XML 35 R23.htm IDEA: XBRL DOCUMENT
v3.7.0.1

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2016
Income Taxes | 15. INCOME TAXES The components of income tax expense are as follows:
|  | Year Ended December 31 |
|  | 2014 |  |  | 2015 |  |  | 2016 |
|  | US$ |  |  | US$ |  |  | US$ |
Current |  |  | 15,630 |  |  |  | 17,338 |  |  |  | 31,063 |
Deferred |  |  | 471 |  |  |  | 911 |  |  |  | (3,373 | )
Income tax expense |  |  | 16,101 |  |  |  | 18,249 |  |  |  | 27,690 |
The income (loss) before income taxes for domestic and foreign entities is as follows:
|  | Year Ended December 31 |
|  | 2014 |  |  | 2015 |  |  | 2016 |
|  | US$ |  |  | US$ |  |  | US$ |
Domestic |  |  | (12,761 | ) |  |  | (12,037 | ) |  |  | (20,663 | )
Foreign |  |  | 73,329 |  |  |  | 90,537 |  |  |  | 159,293 |
|  |  | 60,568 |  |  |  | 78,500 |  |  |  | 138,630 |
Since the Company is based in the Cayman Islands, a British overseas territory with no corporate income tax, domestic tax on pretax income is calculated at the Cayman Islands statutory rate of zero for each year. The Company and its subsidiaries file separate income tax returns. A reconciliation of income tax expense on pretax income at statutory rate and income tax expense is shown below:
|  | Year Ended December 31 |
|  | 2014 |  |  | 2015 |  |  | 2016 |
|  | US$ |  |  | US$ |  |  | US$ |
Tax expense at statutory rate of Cayman |  |  | — |  |  |  | — |  |  |  | — |
Differences between Cayman and foreign statutory tax rates |  |  | 15,727 |  |  |  | 18,765 |  |  |  | 34,415 |
Tax-exempt income |  |  | (2,573 | ) |  |  | (906 | ) |  |  | (4,648 | )
Permanent differences |  |  | (396 | ) |  |  | (1,065 | ) |  |  | (7,792 | )
Temporary differences |  |  | (344 | ) |  |  | (330 | ) |  |  | (1,533 | )
Alternative minimum tax |  |  | 1,170 |  |  |  | 4 |  |  |  | 594 |
Income tax (10%) on undistributed earnings |  |  | 2,491 |  |  |  | 2,460 |  |  |  | 5,677 |
Net changes in income tax credit |  |  | (899 | ) |  |  | (897 | ) |  |  | (495 | )
Net changes in valuation allowance of deferred income tax assets |  |  | 733 |  |  |  | 1,621 |  |  |  | 1,724 |
Net operating loss carryforwards |  |  | (1,298 | ) |  |  | (2,052 | ) |  |  | (1,689 | )
Liabilities related to unrealized tax benefits |  |  | 91 |  |  |  | 672 |  |  |  | 2,385 |
Adjustment of prior years’ taxes and others |  |  | 1,399 |  |  |  | (23 | ) |  |  | (948 | )
Income tax expense |  |  | 16,101 |  |  |  | 18,249 |  |  |  | 27,690 |
Deferred income tax assets (liabilities) are as follows:
|  | December 31 |
|  | 2015 |  |  | 2016 |
|  | US$ |  |  | US$ |
Notes and accounts receivable |  |  | 82 |  |  |  | 44 |
Stock-based compensation |  |  | 544 |  |  |  | 1,146 |
Allowance for sales return |  |  | 173 |  |  |  | 205 |
Inventory reserve |  |  | 1,478 |  |  |  | 1,646 |
Foreign currency translation |  |  | (1,949 | ) |  |  | 2 |
Property and equipment |  |  | 360 |  |  |  | 383 |
Investment tax credits |  |  | 8,295 |  |  |  | 8,647 |
Net operating loss carryforwards |  |  | 10,651 |  |  |  | 12,335 |
Others |  |  | 20 |  |  |  | 411 |
Valuation allowance |  |  | (19,044 | ) |  |  | (20,836 | )
|  |  | 610 |  |  |  | 3,983 |
The valuation allowance shown in the table above relates to net operating loss carryforwards, tax credits and temporary differences for which the Company believes that realization is uncertain. The change in the valuation allowance was an increase of US$515 thousand, an increase of US$2,253 thousand, and an increase of US$1,792 thousand for the years ended December 31, 2014, 2015, and 2016, respectively. The increase in valuation allowance in 2014, 2015 and 2016 are primarily due to the uncertainty in generating sufficient taxable income in the future and utilization of operating loss carryforwards and research and development credits before they expire. In addition, profits generated from certain products of SMI Taiwan are exempted from income tax for five years beginning January 1, 2012. The tax savings associated with these tax holidays were approximately US$2,573 thousand, US$906 thousand and US$4,648 thousand for the years ended December 31, 2014, 2015 and 2016, respectively. Such tax exemption would impact the Company’s diluted earnings per share by US$0.02, less than US$0.01 and US$0.03 for the years ended December 31, 2014, 2015 and 2016, respectively. The amount of tax exempt income was determined based on the profits generated from certain tax exempt products when SMI Taiwan met certain criteria set by the Taiwan tax authorities every year. As of December 31, 2016, FCI had unused research and development tax credits of approximately US$4,418 thousand which will expire in the period from 2017 to 2021. As of December 31, 2016, the Company’s United States federal net operating loss carryforwards for federal income tax purposes were approximately US$12,334 thousand. If not utilized, the federal net operating loss carryforwards will expire in 2036. As of December 31, 2016, the Company’s United States federal and state research and development tax credit carryforwards for federal and state income tax purposes were approximately US$2,486 thousand and US$1,742 thousand, respectively. If not utilized, the federal tax credit carryforwards will expire starting in 2036 while the state tax credit carryforward has no expiration date. Current United States federal and California state laws include substantial restrictions on the utilization of net operating losses and credits in the event of an “ownership change” of a corporation. Accordingly, the Company’s ability to utilize net operating loss and tax credit carryforwards may be limited as a result of such “ownership change”. Such a limitation could result in the expiration of carryforwards before they are utilized. As of December 31, 2016, the Company had accumulated undistributed earnings from a foreign subsidiary of US$297 million. No deferred tax liability was recorded in respect of those amounts as these earnings are considered indefinitely reinvested. It is not practicable to estimate the amount of unrecognized deferred tax liabilities for these undistributed foreign earnings. Unrecognized Tax Benefit A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
|  | Year Ended December 31 |
|  | 2014 |  |  | 2015 |  |  | 2016 |
|  | US$ |  |  | US$ |  |  | US$ |
Balance, beginning of year |  |  | 5,815 |  |  |  | 4,655 |  |  |  | 5,639 |
Increases in tax positions taken in current year |  |  | 446 |  |  |  | 2,337 |  |  |  | 4,675 |
Decrease in tax position taken in prior year primarily related to the resolution of tax audit |  |  | (1,606 | ) |  |  | (1,353 | ) |  |  | (28 | )
Balance, end of year |  |  | 4,655 |  |  |  | 5,639 |  |  |  | 10,286 |
At December 31, 2016, the Company had US$10,286 thousand of unrecognized tax benefits that if recognized would affect the effective tax rate. For the years ended December 31, 2014, 2015 and 2016, the total amount of interest expense and penalties related to uncertain tax positions recorded in the provision for income tax expense was approximately US$343 thousand, US$363 thousand and US$575 thousand, respectively. The total amount of accrued interest and penalties recognized as of December 31, 2015 and 2016 was US$1,977 thousand and US$2,587 thousand, respectively. The Company does not expect uncertain tax positions to change in the next twelve months, except in the case of settlements with tax authorities, the likelihood and timing of which are difficult to estimate. The Company files income tax returns in United States and foreign jurisdictions. The following table summarizes the Company’s major jurisdictions and tax year that remain subject to examination by tax authorities as of December 31, 2016:
Tax Jurisdiction |  | Tax Years
China |  | 2013 and onward
Hong Kong |  | 2013 and onward
Taiwan |  | 2011 and onward
Korea |  | 2011 and onward
United States |  | 2007 onward

X
- 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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration