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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Note 5 — Income Taxes U.S. Tax Reform The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on all offshore earnings that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, in accordance with guidance provided by Staff Accounting Bulletin No. 118 (SAB 118), the Company has not completed its accounting for the tax effects of the Tax Act; however, in certain cases, as described below, the Company has made a provisional estimate of the effects on our existing deferred tax balances and the one-time transition tax. For the year ended December 31, 2017, the provision for income taxes includes a provisional income tax expense of $20,153 related to items for which the Company was able to determine a reasonable estimate. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, the Company’s estimates may be affected as additional regulatory guidance is issued with respect to the Tax Act. Any adjustments to the provisional amounts will be recognized as a component of the provision for income taxes in the period in which such adjustments are determined, but in any event, no later than the fourth quarter of 2018, in accordance with SAB 118. Deferred tax assets and liabilities The Company remeasured its U.S. deferred tax assets and liabilities at 21%. However, the Company is still analyzing certain aspects of the Tax Act and refining the calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In the year ended December 31, 2017, the provision for income taxes includes provisional income tax expense of $5,808 related to the remeasurement of deferred tax balances. Transition Tax on Deferred Foreign Earnings The one-time transition tax is based on the Company’s post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. In the year ended December 31, 2017, the provision for income taxes includes provisional income tax expense of $23,923 related to the one-time transition tax liability of the Company’s foreign subsidiaries. The Company has not completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 E&P previously deferred from U.S. income taxes and the amounts held in cash or other specified assets. A benefit of $9,578 was included in the provision for income taxes to offset the one-time transition tax related to the previous deferred tax liability that existed for the undistributed foreign earnings that were not permanently reinvested. However, we continue to recognize a deferred tax liability related to foreign withholding tax that will be incurred for undistributed foreign earnings that are not permanently reinvested. Note 5 — Income Taxes (Continued) The deferred tax assets and deferred tax liabilities and related valuation allowance were comprised of the following:
|  | December 31, |
|  | 2017 |  |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating losses |  |  | 12,731 |  |  |  | 13,643 |
Research and development credits |  |  | 27,257 |  |  |  | 23,012 |
Depreciation |  |  | 5,571 |  |  |  | 5,457 |
Valuation reserves and accrued liabilities |  |  | 6,020 |  |  |  | 9,667 |
Foreign tax credit |  |  | — |  |  |  | 6,926 |
Stock compensation |  |  | 3,955 |  |  |  | 4,508 |
Inventory |  |  | 2,062 |  |  |  | 1,571 |
Patents |  |  | 163 |  |  |  | 218 |
Defined benefit obligation |  |  | 1,977 |  |  |  | 2,306 |
Other credits |  |  | 589 |  |  |  | 639 |
Unrealized foreign currency exchange loss |  |  | 2,556 |  |  |  | — |
Other |  |  | 36 |  |  |  | 116 |
|  |  | 62,917 |  |  |  | 68,063 |
Valuation allowance |  |  | (27,578 | ) |  |  | (19,304 | )
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | (2,925 | ) |  |  | (8,442 | )
Unrealized foreign currency exchange gains |  |  | — |  |  |  | (285 | )
Undistributed profits of subsidiary |  |  | (6,450 | ) |  |  | (12,002 | )
Property and equipment |  |  | (1,611 | ) |  |  | (470 | )
Other |  |  | (548 | ) |  |  | (319 | )
|  |  | (11,534 | ) |  |  | (21,518 | )
Net deferred tax asset |  | $ | 23,805 |  |  | $ | 27,241 |
Note 5 — Income Taxes (Continued) Reconciliations between the statutory Federal income tax rate of 34% and the effective rate of income tax expense for each of the three years in the period ended December 31, 2017 are as follows:
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Statutory Federal income tax rate |  |  | 34.0 | % |  |  | 34.0 | % |  |  | 34.0 | %
Increase (Decrease) resulting from: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Taxes on foreign income, net of taxes paid credit |  |  | — |  |  |  | 1.3 | % |  |  | 1.0 | %
Change in valuation allowance |  |  | 10.6 | % |  |  | 5.3 | % |  |  | (1.9 | %)
Foreign, state and local tax, net of Federal benefit |  |  | 0.8 | % |  |  | 1.1 | % |  |  | 1.6 | %
Nondeductible expenses |  |  | 2.4 | % |  |  | 2.4 | % |  |  | 1.8 | %
Stock option compensation |  |  | (2.2 | %) |  |  | — |  |  |  | (0.1 | %)
Research and development credits |  |  | (4.6 | %) |  |  | (0.7 | %) |  |  | (0.9 | %)
Effect of different tax rates of foreign jurisdictions |  |  | (20.8 | %) |  |  | (15.0 | %) |  |  | (12.1 | %)
Undistributed profits of subsidiaries |  |  | 5.8 | % |  |  | 7.9 | % |  |  | 2.4 | %
Tax reform items |  |  | 29.1 | % |  |  | — |  |  |  | — |
Other tax exempt income |  |  | — |  |  |  | — |  |  |  | (0.1 | %)
Tax effects of intercompany transfers |  |  | (5.0 | %) |  |  | (5.3 | %) |  |  | — |
Other |  |  | (1.0 | %) |  |  | (0.3 | %) |  |  | 0.3 | %
Effective rate |  |  | 49.1 | % |  |  | 30.7 | % |  |  | 26.0 | %
The Company has Net Operating Loss (“NOL”) carryforwards as follows:
Jurisdiction |  | Amount as of December 31, 2017 |  |  | Years of Expiration |
U.S. Federal and state income tax |  | $ | 61,302 |  |  |  | 2018- 2036 |
Foreign |  | $ | 12,499 |  |  |  | 2018-2037 |
Foreign |  | $ | 24,911 |  |  |  | Indefinite |
A portion of the U.S. Federal NOLs was incurred prior to the June 8, 1999 Preferred Financing, which qualified as a change in ownership under Section 382 of the Internal Revenue Code (“IRC”). Due to this change in ownership, the NOL accumulated prior to the change in control can only be utilized against current earnings up to a maximum annual limitation of approximately $591. As a result of the annual limitation, approximately $6,025 remaining of these carryforwards are expected to expire before ultimately becoming available to reduce future tax liabilities in addition to $13,324 in NOLs generated prior to the change in control which have already expired without being utilized. We have incurred NOLs in various states associated with the benefits of the state dividends received reduction along with the foreign royalty exclusion. The state net operating loss carryforwards expire at various dates from 2018 to 2036. Management has concluded that it is more likely than not that a majority of these NOLs will not be utilized, and thus has not recognized the benefit of these NOLs. At December 31, 2017, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $37,410. This amount includes $12,499 in NOLs that expire at various dates from 2018 through 2037 and the remaining $24,911 have no expiration date. The Company has a valuation allowance recorded against $22,294 of the total non-U.S. subsidiaries’ net operating loss carryforwards as of December 31, 2017. In 2014 through 2017, we incurred NOLs in Vietnam associated with the startup activities of new production facilities. In 2015 through 2016, we incurred a loss in Ukraine associated with foreign currency losses. The remaining NOLs are expected to be utilized in 2018 through 2019 as the locations maintain profitability. We also incur NOLs in Luxembourg associated with our foreign holding company legal structure. Management has concluded that it is more likely than not these NOLs will not be utilized, and thus has not recognized the benefit of these NOLs. Note 5 — Income Taxes (Continued) On January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09, “Improvements to Employee Share-Based Payment Accounting.” Under the new standard, income tax benefits and deficiencies are recognized as an income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the period they occur. The update also requires the Company to recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. The standard also required a modified retrospective adoption for previously unrecognized excess tax benefits. Accordingly, the Company recognized a deferred tax asset and a corresponding credit to retained earnings equal to $1,496 in conjunction with the adoption. The effects of adopting the other provisions of ASU 2016-09 resulted in approximately 2% reduction of the effective tax rate during 2017. The earnings before income taxes and our tax provision are comprised of the following:
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Income before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | 1,258 |  |  | $ | 12,981 |  |  | $ | 25,508 |
Foreign |  |  | 67,997 |  |  |  | 97,582 |  |  |  | 103,430 |
Total income before income taxes |  | $ | 69,255 |  |  | $ | 110,563 |  |  | $ | 128,938 |
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Current income tax expense: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 4,140 |  |  | $ | 9,215 |  |  | $ | 8,428 |
State and local |  |  | 150 |  |  |  | 749 |  |  |  | 606 |
Foreign |  |  | 24,672 |  |  |  | 32,844 |  |  |  | 24,622 |
Total current income tax expense |  | $ | 28,962 |  |  | $ | 42,808 |  |  | $ | 33,656 |
Deferred income tax expense (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 15,207 |  |  | $ | (10,597 | ) |  | $ | (3,051 | )
State and local |  |  | 2,308 |  |  |  | (742 | ) |  |  | (183 | )
Foreign |  |  | (12,449 | ) |  |  | 2,496 |  |  |  | 3,123 |
Total deferred income tax expense |  | $ | 5,066 |  |  | $ | (8,843 | ) |  | $ | (111 | )
Total tax expense |  | $ | 34,028 |  |  | $ | 33,965 |  |  | $ | 33,545 |
As of December 31, 2017, the previously recognized deferred taxes related to earnings from foreign subsidiaries has been reversed since all of these earnings are subject to the one-time transition tax and are not taxable upon repatriation to the United States. However, the Company continues to provide a deferred tax liability for foreign withholding tax that will be incurred with respect to the undistributed foreign earnings that are not permanently reinvested. The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of December 31, 2017, the Company is no longer subject to U.S. Federal examinations by tax authorities for tax years before 2014 and is no longer subject to foreign examinations by tax authorities for tax years before 2009. Note 5 — Income Taxes (Continued) During 2015, to entice the Company to construct a new facility in Macedonia, the government of Macedonia granted the Company a tax holiday that released the Company from the obligation to pay corporate income taxes for a ten year period, subject to certain limitations. The amount of corporate income tax savings realized by the Company as a result of this tax holiday during 2017 and 2016, respectively, was zero as a result of operating losses generated during each period. The aggregate dollar effect and per share effect of the corporate income tax holiday during 2017 and 2016 was, therefore, immaterial. At December 31, 2017, 2016 and 2015, the Company had total unrecognized tax benefits of $4,522, $4,486 and $4,443, respectively, all of which, if recognized, would affect the effective income tax rates. The reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |  | 2015 |
Balance at beginning of year |  | $ | 4,486 |  |  | $ | 4,443 |  | $ | 4,651 |
Additions based on tax position related to current year |  |  | 1,758 |  |  |  | 80 |  |  | — |
Additions based on tax positions related to prior year |  |  | (4 | ) |  |  | 366 |  |  | 262 |
Reductions from settlements and statute of limitation expiration |  |  | (2,247 | ) |  |  | (299 | ) |  | (19 | )
Effect of foreign currency translation |  |  | 529 |  |  |  | (104 | ) |  | (451 | )
Balance at end of year |  | $ | 4,522 |  |  | $ | 4,486 |  | $ | 4,443 |
The Company classifies income tax-related penalties and net interest as income tax expense. In the years ended December 31, 2017, 2016 and 2015 income tax related interest and penalties were insignificant. The Company believes that it is reasonably possible that there may be a decrease to its unrecognized tax benefits in the next 12 months due to audit settlements and statute expirations, but the amount expected to reverse is insignificant in relation to the consolidated financial statements.

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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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