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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes In 2017, 2016 and 2015, pre-tax income (loss) was attributed to the following jurisdictions:
| Year Ended December 31,
(In thousands) | 2017 |  | 2016 |  | 2015
Domestic operations | $ | (12,852 | ) |  | $ | 165 |  |  | $ | (6,857 | )
Foreign operations | 20,140 |  |  | 25,023 |  |  | 42,832 |
Total | $ | 7,288 |  |  | $ | 25,188 |  |  | $ | 35,975 |
The provision for income taxes charged to operations was as follows:
| Year Ended December 31,
(In thousands) | 2017 |  | 2016 |  | 2015
Current tax expense: |  |  |  |  |
U.S. federal | $ | 3,406 |  |  | $ | 1,748 |  |  | $ | 2,726 |
State and local | 72 |  |  | 374 |  |  | 189 |
Foreign | 8,304 |  |  | 4,150 |  |  | 9,028 |
Total current | 11,782 |  |  | 6,272 |  |  | 11,943 |
Deferred tax (benefit) expense: |  |  |  |  |
U.S. federal | 9,495 |  |  | (1,416 | ) |  | (4,588 | )
State and local | (369 | ) |  | (356 | ) |  | (87 | )
Foreign | (3,297 | ) |  | 304 |  |  | (466 | )
Total deferred | 5,829 |  |  | (1,468 | ) |  | (5,141 | )
Total provision for income taxes | $ | 17,611 |  |  | $ | 4,804 |  |  | $ | 6,802 |
Net deferred tax assets were comprised of the following:
| December 31,
(In thousands) | 2017 |  | 2016
Deferred tax assets: |  |  |
Inventory reserves | $ | 1,104 |  |  | $ | 1,396 |
Capitalized research costs | 23 |  |  | 44 |
Capitalized inventory costs | 609 |  |  | 704 |
Net operating losses | 999 |  |  | 485 |
Acquired intangible assets | 287 |  |  | 136 |
Accrued liabilities | 1,239 |  |  | 4,739 |
Income tax credits | 8,861 |  |  | 12,509 |
Stock-based compensation | 2,712 |  |  | 3,376 |
Amortization of intangible assets | 526 |  |  | — |
Total deferred tax assets | 16,360 |  |  | 23,389 |
Deferred tax liabilities: |  |  |
Depreciation | (944 | ) |  | (2,924 | )
Allowance for doubtful accounts | (444 | ) |  | (241 | )
Amortization of intangible assets | — |  |  | (780 | )
Other | (2,680 | ) |  | (1,479 | )
Total deferred tax liabilities | (4,068 | ) |  | (5,424 | )
Net deferred tax assets before valuation allowance | 12,292 |  |  | 17,965 |
Less: Valuation allowance | (8,802 | ) |  | (8,635 | )
Net deferred tax assets | $ | 3,490 |  |  | $ | 9,330 |
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pre-tax income from operations as a result of the following:
| Year Ended December 31,
(In thousands) | 2017 |  | 2016 |  | 2015
Tax provision at statutory U.S. rate | $ | 2,551 |  |  | $ | 8,554 |  |  | $ | 12,232 |
Increase (decrease) in tax provision resulting from: |  |  |  |  |
State and local taxes, net | (733 | ) |  | (553 | ) |  | (554 | )
Foreign tax rate differential | (296 | ) |  | (3,244 | ) |  | (5,762 | )
Foreign undistributed earnings, net of credits | 14,211 |  |  | — |  |  | — |
Nondeductible items | 891 |  |  | 839 |  |  | 874 |
Federal research and development credits | (620 | ) |  | (710 | ) |  | (678 | )
Non-territorial income | (1,517 | ) |  | (1,458 | ) |  | (1,906 | )
Withholding tax | 1,078 |  |  | 1,762 |  |  | 1,985 |
Change in deductibility of social insurance | 5 |  |  | 8 |  |  | 649 |
Uncertain tax positions | 1,344 |  |  | 165 |  |  | 10 |
Stock-based compensation | 479 |  |  | — |  |  | — |
Federal tax rate change | 686 |  |  | — |  |  | — |
Valuation allowance | 149 |  |  | 1,598 |  |  | 621 |
Foreign permanent benefit | (451 | ) |  | (2,110 | ) |  | (675 | )
Other | (166 | ) |  | (47 | ) |  | 6 |
Tax provision | $ | 17,611 |  |  | $ | 4,804 |  |  | $ | 6,802 |
At December 31, 2017, we had state Research and Experimentation ("R&E") income tax credit carryforwards of $8.6 million. The state R&E income tax credits do not have an expiration date. At December 31, 2017, we had federal, state and foreign net operating loss carryforwards of $17.0 thousand, $10.1 million and $1.8 million, respectively. The federal, state and foreign net operating loss carryforwards begin to expire during 2023, 2027 and 2022, respectively. Internal Revenue Code Section 382 places certain limitations on the annual amount of net operating loss carryforwards that may be utilized if certain changes to a company’s ownership occur. The annual federal limitation is approximately $0.6 million for 2017 and thereafter. At December 31, 2017, we assessed the realizability of our deferred tax assets by considering whether it is "more likely than not" some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income in carry-back years, the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. Due to uncertainties surrounding the realization of some of our deferred tax assets, we established a valuation allowance against certain deferred tax assets. This valuation allowance primarily relates to state R&E income tax credits generated during prior years and the current year. Additionally, we recorded $0.2 million of valuation allowance during the year ended December 31, 2017 against certain deferred tax assets associated with our Guangzhou factory as a result of the pending sale of this factory and related transition of manufacturing activities (see Note 13 for further details). If and when recognized, the tax benefits relating to any reversal of valuation allowance will be recorded as a reduction of income tax expense. The total valuation allowance increased by $0.2 million and $2.0 million during the years ended December 31, 2017 and 2016, respectively. The undistributed earnings of our foreign subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for state income taxes or foreign withholding taxes has been provided on such undistributed earnings. Determination of the potential amount of unrecognized deferred state income tax liability and foreign withholding taxes is not practicable because of the complexities associated with its hypothetical calculation. During 2012, China's State Administration of Taxation ("SAT") issued Circular 15, which required us to reevaluate our foreign deferred tax assets relating to our Chinese subsidiaries. These subsidiaries have recorded a deferred tax asset for social insurance and housing funds with the intent of being able to deduct these expenses once such liabilities have been settled. Circular 15 stipulates that payments into the aforementioned funds must be made within five years of recording the initial accrual or the tax deduction for these expenses will be forfeited. At December 31, 2017, we evaluated fund payments made prior to the preceding five years and determined that none of our foreign deferred tax assets would provide a future tax benefit due to the change in Chinese law. In adhering to the new law, we recorded no increases to income tax expense for the years ended December 31, 2017 and 2016 and $0.6 million for the year ended December 31, 2015 relating to decreases in the deferred tax assets of our Chinese subsidiaries. Uncertain Tax Positions At December 31, 2017 and 2016, we had unrecognized tax benefits of approximately $5.6 million and $3.9 million, including interest and penalties, respectively. In accordance with accounting guidance, we have elected to classify interest and penalties as components of tax expense. Interest and penalties were $0.5 million, $0.3 million, and $0.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Interest and penalties are included in the unrecognized tax benefits. Changes to our gross unrecognized tax benefits were as follows:
| Year ended December 31,
(In thousands) | 2017 |  | 2016 |  | 2015
Balance at beginning of period | $ | 3,622 |  |  | $ | 3,469 |  |  | $ | 3,486 |
Additions as a result of tax provisions taken during the current year | 1,489 |  |  | 305 |  |  | 463 |
Subtractions as a result of tax provisions taken during the prior year | — |  |  | — |  |  | (161 | )
Foreign currency translation | 90 |  |  | (93 | ) |  | (79 | )
Lapse in statute of limitations | (141 | ) |  | (67 | ) |  | (241 | )
Settlements | — |  |  | — |  |  | — |
Other | 21 |  |  | 8 |  |  | 1 |
Balance at end of period | $ | 5,081 |  |  | $ | 3,622 |  |  | $ | 3,469 |
Approximately $5.3 million, $3.6 million and $3.3 million of the total amount of gross unrecognized tax benefits at December 31, 2017, 2016 and 2015, respectively, if not for the state R&E income tax credit valuation allowance, would affect the annual effective tax rate, if recognized. We are unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change within the next twelve months. We anticipate a decrease in gross unrecognized tax benefits of approximately $0.1 million within the next twelve months based on federal, state, and foreign statute expirations in various jurisdictions. We have classified uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year. We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. At December 31, 2017, the open statutes of limitations for our significant tax jurisdictions are the following: federal are 2014 through 2016, state are 2013 through 2016 and foreign are 2011 through 2016. U.S. Tax Cuts and Jobs Act On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property. The Tax Act also establishes new tax laws that will affect 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate alternative minimum tax ("AMT"); (3) the creation of the base erosion anti-abuse tax ("BEAT"), a new minimum tax; (4) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (5) a new provision designed to tax global intangible low-taxed income ("GILTI"), which allows for the possibility of using foreign tax credits ("FTC"s) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (6) a new limitation on deductible interest expense; (7) the repeal of the domestic production activity deduction; (8) limitations on the deductibility of certain executive compensation; (9) limitations on the use of FTCs to reduce the U.S. income tax liability; and (10) limitations on net operating losses ("NOL"s) generated after December 31, 2017, to 80 percent of taxable income. The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. Our accounting for the following elements of the Tax Act is incomplete. However, we were able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments as follows: Reduction of U.S. federal corporate tax rate: The Tax Act reduces the U.S. federal corporate tax rate to 21 percent, effective January 1, 2018. For certain of our deferred tax assets and deferred tax liabilities, we have recorded a provisional decrease of $2.3 million, with a corresponding net adjustment to deferred income tax expense of $2.3 million for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences, as well as changes to our valuation allowance. Deemed repatriation transition tax: The Deemed Repatriation Transition Tax ("Transition Tax") is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $2.1 million. However, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax. Valuation allowances: We must assess whether our valuation allowance is affected by various aspects of the Tax Act (e.g., deemed repatriation of deferred foreign income, GILTI inclusions, new categories of FTCs). Since we have recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional. Our accounting for the following elements of the Tax Act is incomplete, and we were not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded. GILTI tax: 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. Because whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on not only our current structure and estimated future results of global operations but also our intent and ability to modify our structure and/or our business, 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 related to potential GILTI tax.

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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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