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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Consolidated income before income taxes consisted of:
(Dollars in thousands) | 2017 |  | 2016 |  | 2015
Domestic | $ | 39,751 |  |  | $ | 10,888 |  |  | $ | 14,832 |
International | 93,174 |  |  | 71,392 |  |  | 51,341 |
Total | $ | 132,925 |  |  | $ | 82,280 |  |  | $ | 66,173 |
The income tax expense in the consolidated statements of operations consisted of:
(Dollars in thousands) | Current |  | Deferred |  | Total
2017 |  |  |  |  |
Domestic | $ | 7,535 |  |  | $ | 21,936 |  |  | $ | 29,471 |
International | 27,418 |  |  | (4,423 | ) |  | 22,995 |
Total | $ | 34,953 |  |  | $ | 17,513 |  |  | $ | 52,466 |
2016 |  |  |  |  |
Domestic | $ | 2,078 |  |  | $ | 3,376 |  |  | $ | 5,454 |
International | 24,537 |  |  | 4,006 |  |  | 28,543 |
Total | $ | 26,615 |  |  | $ | 7,382 |  |  | $ | 33,997 |
2015 |  |  |  |  |
Domestic | $ | 993 |  |  | $ | 4,272 |  |  | $ | 5,265 |
International | 15,192 |  |  | (604 | ) |  | 14,588 |
Total | $ | 16,185 |  |  | $ | 3,668 |  |  | $ | 19,853 |
Deferred tax assets and liabilities as of December 31, 2017 and 2016, were comprised of the following:
(Dollars in thousands) | 2017 |  | 2016
Deferred tax assets |  |  |
Accrued employee benefits and compensation | 8,410 |  |  | 9,899 |
Postretirement benefit obligations | — |  |  | 3,335 |
Tax loss and credit carryforwards | 7,905 |  |  | 7,146 |
Reserves and accruals | 4,699 |  |  | 6,361 |
Other | 2,977 |  |  | 2,792 |
Total deferred tax assets | 23,991 |  |  | 29,533 |
Less deferred tax asset valuation allowance | (8,754 | ) |  | (6,388 | )
Total deferred tax assets, net of valuation allowance | 15,237 |  |  | 23,145 |
Deferred tax liabilities |  |  |
Depreciation and amortization | 14,300 |  |  | 14,965 |
Postretirement benefit obligations | 2,311 |  |  | — |
Unremitted earnings | 3,100 |  |  | 7,239 |
Other | 224 |  |  | 190 |
Total deferred tax liabilities | 19,935 |  |  | 22,394 |
Net deferred tax asset | $ | (4,698 | ) |  | $ | 751 |
At December 31, 2017, the Company had state net operating loss carryforwards ranging from $0.4 million to $6.6 million in various state taxing jurisdictions, which expire between 2021 and 2037. We also had approximately $8.6 million of credit carryforwards in Arizona, which will expire between 2018 and 2032. We believe that it is more likely than not that the benefit from the state net operating loss carryforwards and state credits will not be realized. In recognition of this risk, we have provided a valuation allowance of $7.6 million relating to these carryforwards. We currently have approximately $2.3 million of research and development credits that begin to expire in 2026, and $0.5 million of minimum tax credits that can be carried forward indefinitely. We adopted ASU 2016-09 on January 1, 2017. Upon adoption, we recognized excess tax benefits of approximately $12.7 million in deferred tax assets associated with research and development and foreign tax credit carryforwards that were previously not recognized in a cumulative-effect adjustment to retained earnings. In addition, the new guidance requires that all of the tax effects related to share-based payments at settlement or expiration be recorded through the statement of operations which resulted in a $3.9 million income tax benefit in 2017. We had a valuation allowance of $8.8 million at December 31, 2017 and $6.4 million at December 31, 2016, against certain of our deferred tax assets, primarily carryforwards expected to expire unused and deferred tax assets that are capital in nature. No valuation allowance has been provided on our other deferred tax assets, as we believe it is more likely than not that all such assets will be realized in the applicable jurisdictions. We reached this conclusion after considering the availability of taxable income in prior carryback years, tax planning strategies, and the likelihood of future taxable income exclusive of reversing temporary differences and carryforwards in the respective jurisdictions or entities. Differences between forecasted and actual future operating results or changes in carryforward periods could adversely impact the amount of deferred tax asset considered realizable. In appropriate circumstances we have the opportunity to undertake a tax planning strategy to ensure that our tax credit carryforwards do not expire unutilized. This strategy is based upon our ability to make a federal tax election to capitalize certain expenses that will result in generating taxable income to allow us to utilize our tax credit carryforwards before they expire. We would undertake such a strategy to realize these tax credit carryforwards prior to expiration as it is reasonable, prudent, and feasible. Income tax expense differs from the amount computed by applying the United States federal statutory income tax rate to income before income taxes. The reasons for this difference were as follows:
(Dollars in thousands) | 2017 |  | 2016 |  | 2015
Tax expense at Federal statutory income tax rate | $ | 46,529 |  |  | $ | 28,798 |  |  | $ | 23,161 |
International tax rate differential | (9,603 | ) |  | (2,260 | ) |  | (4,792 | )
Foreign source income, net of tax credits (excluding U.S. Tax Reform) | 1,087 |  |  | 1,215 |  |  | 2,449 |
State tax, net of federal | 279 |  |  | (200 | ) |  | (416 | )
Unrecognized tax benefits | 2,874 |  |  | (5,555 | ) |  | 148 |
U.S. Tax Reform | 13,683 |  |  | — |  |  | — |
Equity compensation excess tax deductions | (3,867 | ) |  | — |  |  | — |
General business credits | (1,080 | ) |  | (1,125 | ) |  | (908 | )
Acquisition related expenses | — |  |  | — |  |  | 453 |
Distribution related foreign taxes | 2,173 |  |  | 12,433 |  |  | — |
Valuation allowance change (excluding U.S. Tax Reform) | 1,393 |  |  | 171 |  |  | (1,489 | )
Other | (1,002 | ) |  | 520 |  |  | 1,247 |
Income tax expense (benefit) | $ | 52,466 |  |  | $ | 33,997 |  |  | $ | 19,853 |
Withholding taxes related to distributions from China of $6.3 million, previously reported in the table above as Foreign source income, net of tax credits, have been reclassified in 2016 to distribution related foreign taxes to conform to the current year presentation. Our effective tax rate for 2017 was 39.5%, including the impact of U.S. Tax Reform, compared to 41.3% in 2016. The 2017 rate decrease was primarily due to lower foreign tax impact on remitted and unremitted foreign earnings and profits, equity compensation excess tax deductions recognized in 2017 and increased international tax rate benefits due to earnings mix. This was substantially offset by the impact of U.S. Tax Reform provisional estimates, a decrease in reversal of reserves associated with uncertain tax positions and a change in valuation allowance associated with deferred tax assets that are capital in nature. Excluding the impact of U.S. Tax Reform, our effective tax rate for 2017 was 29.2%. Historically our intention was to permanently reinvest the majority of our foreign earnings indefinitely or to distribute them only when it is tax efficient to do so. As a result of certain internal restructuring transactions effectuated to more closely align our subsidiaries from an operational, legal and geographic perspective and improve management of financial resources, with respect to offshore distributions, we modified our assertion of certain accumulated foreign subsidiary earnings considered permanently reinvested during 2016. This change resulted in accrual of a deferred tax liability of $6.1 million associated with distribution related foreign taxes on undistributed earnings of our Chinese subsidiaries that are no longer considered permanently reinvested. In the event that we distributed these funds to other offshore subsidiaries, these taxes would become due. In addition, we incurred $6.3 million of withholding taxes related to distributions from China. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law in the United States, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We have calculated our best estimate of the impact of U.S. Tax Reform in our year-end income tax provision in accordance with our current understanding of U.S. Tax Reform and guidance available as of the date of this filing. As a result, we have recorded $13.7 million as an additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $1.7 million. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $12.0 million based on cumulative foreign earnings of $314.8 million. We had sufficient tax credit carryforwards to cover the impact of the transition tax, and as a result do not have any long term liability on our balance sheet at December 31, 2017 associated with the transition tax. On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of U.S. Tax Reform. In accordance with SAB 118, we have determined that the $1.7 million of the deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $12.0 million of tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings, both referred to above, were provisional amounts and reasonable estimates at December 31, 2017. Management will subject these estimates to further analysis related to certain matters, such as federal and state interpretations of U.S. Tax Reform, U.S. Treasury regulations, administrative interpretations or court decisions, a more detailed analysis of post-1986 undistributed foreign subsidiary E&P that may require further adjustments and changes to certain estimates as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to tax expense in the quarter of 2018 when the analysis is complete. As a result of U.S. Tax Reform, all post-1986 unremitted foreign E&P as of December 31, 2017 have been subjected to U.S. tax through the transition tax. Our foreign unremitted earnings could be subject to additional taxes if they are redeployed outside of their country of origin. With the exception of certain of our Chinese subsidiaries, we have historically and continue to assert that foreign earnings are indefinitely reinvested. While we have not currently changed our assertion with respect to foreign earnings, compared to prior years, we are currently evaluating the impact of U.S. Tax Reform on our global structure and any associated impacts it may have on our assertion on a go forward basis and as such have not included a provisional estimate of the impact. Unrecognized tax benefits, excluding potential interest and penalties, for the years ended December 31, 2017 and December 31, 2016, were as follows:
(Dollars in thousands) | 2017 |  | 2016
Beginning balance | $ | 5,883 |  |  | $ | 10,571 |
Gross increases - current period tax positions | 7,056 |  |  | 520 |
Gross increases - tax positions in prior periods | 3,243 |  |  | — |
Gross decreases - tax positions in prior periods | (375 | ) |  | (498 | )
Foreign currency exchange | 467 |  |  | (137 | )
Lapse of statute of limitations | (1,709 | ) |  | (4,573 | )
Ending balance | $ | 14,565 |  |  | $ | 5,883 |
Included in the balance of unrecognized tax benefits as of December 31, 2017 were $10.6 million of tax benefits that, if recognized, would impact the effective tax rate. Also included in the balance of unrecognized tax benefit as of December 31, 2017 were $4.0 million of tax benefits that, if recognized, would result in adjustments to other tax accounts; primarily deferred taxes. We recognize interest accrued related to unrecognized tax benefit as income tax expense. Related to the unrecognized tax benefits noted above, at December 31, 2017 and 2016, we had accrued potential interest and penalties of approximately $0.6 million and $0.4 million, respectively. We have recorded a net tax expense of $0.2 million during 2017, net income tax benefit of $0.9 million during 2016 and $0.1 million tax expense during 2015. It is possible that up to $8.1 million of our currently unrecognized tax benefits could be recognized within 12 months as a result of projected resolutions of worldwide tax disputes or the expiration of the statute of limitations. We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years from 2013 through 2017 are subject to examination by the tax authorities. With few exceptions, we are no longer subject to U.S. federal, state, local and foreign examinations by tax authorities for the years before 2013.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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