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INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income (Loss) before income taxes consisted of the following:
| Years Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
United States operations | $ | (32,640 | ) |  | $ | 51,351 |  |  | $ | 37,450 |
Foreign operations | 44,025 |  |  | 39,055 |  |  | 23,221 |
Total | $ | 11,385 |  |  | $ | 90,406 |  |  | $ | 60,671 |
The 2017 Tax Act is making significant changes to the previous tax law. Included among the numerous changes are a reduction of the federal statutory rate from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the elimination of certain domestic tax deductions such as the domestic production activities deduction. Additionally, the 2017 Tax Act imposes a one-time repatriation tax on accumulated foreign subsidiaries’ untaxed foreign earnings (the “Toll Tax”). The 2017 Tax Act implements a territorial tax system and includes base erosion provisions on non-U.S. earnings, which subjects certain foreign earnings to additional taxation as global intangible low-taxed income (“GILTI”). These provisions are effective on January 1, 2018. The Company has not completed its full analysis related to the GILTI provision within the 2017 Tax Act. The Company has not yet elected a policy as to whether it will recognize deferred taxes for basis difference expected to reverse as GILTI or whether the Company will account for GILTI as a period costs if and when incurred. Deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when they are realized or settled. We recognized an estimated benefit of $43.4 million from the re-measurement of the Company’s net deferred tax liabilities at the reduced rate of 21%. The 2017 Tax Act eliminates the deferral of U.S. income tax on unrepatriated earnings from foreign subsidiaries through the imposition of the Toll Tax, a one-time tax in 2017 on deemed repatriated foreign earnings, which is paid over an eight-year period. The tax is assessed on the foreign subsidiary accumulated foreign earnings that were not previously taxed. Foreign earnings in cash and cash equivalents are taxed at 15.5% and all other earnings are taxed at 8.0%. The calculation of the Toll Tax allows for the ability to offset positive foreign earnings with existing foreign deficits and use of foreign tax credits. The Company prepared a reasonable estimate of this tax and expects to continue to refine the estimate as it finalizes its 2017 tax returns. As of December 31, 2017, we recorded an estimated income tax expense of $5.5 million related to the Toll Tax, of which, $0.4 million is expected to be paid within one year. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. 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 the 2017 Tax Act. The Company has made reasonable estimates of the impact of the 2017 Tax Act on its consolidated financial statements and has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities, as well as its indefinite reinvestment assertion. and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the 2017 Tax Act. The accounting is expected to be completed before filing the 2017 U.S. corporate income tax return in 2018. A reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:
| Years Ended December 31,
| 2017 |  | 2016 |  | 2015
Federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Increase (decrease) in income taxes resulting from: |  |  |  |  |
State income taxes, net of federal tax benefit | (17.0 | )% |  | (0.2 | )% |  | 1.3 | %
Foreign operations | (112.7 | )% |  | (10.0 | )% |  | (12.5 | )%
Spine valuation allowance | — | % |  | — | % |  | 61.1 | %
Excess tax benefits from stock compensation | (57.9 | )% |  | (3.9 | )% |  | — | %
Charitable contributions | (10.6 | )% |  | (0.4 | )% |  | (1.0 | )%
Nondeductible meals and entertainment | 8.8 | % |  | 0.8 | % |  | 0.9 | %
Domestic production activities deduction | — | % |  | (2.6 | )% |  | (2.4 | )%
Intercompany profit in inventory | 11.6 | % |  | 1.0 | % |  | 3.1 | %
Nondeductible facilitative costs | 22.5 | % |  | 0.2 | % |  | 3.1 | %
Changes in valuation allowances | 8.0 | % |  | 0.4 | % |  | 0.3 | %
Uncertain tax positions | (4.6 | )% |  | (0.3 | )% |  | 0.2 | %
Research and development credit | (13.2 | )% |  | (1.2 | )% |  | (1.9 | )%
Return to provision | (4.3 | )% |  | (1.5 | )% |  | 1.7 | %
Reduction of book gain on sale of assets | (4.6 | )% |  | — | % |  | — | %
Tax reform — Toll Tax | 48.1 | % |  | — | % |  | — | %
Tax reform — remeasurement of deferred tax assets and liabilities | (378.6 | )% |  | — | % |  | — | %
Other | 0.8 | % |  | 0.2 | % |  | (0.2 | )%
Effective tax rate | (468.7 | )% |  | 17.5 | % |  | 88.7 | %
The effective tax rate decreased by 486.2% in 2017 compared with 2016 primarily from recording an income tax benefit of $43.4 million resulted from the reduction of the U.S. tax rate from 35% to 21%, offset by an expense of $5.5 million for the Toll Tax imposed on deemed repatriation of foreign untaxed earnings. In addition, the jurisdictional mix of income before tax in U.S.-based operations relative to foreign operations was a driver of a lower effective tax rate in 2017. The change in jurisdictional mix of income results primarily from significant acquisition and integrations costs incurred in the U.S. for the 2017 acquisitions of Derma Sciences and Codman Neurosurgery. During 2017, the Company's foreign operations generated a $1.2 million increase in income tax expense when compared with 2016, as a result of, among other factors, the geographic and business mix of taxable earnings and losses. The 2017 foreign effective tax rate is 15.7%, an increase of approximately 2.9% over the rate in 2016. The Company's foreign tax rate is primarily based upon statutory rates. The Company is negotiating a reduced corporate tax rate of 8% for the manufacturing operations in Switzerland. Once finalized, the negotiated rate will be available through 2024. During 2016, the Company's foreign operations generated a $0.8 million increase in income tax expense when compared with 2015, as a result of, among other factors, the geographic and business mix of taxable earnings and losses and the re-establishment of an income tax benefit in France for half of the year related to intercompany interest. The 2016 foreign effective tax rate is 12.7%, a decrease of approximately 2.1% over the rate in 2015. The Company's foreign tax rate is primarily based upon statutory tax rates and is not related to a tax holiday or negotiated tax rate. The provision for income taxes consisted of the following:
| Years Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
Current: |  |  |  |  |
Federal | $ | 6,644 |  |  | $ | 13,700 |  |  | $ | 46,665 |
State | 1,233 |  |  | 2,503 |  |  | 2,301 |
Foreign | 6,069 |  |  | 6,113 |  |  | 5,205 |
Total current | $ | 13,946 |  |  | $ | 22,316 |  |  | $ | 54,171 |
Deferred: |  |  |  |  |
Federal | (66,466 | ) |  | (3,400 | ) |  | 1,282 |
State | (758 | ) |  | (1,751 | ) |  | (394 | )
Foreign | (80 | ) |  | (1,323 | ) |  | (1,239 | )
Total deferred | $ | (67,304 | ) |  | $ | (6,474 | ) |  | $ | (351 | )
Provision for income taxes | $ | (53,358 | ) |  | $ | 15,842 |  |  | $ | 53,820 |
The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are presented below:
| December 31,
| 2017 |  | 2016
| (In thousands)
Assets: |  |  |
Doubtful accounts | $ | 1,811 |  |  | $ | 2,344 |
Inventory related items | 29,266 |  |  | 30,074 |
Tax credits | 6,015 |  |  | 1,040 |
Accrued vacation | 2,556 |  |  | 3,264 |
Accrued bonus | 997 |  |  | 7,842 |
Stock compensation | 10,426 |  |  | 16,031 |
Deferred revenue | 2,395 |  |  | 2,345 |
Net operating loss carryforwards | 37,492 |  |  | 15,058 |
Unrealized foreign exchange loss | 1,177 |  |  | 96 |
Charitable contributions carryforward | 1,287 |  |  | 5 |
Others | 3,077 |  |  | 128 |
Total deferred tax assets | 96,499 |  |  | 78,227 |
Less valuation allowance | (7,961 | ) |  | (3,604 | )
Deferred tax assets after valuation allowance | $ | 88,538 |  |  | $ | 74,623 |
Liabilities: |  |  |
Intangible and fixed assets | (146,327 | ) |  | (215,438 | )
Others | (1,091 | ) |  | (1,191 | )
Total deferred tax liabilities | $ | (147,418 | ) |  | $ | (216,629 | )
Total net deferred tax liabilities | $ | (58,880 | ) |  | $ | (142,006 | )
The deferred tax assets and liabilities are measured based on the enacted tax rates that apply in years in which the temporary differences are expected to be realized or incurred. The Company re-measured its deferred tax assets and liabilities as a result of the 2017 Tax Act. The primary impact of this re-measurement was a decrease in the net deferred tax liability for the reduction of the U.S. statutory income tax rate from 35% to 21%. At December 31, 2017, the Company had net operating loss carryforwards of $148.2 million for federal income tax purposes, $26.4 million for foreign income tax purposes and $28.2 million for state income tax purposes to offset future taxable income. The federal net operating loss carryforwards expire through 2033, $1.0 million of the foreign net operating loss carryforwards expire through 2026 with the remaining $25.4 million having an indefinite carry forward period. The state net operating loss carryforwards expire through 2037. A valuation allowance of $8.0 million, $3.6 million and $4.9 million is recorded against the Company’s gross deferred tax assets of $96.5 million, $78.2 million, and $82.5 million recorded at December 31, 2017, 2016 and 2015, respectively. The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it is not more likely than not that it will realize the associated tax benefit. In the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made. The Company’s valuation allowance increased by $4.4 million, and $1.3 million in 2017 and 2016, respectively. The 2017 overall increase in the valuation allowance was primarily due to establishing a valuation allowance against research credits as part of the acquisition of Derma Sciences. A reconciliation of the beginning and ending amount of uncertain tax benefits is as follows:
| Years Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
Balance, beginning of year | $ | 754 |  |  | $ | 1,085 |  |  | $ | 959 |
Gross increases: |  |  |  |  |
Current year tax positions | 402 |  |  | — |  |  | — |
Prior years' tax positions | — |  |  | 380 |  |  | 541 |
Gross decreases: |  |  |  |  |
Prior years' tax positions | (777 | ) |  | (546 | ) |  | — |
Settlements | — |  |  | — |  |  | — |
Statute of limitations lapses | (17 | ) |  | (131 | ) |  | (404 | )
Other | 62 |  |  | (34 | ) |  | (11 | )
Balance, end of year | $ | 424 |  |  | $ | 754 |  |  | $ | 1,085 |
Approximately $0.4 million of the balance at December 31, 2017 relates to uncertain tax positions that, if recognized, would affect the annual effective tax rate. Included in the balance of uncertain tax positions at December 31, 2017 is less than $0.1 million related to tax positions for which it is reasonably possible that the total amounts could be reduced during the twelve months following December 31, 2017. The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The Company recognized a minimal benefit for the years ended December 31, 2017, 2016 and 2015. The Company had minimal interest and penalties accrued for the years ended December 31, 2017 and 2016 and 2015. The Company files Federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. The Company is no longer subject to examinations of its Federal income tax returns by the IRS through fiscal year 2013. All significant state and local matters have been concluded through fiscal 2012. All significant foreign matters have been settled through fiscal 2012.

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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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