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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income (Loss) before income taxes consisted of the following:
| Years Ended December 31,
| 2019 |  | 2018 |  | 2017
| (In thousands)
United States operations | $ | (38,359 | ) |  | $ | (21,218 | ) |  | $ | (32,640 | )
Foreign operations | 98,463 |  |  | 78,621 |  |  | 44,025 |
Total | $ | 60,104 |  |  | $ | 57,403 |  |  | $ | 11,385 |
The 2017 U.S. Tax Act was signed into law on December 22, 2017. 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 tax deductions. Additionally, the 2017 Tax Act imposed a one–time repatriation tax on accumulated foreign subsidiaries' untaxed foreign earnings (the "Toll Tax"). The Toll Tax, a one–time tax on deemed repatriated foreign earnings which were not previously taxed, is paid over an eight–year period beginning in 2018. The Company's total Toll Tax liability, as finalized in 2018, was $4.5 million. The 2017 Tax Act also 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. Upon further analysis of the 2017 Tax Act during 2018, the Company 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 finalized the remeasurement of its net deferred tax liabilities, as a result of the reduced rate, as of December 31, 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,
| 2019 |  | 2018 |  | 2017
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
Increase (decrease) in income taxes resulting from: |  |  |  |  |
State income taxes, net of federal tax benefit | 1.0 | % |  | (0.4 | )% |  | (17.0 | )%
Foreign operations | (20.0 | )% |  | (21.8 | )% |  | (112.7 | )%
Excess tax benefits from stock compensation | (5.6 | )% |  | (7.8 | )% |  | (57.9 | )%
Charitable contributions | (0.6 | )% |  | (1.2 | )% |  | (10.6 | )%
Nondeductible meals and entertainment | 1.5 | % |  | 1.6 | % |  | 8.8 | %
Intercompany profit in inventory | 1.2 | % |  | 6.2 | % |  | 11.6 | %
Nondeductible facilitative costs | 0.8 | % |  | — | % |  | 22.5 | %
Changes in valuation allowances | 0.2 | % |  | 0.2 | % |  | 8.0 | %
Uncertain tax positions | 0.2 | % |  | 0.4 | % |  | (4.6 | )%
Research and development credit | (2.9 | )% |  | (2.6 | )% |  | (13.2 | )%
Return to provision | 1.7 | % |  | (2.9 | )% |  | (4.3 | )%
Global intangible low-taxed income ("GILTI") | 7.6 | % |  | 3.5 | % |  | — | %
Nondeductible executive compensation | 3.0 | % |  | 1.6 | % |  | — | %
Carryback of Federal net operating loss ("NOL") | 0.1 | % |  | (3.7 | )% |  | — | %
Other | 0.4 | % |  | — | % |  | 0.8 | %
Swiss tax holiday | (15.7 | )% |  | — | % |  | — | %
In-process research and development | 22.7 | % |  | — | % |  | — | %
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 | )%
Effective tax rate | 16.5 | % |  | (5.9 | )% |  | (468.7 | )%
Our effective tax rate was 16.5% for the year ended December 31, 2019, compared to (5.9)% for the year ended December 31, 2018. The 2019 annual effective tax rate increased over 2018 due to the acquisition of Rebound, resulting in $64.9 million of non-deductible in–process research and development expense, which had a $13.6 million tax effect on the U.S. federal rate. This increase in the annual rate was offset by a tax benefit of $9.4 million ($0.11 per share) related to a federal tax holiday in Switzerland, which was finalized during 2019. Additionally, 2018 had $1.1 million of additional benefit pertaining to excess stock–based compensation deductions and $2.1 million of benefit from a federal net operating loss carryback, which does not repeat in 2019. During 2019, the Company's foreign operations generated a $5.7 million decrease in income tax expense when compared with 2018, because of geographic and business mix of taxable earnings and losses, among other factors. The 2019 foreign effective tax rate is 3.5%, compared to 11.6% in 2018. The Company's foreign tax rate is primarily based upon statutory rates and is also impacted by the tax holiday in Switzerland, described below. During 2019, the Company finalized negotiations related to tax holidays in Switzerland, on a federal, cantonal, and communal level. The Company received a federal tax credit in Switzerland of $12.1 million ($0.14 per share), which may be used over a seven-year period, ending in 2024. The Company also received a reduction in its rate for the cantonal and communal level taxes during the third quarter of 2019, pursuant to tax reform in Switzerland. 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 provision for income taxes consisted of the following:
| Years Ended December 31,
| 2019 |  | 2018 |  | 2017
| (In thousands)
Current: |  |  |  |  |
Federal | $ | 14,597 |  |  | $ | (3,880 | ) |  | $ | 6,644 |
State | 3,447 |  |  | 1,609 |  |  | 1,233 |
Foreign | 10,905 |  |  | 7,057 |  |  | 6,069 |
Total current | $ | 28,949 |  |  | $ | 4,786 |  |  | $ | 13,946 |
Deferred: |  |  |  |  |
Federal | (10,889 | ) |  | (7,202 | ) |  | (66,466 | )
State | (666 | ) |  | (3,048 | ) |  | (758 | )
Foreign | (7,491 | ) |  | 2,066 |  |  | (80 | )
Total deferred | $ | (19,046 | ) |  | $ | (8,184 | ) |  | $ | (67,304 | )
Provision for income taxes | $ | 9,903 |  |  | $ | (3,398 | ) |  | $ | (53,358 | )
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,
| 2019 |  | 2018
| (In thousands)
Assets: |  |  |
Doubtful accounts | $ | 2,426 |  |  | $ | 1,507 |
Inventory related items | 39,548 |  |  | 28,245 |
Tax credits | 19,134 |  |  | 9,072 |
Accrued vacation | 3,206 |  |  | 2,761 |
Accrued bonus | 6,017 |  |  | 5,515 |
Stock compensation | 8,347 |  |  | 10,093 |
Deferred revenue | 1,805 |  |  | 2,173 |
Net operating loss carryforwards | 37,418 |  |  | 33,350 |
Capitalization of research and development expenses | 9,781 |  |  | — |
Unrealized foreign exchange loss | 8,105 |  |  | 1,405 |
Charitable contributions carryforward | 235 |  |  | 1,994 |
Others | 5,900 |  |  | 8,835 |
Total deferred tax assets | 141,922 |  |  | 104,950 |
Less valuation allowance | (9,865 | ) |  | (6,973 | )
Deferred tax assets after valuation allowance | $ | 132,057 |  |  | $ | 97,977 |
Liabilities: |  |  |
Intangible and fixed assets | (150,879 | ) |  | (144,861 | )
Others | (5,108 | ) |  | (4,089 | )
Total deferred tax liabilities | $ | (155,987 | ) |  | $ | (148,950 | )
Total net deferred tax liabilities | $ | (23,930 | ) |  | $ | (50,973 | )
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 35.0% to 21.0%. There were no material changes to the provisional amounts when the amounts were finalized in December of 2018. At December 31, 2019, the Company had net operating loss carryforwards of $130.1 million for federal income tax purposes, $37.5 million for foreign income tax purposes and $42.8 million for state income tax purposes to offset future taxable income. The majority of the federal net operating loss carryforwards expire through 2037, while $18.9 million have an indefinite carry forward period. For foreign net operating loss carryforwards, $1.3 million expire through 2024, $0.9 million expire through 2025, and the remaining $35.3 million have an indefinite carry forward period. The state net operating loss carryforwards expire through 2036. A valuation allowance of $9.9 million, $7.0 million and $8.0 million is recorded against the Company’s gross deferred tax assets of $141.9 million, $105.0 million, and $96.5 million recorded at December 31, 2019, 2018 and 2017, 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 will not satisfy the more likely than not threshold for realization of 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 $2.9 million, decreased by $1.0 million and increased by $4.4 million at December 31, 2019, 2018 and 2017, respectively. The 2019 overall increase in the valuation allowance primarily resulted from certain assets from the Rebound and Arkis acquisitions. As of December 31, 2019, 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 no t be material as of December 31, 2019. A reconciliation of the beginning and ending amount of uncertain tax benefits is as follows:
| Years Ended December 31,
| 2019 |  | 2018 |  | 2017
| (In thousands)
Balance, beginning of year | $ | 676 |  |  | $ | 424 |  |  | $ | 754 |
Gross increases: |  |  |  |  |
Current year tax positions | 53 |  |  | 273 |  |  | 402 |
Prior years' tax positions | — |  |  | — |  |  | — |
Gross decreases: |  |  |  |  |
Prior years' tax positions | — |  |  | — |  |  | (777 | )
Statute of limitations lapses | — |  |  | (21 | ) |  | (17 | )
Other | (53 | ) |  | — |  |  | 62 |
Balance, end of year | $ | 676 |  |  | $ | 676 |  |  | $ | 424 |
Approximately $0.7 million of the balance at December 31, 2019 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, 2019 related to tax positions for which it is reasonably possible that the amounts could be reduced during the twelve months following December 31, 2019. 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, 2019, 2018 and 2017. The Company had minimal interest and penalties accrued for the years ended December 31, 2019 and 2018 and 2017. 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 2015. All significant state and local matters have been concluded through fiscal 2014. 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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