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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes |
Income Taxes | Note 18. Income Taxes Income before income taxes is as follows:
|  | Year ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
|  | (in thousands) |
United States |  | $ | 18,148 |  | $ | 52,172 |  | $ | 40,752 |
Foreign |  |  | 2,774 |  |  | 2,533 |  |  | 3,079 |
Income before income taxes |  | $ | 20,922 |  | $ | 54,705 |  | $ | 43,831 |
Provision for income taxes is as follows:
|  | Year ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
|  | (in thousands) |
Current: |  |  |  |  |  |  |  |  |  |
United States |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  | $ | 41 |  | $ | 430 |
State |  |  | 5 |  |  | 112 |  |  | 32 |
Foreign |  |  | 579 |  |  | 323 |  |  | 230 |
Total current |  |  | 584 |  |  | 476 |  |  | 692 |
Deferred: |  |  |  |  |  |  |  |  |  |
Federal |  |  | 3,962 |  |  | 8,108 |  |  | (82,048) |
State |  |  | (855) |  |  | 425 |  |  | (1,698) |
Foreign |  |  | 197 |  |  | (189) |  |  | (74) |
Total deferred |  |  | 3,304 |  |  | 8,344 |  |  | (83,820) |
Income tax provision (benefit) |  | $ | 3,888 |  | $ | 8,820 |  | $ | (83,128) |
Reconciliation of income taxes at the United States Federal statutory rate to the effective income tax rate is as follows:
|  | Year ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
|  | (in thousands) |
Income taxes at the United States statutory rate |  | $ | 4,393 |  | $ | 11,488 |  | $ | 15,341 |
State income taxes |  |  | 78 |  |  | 299 |  |  | 203 |
Unrecognized tax benefits |  |  | (251) |  |  | (345) |  |  | (285) |
Effect of change in valuation allowance |  |  | 1,492 |  |  | (441) |  |  | (115,831) |
Foreign income tax rate differentials |  |  | 129 |  |  | 73 |  |  | (312) |
Unremitted earnings of foreign subsidiaries |  |  | — |  |  | — |  |  | (8,933) |
Stock options |  |  | (1,257) |  |  | (715) |  |  | (10,342) |
Credit expirations |  |  | 894 |  |  | — |  |  | — |
Repatriation of foreign earnings |  |  | — |  |  | — |  |  | 4,556 |
Recognition of equity NOL's |  |  | — |  |  | — |  |  | (1,165) |
Rate change |  |  | 194 |  |  | 160 |  |  | 42,531 |
Credit generation |  |  | (3,124) |  |  | (3,530) |  |  | (8,778) |
Discrete items, net |  |  | 18 |  |  | 972 |  |  | 31 |
Other, net |  |  | 1,322 |  |  | 859 |  |  | (144) |
Income tax provision (benefit) |  | $ | 3,888 |  | $ | 8,820 |  | $ | (83,128) |
Significant components of long‑term deferred income taxes are as follows:
|  | Year ended December 31, |
|  | 2019 |  | 2018 |
|  | (in thousands) |
Deferred tax assets: |  |  |
Federal net operating loss carryforwards |  | $ | 39,380 |  | $ | 42,397 |
State net operating loss carryforwards |  |  | 1,211 |  |  | 1,387 |
Foreign net operating loss carryforwards |  |  | 554 |  |  | 641 |
Federal tax credit carryforwards |  |  | 18,061 |  |  | 16,200 |
State tax credit carryforwards |  |  | 6,837 |  |  | 6,489 |
Property, plant and equipment |  |  | 10,098 |  |  | 5,924 |
Operating lease liability |  |  | 503 |  |  | — |
Accrued compensation |  |  | 266 |  |  | 97 |
Inventories |  |  | 2,674 |  |  | 3,713 |
Stock compensation |  |  | 2,477 |  |  | 2,760 |
Warranty |  |  | 689 |  |  | 1,090 |
Deferred revenue |  |  | 1,086 |  |  | 1,004 |
Gross deferred tax assets |  |  | 83,836 |  |  | 81,702 |
Valuation allowance |  |  | (8,327) |  |  | (6,835) |
Net deferred tax assets |  |  | 75,509 |  |  | 74,867 |
Deferred tax liabilities: |  |  |  |  |  |  |
Intangible assets |  |  | (47) |  |  | (29) |
Right-of-use asset |  |  | (5,141) |  |  | — |
Internal Revenue Code 481(a) adjustment |  |  | (412) |  |  | — |
Other |  |  | (1,849) |  |  | (2,899) |
Gross deferred tax liabilities |  |  | (7,449) |  |  | (2,928) |
Deferred taxes, net |  | $ | 68,060 |  | $ | 71,939 |
Changes in tax rates and tax laws are accounted for in the period of enactment. Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled. On December 22, 2017, the Tax Cuts and Jobs Act (“2017 Tax Act”) was signed into law and has resulted in significant changes to the U.S. corporate income tax system. The 2017 Tax Act eliminates the deferral of U.S. income tax on the historical un-repatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. The Transition Toll Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%. During 2018, the provisional amount for the Toll tax was updated from $4.6 million in 2017 to $3.6 million in 2018 due to refinement of earnings and profits during 2018. We consider our accounting regarding the Transition Toll Tax to be complete. We accrued income tax liabilities of $0.3 million after utilization of foreign tax and research and development credits. The 2017 Tax Act included a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The 2017 Tax Act also transitioned international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low-taxed income (“GILTI”). The tax related to GILTI was $0.6 million and $0.4 million for the years ended December 31, 2019 and 2018, respectively. We are treating GILTI as a period cost. At December 31, 2019, we had $68.1 million of deferred tax assets worldwide relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income taxes in future years. At December 31, 2019, we maintain an $8.3 million valuation allowance in the U.S. against certain tax credits and state net operating losses due to the uncertainty of their realization based on long-term Company forecasts and the expiration dates on these attributes. This represents an increase of $1.5 million from the prior year. At December 31, 2019, we have federal and state net operating loss carryforwards of $209.5 million and foreign net operating loss carryforwards of $2.1 million expiring principally between 2020 and 2034. We have research and development and other tax credit carryforwards of $24.9 million at December 31, 2019 that can be used to reduce future federal and state income tax liabilities. These tax credit carryforwards expire principally between 2020 and 2039. We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2019, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2019, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $9.7 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We and most foreign subsidiaries are subject to income tax examinations by tax authorities for all years dating back to 2008. Our policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. We believe that we have appropriate support for the income tax positions taken and to be taken on our tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. At December 31, 2019, we had unrecognized tax benefits related to uncertain tax positions of approximately $9.8 million, of which approximately $9.4 million reduced the Company’s deferred tax assets and the offsetting valuation allowance and $0.4 million was recorded in other long-term liabilities. During the first quarter of 2019, the statute of limitations associated with a tax position previously taken by the Company expired. The related tax reserve of $0.2 million and accrued interest of $0.1 million that had been recorded were reversed during the twelve months ended December 31, 2019. A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:
|  |  | Year ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
|  | (in thousands) |
Balance at beginning of year |  | $ | 9,127 |  | $ | 9,105 |  | $ | 6,844 |
Increase / (decrease) in unrecognized tax benefits as a result of tax positions taken during a prior period |  |  | 215 |  |  | (132) |  |  | 81 |
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitation |  |  | (334) |  |  | (543) |  |  | (511) |
Increases in unrecognized tax benefits as a result of tax positions taken during the current period |  |  | 791 |  |  | 697 |  |  | 2,691 |
Balance at end of year |  | $ | 9,799 |  | $ | 9,127 |  | $ | 9,105 |
Recorded as other long-term liability |  | $ | 409 |  | $ | 676 |  | $ | 1,109 |
Recorded as a decrease in deferred tax assets and offsetting valuation allowance |  |  | 9,390 |  |  | 8,451 |  |  | 7,996 |
Balance at end of year |  | $ | 9,799 |  | $ | 9,127 |  | $ | 9,105 |
As of December 31, 2019 we had $9.8 million of unrecognized tax benefits which, if recognized would reduce the effective tax rate.

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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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