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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income (Loss) before income taxes consisted of the following:
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
| (In thousands)
United States operations | $ | (21,218 | ) |  | $ | (32,640 | ) |  | $ | 51,351 |
Foreign operations | 78,621 |  |  | 44,025 |  |  | 39,055 |
Total | $ | 57,403 |  |  | $ | 11,385 |  |  | $ | 90,406 |
The 2017 Tax Act made significant changes to the previous tax law. Included among the numerous changes were 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 imposed a one-time repatriation tax on accumulated foreign subsidiaries’ untaxed foreign earnings (the “Toll Tax”). The 2017 Tax Act implemented a territorial tax system and included 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 were effective on January 1, 2018. As of December 31, 2017, the Company had not completed its full analysis related to the GILTI provisions. Upon further analysis of the 2017 Tax Act during 2018, the Company has elected to account for GILTI as a period cost in the year the tax is incurred. Deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when they are realized or settled. During 2017, the Company recognized a provisional benefit of $43.4 million from the remeasurement of the Company's net deferred tax liabilities at the reduced rate of 21%. The Company has finalized the remeasurement of its net deferred tax liabilities, as a result of the reduced rate, as of December 31, 2018. The 2017 Tax Act eliminated 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's 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 the Toll tax as of December 31, 2017 amounting to an expense of $5.5 million, of which $0.4 million was expected to be paid within one year. As the Company finalized its 2017 income tax returns during 2018, the Company recorded a benefit of $1.0 million to reduce the provisional estimate to the final total Toll Tax of $4.5 million. As of December 31, 2018, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested. Such taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed. As such, the Company has determined the tax impact of repatriating these earnings would not be material as of December 31, 2018. 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 Company applied the guidance of SAB No. 118 when accounting for the enactment date impact of the 2017 Tax Act in 2017 throughout 2018. The Company finalized its calculations and completed its accounting for the income tax effect of the 2017 Tax Act in December of 2018. A reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
Federal statutory rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
Increase (decrease) in income taxes resulting from: |  |  |  |  |
State income taxes, net of federal tax benefit | (0.4 | )% |  | (17.0 | )% |  | (0.2 | )%
Foreign operations | (21.8 | )% |  | (112.7 | )% |  | (10.0 | )%
Excess tax benefits from stock compensation | (7.8 | )% |  | (57.9 | )% |  | (3.9 | )%
Charitable contributions | (1.2 | )% |  | (10.6 | )% |  | (0.4 | )%
Nondeductible meals and entertainment | 1.6 | % |  | 8.8 | % |  | 0.8 | %
Domestic production activities deduction | — | % |  | — | % |  | (2.6 | )%
Intercompany profit in inventory | 6.2 | % |  | 11.6 | % |  | 1.0 | %
Nondeductible facilitative costs | — | % |  | 22.5 | % |  | 0.2 | %
Changes in valuation allowances | 0.2 | % |  | 8.0 | % |  | 0.4 | %
Uncertain tax positions | 0.4 | % |  | (4.6 | )% |  | (0.3 | )%
Research and development credit | (2.6 | )% |  | (13.2 | )% |  | (1.2 | )%
Return to provision | (2.9 | )% |  | (4.3 | )% |  | (1.5 | )%
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 | )% |  | — | %
Global intangible low-taxed income ("GILTI") | 3.5 | % |  | — | % |  | — | %
Nondeductible executive compensation | 1.6 | % |  | — | % |  | — | %
Carryback of Federal net operating loss ("NOL") | (3.7 | )% |  | — | % |  | — | %
Other | — | % |  | 0.8 | % |  | 0.2 | %
Effective tax rate | (5.9 | )% |  | (468.7 | )% |  | 17.5 | %
The effective tax rate increased by 462.8% in 2018 compared with 2017. The increase was primarily a result of the $43.4 million benefit recorded during 2017 in relation to the reduction of the U.S. tax rate from 35% to 21%. Additional drivers of the higher 2018 tax rate include an expense of $2.0 million related to GILTI and an expense of $0.9 million for nondeductible executive compensation, offset by a $2.1 million benefit from a carryback of federal net operating loss from 2017 to 2015. During 2018, the Company's foreign operations generated a $3.1 million increase in income tax expense when compared with 2017, because of the geographic and business mix of taxable earnings and losses, among other factors. The 2018 foreign effective tax rate is 11.6%, a decrease of approximately 2.0% over the rate in 2017. 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 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%, a decrease of approximately 2.9% over the rate in 2016. The Company's foreign tax rate is primarily based upon statutory tax rates. The provision for income taxes consisted of the following:
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
| (In thousands)
Current: |  |  |  |  |
Federal | $ | (3,880 | ) |  | $ | 6,644 |  |  | $ | 13,700 |
State | 1,609 |  |  | 1,233 |  |  | 2,503 |
Foreign | 7,057 |  |  | 6,069 |  |  | 6,113 |
Total current | $ | 4,786 |  |  | $ | 13,946 |  |  | $ | 22,316 |
Deferred: |  |  |  |  |
Federal | (7,202 | ) |  | (66,466 | ) |  | (3,400 | )
State | (3,048 | ) |  | (758 | ) |  | (1,751 | )
Foreign | 2,066 |  |  | (80 | ) |  | (1,323 | )
Total deferred | $ | (8,184 | ) |  | $ | (67,304 | ) |  | $ | (6,474 | )
Provision for income taxes | $ | (3,398 | ) |  | $ | (53,358 | ) |  | $ | 15,842 |
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,
| 2018 |  | 2017
| (In thousands)
Assets: |  |  |
Doubtful accounts | $ | 1,507 |  |  | $ | 1,811 |
Inventory related items | 28,245 |  |  | 29,266 |
Tax credits | 9,072 |  |  | 6,015 |
Accrued vacation | 2,761 |  |  | 2,556 |
Accrued bonus | 5,515 |  |  | 997 |
Stock compensation | 10,093 |  |  | 10,426 |
Deferred revenue | 2,173 |  |  | 2,395 |
Net operating loss carryforwards | 33,350 |  |  | 37,492 |
Unrealized foreign exchange loss | 1,405 |  |  | 1,177 |
Charitable contributions carryforward | 1,994 |  |  | 1,287 |
Others | 8,835 |  |  | 3,077 |
Total deferred tax assets | 104,950 |  |  | 96,499 |
Less valuation allowance | (6,973 | ) |  | (7,961 | )
Deferred tax assets after valuation allowance | $ | 97,977 |  |  | $ | 88,538 |
Liabilities: |  |  |
Intangible and fixed assets | (144,861 | ) |  | (146,327 | )
Others | (4,089 | ) |  | (1,091 | )
Total deferred tax liabilities | $ | (148,950 | ) |  | $ | (147,418 | )
Total net deferred tax liabilities | $ | (50,973 | ) |  | $ | (58,880 | )
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 remeasured its deferred tax assets and liabilities as a result of the 2017 Tax Act, using a provisional estimate under SAB No. 118 during 2017. The primary impact of the 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%. There were no material changes to the provisional amounts when the amounts were finalized in December of 2018. At December 31, 2018, the Company had net operating loss carryforwards of $118.4 million for federal income tax purposes, $34.5 million for foreign income tax purposes and $25.6 million for state income tax purposes to offset future taxable income. The federal net operating loss carryforwards expire through 2035, $0.9 million of the foreign net operating loss carryforwards expire through 2025 with the remaining $33.6 million having an indefinite carry forward period. The state net operating loss carryforwards expire through 2037. A valuation allowance of $7.0 million, $8.0 million and $3.6 million is recorded against the Company’s gross deferred tax assets of $105.0 million, $96.5 million, and $78.2 million recorded at December 31, 2018, 2017 and 2016, 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 decreased by $1.0 million, and increased by $4.4 million in 2018 and 2017, respectively. The 2018 overall decrease in the valuation allowance was primarily due to the realization of certain deferred tax assets related to Derma Sciences and the impact of current year activity. A reconciliation of the beginning and ending amount of uncertain tax benefits is as follows:
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
| (In thousands)
Balance, beginning of year | $ | 424 |  |  | $ | 754 |  |  | $ | 1,085 |
Gross increases: |  |  |  |  |
Current year tax positions | 273 |  |  | 402 |  |  | — |
Prior years' tax positions | — |  |  | — |  |  | 380 |
Gross decreases: |  |  |  |  |
Prior years' tax positions | — |  |  | (777 | ) |  | (546 | )
Statute of limitations lapses | (21 | ) |  | (17 | ) |  | (131 | )
Other | — |  |  | 62 |  |  | (34 | )
Balance, end of year | $ | 676 |  |  | $ | 424 |  |  | $ | 754 |
Approximately $0.7 million of the balance at December 31, 2018 relates to uncertain tax positions that, if recognized, would affect the annual effective tax rate. There are no amounts within the balance of uncertain tax positions at December 31, 2018 related to tax positions for which it is reasonably possible that the amounts could be reduced during the twelve months following December 31, 2018. 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, 2018, 2017 and 2016. The Company had minimal interest and penalties accrued for the years ended December 31, 2018 and 2017 and 2016. 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 U.S. consolidated Federal income tax returns by the IRS through fiscal year 2014, however an examination of a pre-acquisition Federal tax return is ongoing for one of the Company's subsidiaries. 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://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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