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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Taxes [Abstract] |
Income Taxes | 15. Income Taxes On December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the Tax Reform Act) was enacted in the United States (U.S.). The Tax Reform Act significantly revises the U.S. corporate income tax by, among other things, lowering the corporate income tax rate to 21%, implementing a modified territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries (the Toll Charge). Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), given the amount and complexity of the changes in tax law resulting from the Tax Reform Act, the Company has not finalized the accounting for the income tax effects of the Tax Reform Act. This includes the provisional amounts recorded related to the Toll Charge, the recording of a valuation allowance relating to foreign tax credits, the write-off and remeasurement of deferred tax assets and deferred tax liabilities and the change in the Company's indefinite reinvestment assertion. Further, the Company is in the process of analyzing the effects of new taxes due on certain foreign income, such as GILTI (global intangible low-taxed income), BEAT (base-erosion anti-abuse tax), FDII (foreign-derived intangible income), limitations on the deductibility of executive compensation, limitations on interest expense deductions (if certain conditions apply), and other provisions of the Tax Reform Act that are effective starting in 2018. Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method") or (2) factoring such amounts into a company's measurement of its deferred taxes (the "deferred method"). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. We are not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI. The Company has preliminarily accounted for the effects of the Tax Reform Act, which resulted in a charge of $47.7 million to deferred income tax expense in the fourth quarter 2017, comprised of a $52.0 million charge from recognition of a valuation allowance on foreign tax credit carryforwards, $7.3 million charge related to reversal of indefinite reinvestment, $4.1 million charge related to the reduction in FIN 48 assets, a benefit of $7.7 million due to the write-off of net outside basis deferred tax liabilities, a benefit of $3.1 million related to the tax effect on OCI and a benefit of $4.9 million from the estimated impact of remeasurement of U.S. deferred tax assets and liabilities at a lower enacted corporate income tax rate. The Toll Charge is based on the Company's post-1986 earnings and profits (E&P) of U.S.-owned foreign subsidiaries for which the Company had previously deferred U.S. income taxes. The total estimated Toll Charge of $96 million is estimated to be offset entirely by foreign tax credits. The Company currently estimates that no additional cash taxes will be paid as a result of the Toll Charge. Due to the modified territorial system that has been implemented in the U.S. the company wrote-off the net outside basis deferred tax liabilities balances after analyzing the impacts of the Toll Charge resulting in a tax benefit of $7.7 million. As of December 22, 2017, the company no longer considers undistributed earnings and profits of U.S. owned subsidiaries to be indefinitely reinvested and recorded a tax expense of $7.3 million related to foreign withholding taxes on unremitted foreign earnings that were previously asserted to be indefinitely reinvested in the fourth quarter of 2017. The impact of the Tax Reform Act may differ from this estimate, possibly materially, during the one-year measurement period due to, among other things, further refinement of the Company's calculations, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Reform Act. Consolidated income before provision for income taxes consists of the following for the years ended December 31, 2015, 2016 and 2017 (U.S. dollars in thousands):
|  | 2015 |  |  | 2016 |  |  | 2017 |
U.S. |  | $ | 134,473 |  |  | $ | (19,119 | ) |  | $ | 1,135 |
Foreign |  |  | 77,486 |  |  |  | 231,958 |  |  |  | 264,432 |
Total |  | $ | 211,959 |  |  | $ | 212,839 |  |  | $ | 265,567 |
The provision for current and deferred taxes for the years ended December 31, 2015, 2016 and 2017 consists of the following (U.S. dollars in thousands):
|  | 2015 |  |  | 2016 |  |  | 2017 |
Current |  |  |  |  |  |  |  |  |
Federal |  | $ | 6,328 |  |  | $ | ─ |  |  | $ | (14,358 | )
State |  |  | 1,483 |  |  |  | (718 | ) |  |  | 1,814 |
Foreign |  |  | 50,403 |  |  |  | 70,652 |  |  |  | 104,688 |
|  |  | 58,214 |  |  |  | 69,934 |  |  |  | 92,144 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 16,556 |  |  |  | (27,171 | ) |  |  | 45,593 |
State |  |  | (674 | ) |  |  | 1,104 |  |  |  | (2,273 | )
Foreign |  |  | 4,817 |  |  |  | 25,886 |  |  |  | 666 |
|  |  | 20,699 |  |  |  | (181 | ) |  |  | 43,986 |
Provision for income taxes |  | $ | 78,913 |  |  | $ | 69,753 |  |  | $ | 136,130 |
The principal components of deferred taxes are as follows (U.S. dollars in thousands):
|  | Year Ended December 31, |
|  | 2016 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |
Inventory differences |  | $ | 2,521 |  |  | $ | 2,861 |
Foreign tax credit and other foreign benefits |  |  | 145,169 |  |  |  | 52,408 |
Stock-based compensation |  |  | 11,470 |  |  |  | 6,327 |
Accrued expenses not deductible until paid |  |  | 32,796 |  |  |  | 39,326 |
Foreign currency exchange |  |  | 4,826 |  |  |  | 2,001 |
Net operating losses |  |  | 9,584 |  |  |  | 5,230 |
Capitalized research and development |  |  | 358 |  |  |  | 197 |
Other |  |  | 1,063 |  |  |  | 211 |
Gross deferred tax assets |  |  | 207,787 |  |  |  | 108,561 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Foreign currency exchange |  |  | 105 |  |  |  | 874 |
Foreign withholding taxes |  | ─ |  |  |  | 29,018 |
Intangibles step-up |  |  | 12,107 |  |  |  | 6,568 |
Overhead allocation to inventory |  |  | 4,820 |  |  |  | 3,977 |
Amortization of intangibles |  |  | 19,091 |  |  |  | 11,475 |
Foreign outside basis in controlled foreign corporation |  |  | 106,846 |  |  | ─ |
Other |  |  | 20,572 |  |  |  | 2,676 |
Gross deferred tax liabilities |  |  | 163,541 |  |  |  | 54,588 |
Valuation allowance |  |  | (9,137 | ) |  |  | (56,906 | )
Deferred taxes, net |  | $ | 35,109 |  |  | $ | (2,933 | )
At December 31, 2017, the Company had foreign operating loss carryforwards of $17.1 million for tax purposes, which will be available to offset future taxable income. If not used, $5.7 million of carryforwards will expire between 2018 and 2027, while $11.4 million do not expire. A valuation allowance has been placed on foreign operating loss carryforwards of $15.9 million. In addition, a valuation allowance has been recorded on the foreign tax credit carryforward of $52.0 million which will expire between 2026 and 2027. The Company uses the tax law ordering approach when determining when excess tax benefits have been realized. The valuation allowance for the foreign tax credit carryforwards was recorded as a result of the Tax Reform Act. A valuation allowance has also been recognized for foreign operating loss carryforwards and unrealized foreign exchange losses. The valuation allowances were recognized for assets which it is more likely than not some portion or all of the deferred tax asset will not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax planning strategies and recent financial operations. When the Company determines that there is sufficient positive evidence to utilize the foreign tax credits or the net operating losses, the valuation will be released which would reduce the provision for income taxes. The deferred tax asset valuation adjustments for the years ended December 31, 2015, 2016 and 2017 are as follows (U.S. dollars in thousands):
|  | Year Ended December 31, |
|  | 2015 |  |  | 2016 |  |  | 2017 |
Balance at the beginning of period |  | $ | 35,999 |  |  | $ | 49,271 |  |  | $ | 9,137 |
Additions charged to cost and expenses |  |  | 12,948 |  |  |  | 692 |  |  |  | 53,983 | (5)
Decreases |  |  | (2,943 | )(1) |  |  | (40,442 | )(4) |  |  | (6,400 | )(6)
Adjustments |  |  | 3,267 | (2) |  |  | (384 | )(2) |  |  | 186 | (2)
Balance at the end of the period |  | $ | 49,271 | (3) |  | $ | 9,137 |  |  | $ | 56,906 |
| (1) | Decreases in valuation allowance due to lapse in statute of limitation of the net operating losses carryforward which had no impact to the income statement.
| (2) | Represents the net currency effects of translating valuation allowances at current rates of exchange.
| (3) | The increase was due primarily to the deferred tax assets created by the unrealized loss in Venezuela for which the Company set up a full valuation allowance.
| (4) | Decrease in valuation allowance due to lapse in statute of limitation of the net operating losses carryforward and due to the write off of Venezuelan deferred tax assets, which had no impact to the income statement.
| (5) | Increase in valuation is due primarily to the $52.0 million that was recorded on the foreign tax credit carryforward. The additional amount is due to net operating losses in foreign markets.
| (6) | Decrease is due primarily to the write-off of Brazil deferred tax assets, which had no impact to the income statement, as a valuation allowance had been previously recorded against the asset.
The components of deferred taxes, net on a jurisdiction basis are as follows (U.S. dollars in thousands):
|  | Year Ended December 31, |
|  | 2016 |  |  | 2017 |
Net noncurrent deferred tax assets |  | $ | 35,752 |  |  | $ | 33,785 |
Net noncurrent deferred tax liabilities |  |  | 643 |  |  |  | 36,718 |
Deferred taxes, net |  | $ | 35,109 |  |  | $ | (2,933 | )
The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in proposed assessments that may result in additional tax liabilities. The actual tax rate for the years ended December 31, 2015, 2016 and 2017 compared to the statutory U.S. Federal tax rate is as follows:
|  | Year Ended December 31, |
|  | 2015 |  |  | 2016 |  |  | 2017 |
Income taxes at statutory rate |  |  | 35.00 | % |  |  | 35.00 | % |  |  | 35.00 | %
Indefinite reinvestment |  |  | .92 |  |  |  | (1.98 | ) |  |  | 2.75 |
Excess tax benefit from equity award |  | ─ |  |  | ─ |  |  |  | (2.38 | )
Non-deductible expenses |  |  | 0.09 |  |  |  | 0.11 |  |  |  | 0.17 |
Controlled foreign corporation losses |  |  | 1.09 |  |  |  | (2.63 | ) |  |  | (0.13 | )
Valuation allowance recognized foreign tax credit |  | ─ |  |  | ─ |  |  |  | 19.59 |
Write-off outside basis DTL |  | ─ |  |  | ─ |  |  |  | (2.89 | )
Revaluation of deferred taxes |  | ─ |  |  | ─ |  |  |  | (1.28 | )
Section 987 implementation |  | ─ |  |  |  | 2.69 |  |  | ─ |
Other |  |  | 0.13 |  |  |  | (0.42 | ) |  |  | 0.43 |
|  |  | 37.23 | % |  |  | 32.77 | % |  |  | 51.26 | %
The effective tax rate for 2017 was impacted largely due to the Tax Reform Act.

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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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