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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES As of December 31, 2017 we recorded provisional amounts in our financial statements to estimate the impact of the 2017 Tax Reform Act. Changes to the 2017 provisional amounts recorded in the December 31, 2018 financial statements were not material to the 2018 financial results. Our financial statements were based on enacted law and related guidance received as of December 31, 2018. The U.S. Treasury has recently issued final regulations providing additional guidance on various provisions of the Tax Reform Act and it is expected that additional regulations and guidance will be forthcoming. We will continue to evaluate the impact, if any, of new regulations and guidance and will recognize any resulting impact in the period such guidance is received. As a result of the Tax Reform Act, distributions of profits from foreign affiliates are not expected to result in material incremental U.S. tax impacts in the future. However, due to tax treaties between the U.S. and many of the jurisdictions in which we operate, some profit distributions may be subject to withholding taxes. Furthermore, new provisions of the Tax Reform Act such as GILTI (global intangible low-taxed income), FDII (foreign-derived intangible income), deduction limitations on interest expense and executive compensation, as well as other tax reform changes may impact our future taxes. We have elected the period cost method (costs are treated as a current period expense when incurred) under U.S. GAAP as it relates to GILTI income inclusions in U.S. taxable income. Each reporting period we analyze our indefinite reinvestment assertions with respect to undistributed foreign earnings. As of December 31, 2018, we continue to assert that we do not intend to reinvest undistributed foreign earnings indefinitely in our foreign subsidiaries. Income (loss) from continuing operations before provision (benefit) for income taxes are taxed under the following jurisdictions (dollar amounts in thousands):
Year Ended December 31, |  | 2018 |  | 2017 |  | 2016
Domestic |  | $ | (10,069 | ) |  | $ | (2,211 | ) |  | $ | 6,420 |
Foreign |  | 13,269 |  |  | 5,433 |  |  | 2,846 |
Total |  | $ | 3,200 |  |  | $ | 3,222 |  |  | $ | 9,266 |
Components of the provision (benefit) for income taxes from continuing operations for each of the three years in the period ended December 31, 2018 are as follows (dollar amounts in thousands):
Year Ended December 31, |  | 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | (1,823 | ) |  | $ | (1,240 | ) |  | $ | 1,987 |
State |  | (70 | ) |  | (23 | ) |  | 498 |
Foreign |  | 6,371 |  |  | 4,168 |  |  | 5,345 |
Subtotal |  | 4,478 |  |  | 2,905 |  |  | 7,830 |
Deferred: |  |  |  |  |  |  |  |  |
Federal |  | 605 |  |  | 13,654 |  |  | 496 |
State |  | 296 |  |  | (248 | ) |  | (14 | )
Foreign |  | (977 | ) |  | 728 |  |  | 279 |
Subtotal |  | (76 | ) |  | 14,134 |  |  | 761 |
Total provision for income taxes |  | $ | 4,402 |  |  | $ | 17,039 |  |  | $ | 8,591 |
The provision (benefit) for income taxes, as a percentage of income from continuing operations before provision (benefit) for income taxes, differs from the statutory U.S. federal income tax rate due to the following:
Year Ended December 31, |  | 2018 |  | 2017 |  | 2016
Statutory U.S. federal income tax rate |  | 21.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of U.S. federal income tax benefit |  | 5.5 |  |  | (5.5 | ) |  | 3.4 |
U.S. tax impact of foreign operations |  | 102.5 |  |  | 1.0 |  |  | (53.4 | )
Valuation allowance change |  | (13.9 | ) |  | 405.3 |  |  | 77.6 |
Unrecognized tax benefits |  | (58.7 | ) |  | (91.1 | ) |  | 4.7 |
Domestic manufacturing deduction |  | — |  |  | — |  |  | (2.8 | )
Permanent foreign items |  | 28.6 |  |  | 53.7 |  |  | 26.8 |
Withholding tax on royalties |  | 20.0 |  |  | — |  |  | — |
Re-measurement of deferred tax assets/liabilities |  | — |  |  | 117.6 |  |  | — |
Stock Compensation |  | 12.7 |  |  | — |  |  | — |
Tax Return to Provision Differences |  | 11.7 |  |  | — |  |  | — |
Elimination of provision on intercompany transactions |  | 4.4 |  |  | 4.6 |  |  | 0.1 |
Other |  | 3.8 |  |  | 8.2 |  |  | 1.3 |
Effective income tax rate |  | 137.6 | % |  | 528.8 | % |  | 92.7 | %
Pretax earnings of a foreign subsidiary or affiliate are subject to U.S. taxation when effectively repatriated. Adjustments relating to the U.S. impact of foreign operations increased the effective tax rate by 102.5 percentage points in 2018, increased the effective tax rate by 1.0 percentage points in 2017, and decreased the effective tax rate by 53.4 percentage points in 2016. The components of this calculation were:
Components of U.S. tax impact of foreign operations |  | 2018 |  | 2017 |  | 2016
Dividends received from foreign subsidiaries |  | — | % |  | 65.7 | % |  | 65.9 | %
Foreign tax credits |  | (17.6 | ) |  | (4.1 | ) |  | (91.8 | )
Foreign tax rate differentials |  | 37.3 |  |  | (60.6 | ) |  | (27.1 | )
Foreign withholding taxes |  | 27.7 |  |  | — |  |  | — |
Transfer pricing adjustment |  | 12.1 |  |  | — |  |  | — |
Impact of GILTI |  | 43.0 |  |  | — |  |  | — |
Unremitted earnings |  | — |  |  | — |  |  | 0.2 |
Other adjustments |  | — |  |  | — |  |  | (0.6 | )
Total |  | 102.5 | % |  | 1.0 | % |  | (53.4 | )%
The significant components of the deferred tax assets (liabilities) are as follows (dollar amounts in thousands):
As of December 31, |  | 2018 |  | 2017
Inventory |  | $ | 1,252 |  |  | $ | 2,268 |
Accrued liabilities |  | 4,130 |  |  | 2,190 |
Deferred compensation |  | 307 |  |  | 481 |
Equity-based compensation |  | 2,359 |  |  | 3,091 |
Intangibles assets |  | 151 |  |  | 142 |
Bad debts |  | 114 |  |  | 95 |
Net operating losses |  | 7,730 |  |  | 13,755 |
Foreign tax and withholding credits |  | 13,300 |  |  | 14,572 |
Non-income tax accruals |  | — |  |  | 41 |
Health insurance accruals |  | 145 |  |  | 125 |
Other deferred tax assets |  | 2,438 |  |  | 1,869 |
Capital loss carryforward |  | — |  |  | 82 |
Valuation allowance |  | (20,256 | ) |  | (24,024 | )
Total deferred tax assets |  | 11,670 |  |  | 14,687 |
Other deferred tax liabilities |  | (2,009 | ) |  | (1,255 | )
Accelerated depreciation |  | (2,161 | ) |  | (5,919 | )
Total deferred tax liabilities |  | (4,170 | ) |  | (7,174 | )
Total deferred taxes, net |  | $ | 7,500 |  |  | $ | 7,513 |
The components of deferred tax assets (liabilities), net are as follows (dollar amounts in thousands):
As of December 31, |  | 2018 |  | 2017
Net deferred tax assets |  | $ | 9,056 |  |  | $ | 8,283 |
Net deferred tax liabilities |  | (1,556 | ) |  | (770 | )
Total deferred taxes, net |  | $ | 7,500 |  |  | $ | 7,513 |
Net deferred tax liabilities are included in other liabilities in the consolidated balance sheets. We have provided a valuation allowance of $20.3 million and $24.0 million as of December 31, 2018 and 2017, respectively, for certain deferred tax assets, including foreign net operating losses, for which we cannot conclude it is more likely than not that they will be realized. We reviewed our tax positions and decreased the valuation allowance by approximately $3.8 million in 2018 primarily due to a domestic decrease of $1.3 million and a foreign decrease of $2.5 million. For financial reporting purposes, the release of these valuation allowances would reduce income tax expenses in the year released. At December 31, 2018, we had approximately $13.3 million of foreign tax and withholding credits. Of the $13.3 million credits, $12.9 million are foreign tax credits, most of which expire in 2024 and all of which are fully offset by a valuation allowance. At December 31, 2018, foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $7.7 million. The net operating losses will expire at various dates from 2019 through 2028, with the exception of those in some foreign jurisdictions where there is no expiration. The foreign net operating losses have a full valuation allowance recorded against them. We are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. We believe we have appropriately provided for income taxes for all years. Several factors drive the calculation of our tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations; (iii) the issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to our reserves, which would impact our reported financial results. Our U.S. federal income tax returns for 2015 through 2017 are open to examination for federal tax purposes. We have several foreign tax jurisdictions that have open tax years from 2011 through 2019. The total outstanding balance for liabilities related to unrecognized tax benefits at December 31, 2018 and 2017 was $2.2 million and $4.6 million, respectively, all of which would favorably impact the effective tax rate if recognized. Included in these amounts is approximately $0.2 million and $1.7 million, respectively, of combined interest and penalties. We decreased interest and penalties approximately $0.2 million and $0.2 million for the years ended December 31, 2018 and 2017, respectively. We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision. During the years ended December 31, 2018, 2017 and 2016, we added approximately $0.2 million, $0.9 million and $1.4 million, respectively, to our liability for unrecognized tax benefits. Included in these amounts are approximately $0.1 million, $0.1 million and $0.3 million for the years ended December 31, 2018, 2017 and 2016, respectively, related to interest expense and penalties. In addition, we recorded a benefit related to the lapse of applicable statute of limitations of approximately $2.1 million, $2.3 million and $2.5 million for the years ended December 31, 2018, 2017 and 2016, respectively, all of which favorably impacted our effective tax rate. A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits, excluding interest and penalties, is as follows for the years (dollar amounts in thousands):
Year Ended December 31, |  | 2018 |  | 2017 |  | 2016
Unrecognized tax benefits, opening balance |  | $ | 2,956 |  |  | $ | 4,908 |  |  | $ | 5,825 |
Settlement of liability reclassified as income tax payable |  | — |  |  | — |  |  | — |
Payments on liability |  | — |  |  | — |  |  | — |
Tax positions taken in a prior period |  |  |  |  |  |  |  |  |
Gross increases |  | — |  |  | — |  |  | — |
Gross decreases |  | (467 | ) |  | (705 | ) |  | — |
Tax positions taken in the current period |  |  |  |  |  |  |  |  |
Gross increases |  | 92 |  |  | 716 |  |  | 1,182 |
Gross decreases |  | — |  |  | — |  |  | — |
Lapse of applicable statute of limitations |  | (591 | ) |  | (1,970 | ) |  | (2,121 | )
Currency translation adjustments |  | (24 | ) |  | 7 |  |  | 22 |
Unrecognized tax benefits, ending balance |  | $ | 1,966 |  |  | $ | 2,956 |  |  | $ | 4,908 |
We anticipate that liabilities related to unrecognized tax benefits will increase approximately $0 to $0.1 million within the next twelve months due to additional transactions related to commissions and transfer pricing. We believe that it is reasonably possible that unrecognized tax benefits may change by $0 to $0.1 million within the next twelve months due to the expiration of statutes of limitations in various jurisdictions. Although we believe our estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in our historical income tax provisions and accruals. Such differences could have a material impact on our income tax provision and operating results in the period in which we make such determination.

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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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