Income Taxes

12 Months Ended

Dec. 31, 2019

The provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017 consists of the following:



	2019			2018			2017
Current tax expense:
Federal	$	96		$	(1,077	)	$	1,744
State	444			777			2,101
Foreign	8,375			8,036			9,421
	8,915			7,736			13,266
Deferred income tax expense (benefit):
Federal	(3,970		)	4,478			(44,456		)
State	(938		)	62			(1,036		)
Foreign	(1,402		)	(2,477		)	5,471
	(6,310		)	2,063			(40,021		)

Provision (benefit) for income taxes	$	2,605		$	9,799		$	(26,755	)

A reconciliation between income taxes computed at the statutory federal rate and the provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017 follows:



	2019		2018		2017
Tax provision at statutory rate based on income before income taxes	21.0	%	21.0	%	35.0	%

Stock-based compensation	(15.4	)	(1.6	)	(2.1	)

Settlement of taxing authority examinations	(7.7	)	(0.7	)	(2.1	)

Federal research credit	(4.0	)	(2.8	)	(2.8	)

Tax treaty protocols	(2.9	)	—		—

US tax on worldwide earnings at different rates	7.9		2.9		—

Foreign income taxes	6.4		3.6		(5.3	)

Non deductible/non-taxable items	2.8		(1.4	)	(1.0	)

State income taxes, net of federal tax benefit	0.3		1.6		2.8

International tax reform	—		(3.6	)	—

US tax reform	—		1.8		(111.0	)

Consolidated group restructuring	—		—		(7.4	)

Other, net	(0.1	)	(1.5	)	0.8

	8.3	%	19.3	%	(93.1	)%

The 2017 Tax Cuts and Jobs Act ("Tax Reform") was enacted on December 22, 2017. The Tax Reform included a number of changes in existing tax law impacting businesses, including a one-time deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory rate from 35% to 21%, effective on January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law were accounted for in 2017, the period of enactment, and deferred tax assets and liabilities were measured at the enacted tax rate. The 2017 rate reconciliation included the Company’s assessment of the accounting under the Tax Reform which was preliminary based on information that was available to management at the time the consolidated financial statements were prepared. Estimated provisional amounts were recorded for the deemed repatriation toll charge implemented by the Tax Reform, related foreign tax credits, deferred tax revaluation amounts and deferred tax liabilities on unremitted earnings. Accordingly, the Company had determined a preliminary $31.9 million of tax benefit related to Tax Reform.

Staff Accounting Bulletin No. 118 provided for a one-year measurement period to finalize these estimated provisional amounts. During 2018, the Company finalized its accounting and recorded $1.3 million of tax expense related to the revaluation of certain deferred tax items. This expense was offset in part by $0.4 million of tax benefit primarily resulting from finalization of the deemed repatriation toll charge, related foreign tax credits and adjustments to foreign withholding amounts. The final tax benefit related to Tax Reform was $31.0 million.

The Company has elected to account for Global Intangible Low Tax Income ("GILTI") using the period cost method. The net impact of GILTI including the allowable GILTI deduction is presented in the rate reconciliation as a component of “US tax on worldwide earnings at different rates” and is offset in part by the Foreign Derived Intangible Income deduction (“FDII”).

The tax effects of the significant temporary differences which comprise the deferred income tax assets and liabilities at December 31, 2019 and 2018 are as follows:



	2019			2018
Assets:
Inventory	$	4,085		$	4,096
Net operating losses	3,679			7,358
Capitalized research and development	6,201			7,214
Deferred compensation	2,102			2,085
Accounts receivable	2,556			2,296
Compensation and benefits	6,049			5,434
Accrued pension	3,710			3,205
Research and development credit	10,321			8,585
Interest limitation	5,702			—
Convertible notes hedge	9,004			—
Lease liabilities	5,688			—
Other	4,336			2,235
Less: valuation allowances	(1,732		)	(1,159		)
	61,701			41,349

Liabilities:
Goodwill and intangible assets	102,015			100,108
Depreciation	301			1,345
State taxes	11,161			12,212
Unremitted foreign earnings	2,619			3,583
Convertible notes debt discount	9,096			—
Lease right-of-use assets	5,338			—
	130,530			117,248

Net liability	$	(68,829	)	$	(75,899	)

Income before income taxes consists of the following U.S. and foreign income:



	2019		2018		2017
U.S. income	$	5,332	$	24,320	$	1,492
Foreign income	25,893		26,333		27,240
Total income	$	31,225	$	50,653	$	28,732

As of December 31, 2019, the amount of federal net operating loss carryforward was $9.3 million and begins to expire in 2027. As of December 31, 2019, the amount of federal research credit carryforward available was $10.3 million. These credits begin to expire in 2027.

We have accrued tax liabilities related to the amount of unremitted earnings at December 31, 2017 and certain subsequent unremitted earnings as these are not considered permanently reinvested. Deferred taxes have not been accrued on unremitted earnings subsequent to December 31, 2017 that are considered permanently reinvested. The amount of such untaxed foreign earnings for the periods occurring after December 2017 totaled $33.9 million. If we were to repatriate these funds, we would be required to accrue and pay taxes on such amounts. The Company has estimated foreign withholding taxes of $1.0 million would be due if these earnings were repatriated.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. Taxing authority examinations can involve complex issues and may require an extended period of time to resolve. Our federal income tax returns have been examined by the Internal Revenue Service (“IRS”) for calendar years ending through 2017.

We recognize tax liabilities in accordance with the provisions for accounting for uncertainty in income taxes. Such guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

The following table summarizes the activity related to our unrecognized tax benefits for the years ending December 31,:



	2019			2018			2017
Balance as of January 1,	$	3,073		$	2,943		$	1,839

Increases (decreases) for positions taken in prior periods	—			(250		)	(246		)

Increases for positions taken in current periods	1,650			1,017			1,957

Decreases in unrecorded tax positions related to settlement with the taxing authorities	(2,404		)	(370		)	(607		)

Decreases in unrecorded tax positions related to lapse of statute of limitations	(149		)	(267		)	—

Balance as of December 31,	$	2,170		$	3,073		$	2,943

If the total unrecognized tax benefits of $2.2 million at December 31, 2019 were recognized, it would reduce our annual effective tax rate. The amount of interest accrued in 2017, 2018 and 2019 related to these unrecognized tax benefits was not material and is included in the provision (benefit) for income taxes in the consolidated statements of comprehensive income.