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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Domestic income before taxes was $39,425,000 in 2020, $31,396,000 in 2019, and $39,042,000 in 2018. Foreign income before taxes was $147,486,000 in 2020, $131,598,000 in 2019, and $195,532,000 in 2018. Income tax expense (benefit) consisted of the following (in thousands):
| Year Ended December 31,
| 2020 |  | 2019 |  | 2018
Current: |
Federal | $ | 160 |  |  | $ | 15,854 |  |  | $ | 10,624 |
State | 921 |  |  | 2,108 |  |  | (879) |
Foreign | 13,197 |  |  | 30,670 |  |  | 6,307 |
| 14,278 |  |  | 48,632 |  |  | 16,052 |
Deferred: |  |  |  |  |
Federal | (18,266) |  |  | 352,808 |  |  | (1,271) |
State | (556) |  |  | 183 |  |  | 554 |
Foreign | 15,269 |  |  | (442,494) |  |  | (28) |
| (3,553) |  |  | (89,503) |  |  | (745) |
| $ | 10,725 |  |  | $ | (40,871) |  |  | $ | 15,307 |
A reconciliation of the U.S. federal statutory corporate tax rate to the Company’s income tax expense (benefit), or effective tax rate, was as follows:
| Year Ended December 31,
| 2020 |  | 2019 |  | 2018
Income tax expense at U.S. federal statutory corporate tax rate | 21 | % |  | 21 | % |  | 21 | %
State income taxes, net of federal benefit | 1 |  |  | 2 |  |  | 1 |
Foreign tax rate differential | (6) |  |  | (9) |  |  | (9) |
Tax credit | (1) |  |  | (1) |  |  | — |
Discrete tax benefit related to employee stock options | (7) |  |  | (4) |  |  | (4) |
Discrete tax expense (benefit) related to tax return filings | (5) |  |  | — |  |  | — |
Discrete tax expense related to German withholding | 1 |  |  | — |  |  | — |
Discrete tax expense related to migration of acquired IP | — |  |  | 18 |  |  | — |
Discrete tax (benefit) related to change in tax structure | — |  |  | (268) |  |  | — |
Discrete tax expense related to GILTI impact of change in tax structure | — |  |  | 214 |  |  | — |
Discrete tax expense (benefit) related to Tax Act | — |  |  | — |  |  | (3) |
Other discrete tax events | — |  |  | (1) |  |  | — |
Other | 2 |  |  | 3 |  |  | 1 |
Income tax expense (benefit) | 6 | % |  | (25) | % |  | 7 | %
Change in Accounting Policy In 2019, the Company elected to change its method of accounting for the United States Global Intangible Low-Taxed Income (GILTI) tax from recording the tax impact in the period it is incurred to recognizing deferred taxes for temporary tax basis differences expected to reverse as GILTI tax in future years. The change is considered preferable, as it appropriately matches the Company's current and deferred income tax implications related to the change in international tax structure noted above. The change in this accounting policy impacted the Company's 2019 reported results as follows (in thousands):
Statement of Operations |  |  |  |  |
| Year Ended December 31, 2019
| As reported under the new accounting policy |  | As computed under the previous accounting policy |  | Effect of change
Income before income tax expense | $ | 162,994 |  |  | $ | 162,994 |  |  | $ | — |
Income tax expense (benefit) | (40,871) |  |  | (393,317) |  |  | 352,446 |
Net income | $ | 203,865 |  |  | $ | 556,311 |  |  | $ | (352,446) |
Net income per weighted-average common and common-equivalent share: |  |  |  |
Basic | $ | 1.19 |  |  | $ | 3.25 |  |  | $ | (2.06) |
Diluted | $ | 1.16 |  |  | $ | 3.17 |  |  | $ | (2.01) |
Balance Sheet |  |  |  |  |
| December 31, 2019
| As reported under the new accounting policy |  | As computed under the previous accounting policy |  | Effect of change
Deferred tax assets | $ | 449,519 |  |  | $ | 469,621 |  |  | $ | (20,102) |
Deferred tax liabilities | $ | 332,344 |  |  | $ | — |  |  | $ | 332,344 |
Statement of Shareholders' Equity |  |  |  |  |
| Year Ended December 31, 2019
| As reported under the new accounting policy |  | As computed under the previous accounting policy |  | Effect of change
Retained earnings | $ | 753,268 |  |  | $ | 1,105,714 |  |  | $ | (352,446) |
There were no material differences to the Company's reported results in prior years. Discrete Tax Items The effective tax rate included a decrease in tax expense of $12,788,000 in 2020, $6,472,000 in 2019, and $8,488,000 in 2018 related to stock options, primarily 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 2020, the Company recorded discrete tax items related to the final true-up of the prior year's tax accrual upon filing the related tax return. This included a tax benefit of $13,984,000 primarily to recognize a foreign tax benefit on certain gains taxed outside of the United States based on clarifications to rules relating to the use of foreign tax credits. This benefit was partially offset by tax expense for a transfer price adjustment in China of $3,267,000 and smaller tax expense adjustments related to foreign tax filings of $843,000. In 2020, interpretations of a German law relating to withholding taxes on intellectual property rights emerged. The Company conducted a careful review of the interpretation and believes it has adequate reserves for this German tax exposure. Management will continue to monitor this law and court rulings in Germany. In 2019, the Company made changes to its international tax structure as a result of legislation by the European Union regarding low tax structures that resulted in an intercompany sale of intellectual property. The Company recorded an associated deferred tax asset and income tax benefit of $437,500,000 in Ireland based on the fair value of the intellectual property, that will be realized over 15 years as future tax deductions. From a United States perspective, the sale is disregarded, and any future deductions claimed in Ireland were added back to taxable income as part of GILTI minimum tax. The Company recorded an associated deferred tax liability and income tax expense of $350,000,000, representing the GILTI minimum tax related to the fair value of the intellectual property. The result of these transactions was a net discrete tax benefit of $87,500,000. Management expects its current effective tax rate excluding discrete items to increase slightly in future years as a result of this change. In 2019, in connection with the acquisition of Sualab, Co. Ltd., the Company migrated acquired intellectual property to certain subsidiaries to align with its corporate tax structure. As a result of this transaction, the Company recorded a discrete tax expense of $28,528,000, which included a reserve of $3,700,000 for certain related tax uncertainties. In December 2017, the Tax Cuts and Jobs Act of 2017 (Tax Act) was signed into law. In 2018, the Company recorded an increase in tax expense of $3,240,000 from the write-down of its deferred tax assets primarily relating to guidance under the Tax Act regarding stock-based compensation. In 2018, the Company recorded a decrease in tax expense of $11,028,000 to revise its estimate of a one-time transition tax on unrepatriated foreign earnings resulting from the Tax Act, which resulted in a revised estimate for the one-time transition tax of $90,351,000. Other discrete tax items, none of which were individually material, resulted in a net decrease in tax expense of $307,000 in 2020, $1,932,000 in 2019, and $1,847,000 in 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, 2018 | $ | 7,294 |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in prior periods | 199 |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period | 5,259 |
Gross amounts of decreases in unrecognized tax benefits as a result of the expiration of the applicable statutes of limitations | (1,161) |
Balance of reserve for income taxes as of December 31, 2019 | 11,591 |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in prior periods | 162 |
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period | 3,383 |
Gross amounts of decreases in unrecognized tax benefits as a result of the expiration of the applicable statutes of limitations | (1,184) |
Balance of reserve for income taxes as of December 31, 2020 | $ | 13,952 |
The Company’s reserve for income taxes, including gross interest and penalties, was $15,285,000 as of December 31, 2020, which included $14,257,000 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 $12,591,000 as of December 31, 2019, which included $11,563,000 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 $1,332,000 and $1,000,000 as of December 31, 2020 and December 31, 2019, 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 $1,900,000 to $2,000,000 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. 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%. These differences resulted in a favorable impact to the effective tax rate of 6 percentage points for 2020 and 9 percentage points for both 2019 and 2018. Management has determined that earnings from its legal entity in China will be indefinitely reinvested to provide local funding for growth, and that earnings from all other jurisdictions will not be indefinitely reinvested. Within the United States, the tax years 2017 through 2019 remain open to examination by the Internal Revenue Service ("IRS") and various state taxing authorities. The tax years 2016 through 2019 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates. The Company has recently been notified that it is under audit by the IRS for the tax year 2017. Management believes the Company is adequately reserved for this audit. Any reserves associated with this audit period will not be released until the issue is settled or the audit is concluded. Interest and penalties included in income tax expense were $340,000, $116,000, and $91,000 in 2020, 2019, and 2018, respectively. Cash paid for income taxes totaled $33,695,000 in 2020, $13,443,000 in 2019, and $41,430,000 in 2018. Deferred Tax Assets and Liabilities Deferred tax assets and liabilities, presented on a gross basis by jurisdiction, consisted of the following (in thousands):
| December 31,
| 2020 |  | 2019
Non-current gross deferred tax assets: |  |  |
Intangible asset in connection with change in tax structure | $ | 424,156 |  |  | $ | 437,500 |
Stock-based compensation expense | 13,294 |  |  | 15,042 |
Federal and state tax credit carryforwards | 10,171 |  |  | 8,491 |
Inventory and revenue related | 5,976 |  |  | 2,934 |
Bonuses, commissions, and other compensation | 4,932 |  |  | 1,609 |
Depreciation | 4,211 |  |  | 3,522 |
Foreign net operating losses | 602 |  |  | 4,286 |
Other | 4,342 |  |  | 3,550 |
Gross non-current deferred tax assets | 467,684 |  |  | 476,934 |
Valuation allowance | (8,568) |  |  | (7,312) |
| $ | 459,116 |  |  | $ | 469,622 |
Non-current gross deferred tax liabilities: |  |  |
GILTI tax basis differences in connection with change in tax structure | $ | (339,325) |  |  | $ | (350,000) |
Other GILTI tax basis differences | (39) |  |  | (2,446) |
| $ | (339,364) |  |  | $ | (352,446) |
As of December 31, 2020, the Company had a valuation allowance for state research and development tax credits of $8,568,000 that was 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. As of December 31, 2020, the Company had state research and development tax credit carryforwards of $11,361,000, net of federal tax, which will begin to expire for the 2020 tax return. 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.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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