties included in these balances was $840,000 and $767,000 as of December 31, 2018 and December 31, 2017, respectively. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period. As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $1,200,000 to $1,300,000 over the next twelve months. The Company has defined its major tax jurisdictions as the United States, Ireland, and China, and within the United States, Massachusetts. Within the United States, the tax years 2015 through 2018 remain open to examination by the Internal Revenue Service and various state taxing authorities. The tax years 2014 through 2018 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates. In 2011, the Company finalized an Advanced Pricing Agreement (APA) with Japan that covers tax years 2006 through 2011, with a requested extension to 2012. The Company has concluded negotiations for an APA between Japan and Ireland that covers tax years 2014 through 2018 with retroactive application to 2013. The Company is currently in negotiations to potentially extend this agreement through 2022. The Company believes it is adequately reserved for these open years. Deferred Tax Assets and Liabilities Deferred tax assets and liabilities consisted of the following (in thousands):
| December 31,
| 2018 |  | 2017
Non-current deferred tax assets: |  |  |
Stock-based compensation expense | $ | 13,818 |  |  | $ | 11,664 |
Federal and state tax credit carryforwards | 7,395 |  |  | 6,707 |
Bonuses, commissions, and other compensation | 5,470 |  |  | 5,704 |
Inventory and revenue related | 3,233 |  |  | 3,415 |
Depreciation | 2,475 |  |  | 2,279 |
Other | 2,425 |  |  | 3,012 |
Gross non-current deferred tax assets | 34,816 |  |  | 32,781 |
Non-current deferred tax liabilities: |  |  |
Nondeductible intangible assets | (44 | ) |  | (87 | )
Gross non-current deferred tax liabilities | (44 | ) |  | (87 | )
Valuation allowance | (6,112 | ) |  | (5,309 | )
Net non-current deferred tax assets | $ | 28,660 |  |  | $ | 27,385 |
Non-current deferred tax liabilities: |  |  |
Other | $ | (962 | ) |  | $ | (312 | )
Net non-current deferred tax liabilities | $ | (962 | ) |  | $ | (312 | )
In 2018, the Company recorded a valuation allowance of $803,000 for state research and development tax credits that were not considered to be realizable. Should these credits be utilized in a future period, the reserve associated with these credits would be reversed in the period when it is determined that the credits can be utilized to offset future state income tax liabilities. In addition, the Company had $8,423,000 of state research and development tax credit carryforwards, net of federal tax, as of December 31, 2018, which will begin to expire in 2019. While the deferred tax assets, net of valuation allowance, are not assured of realization, management has evaluated the realizability of these deferred tax assets and has determined that it is more likely than not that these assets will be realized. In reaching this conclusion, we have evaluated certain relevant criteria including the Company’s historical profitability, current projections of future profitability, and the lives of tax credits, net operating losses, and other carryforwards. Should the Company fail to generate sufficient pre-tax profits in future periods, we may be required to establish valuation allowances against these deferred tax assets, resulting in a charge to current operations in the period of determination. Cash paid for income taxes totaled $41,430,000 in 2018, $11,802,000 in 2017, and $20,748,000 in 2016.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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