Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

Note 17 — Income Taxes

The amounts of income (loss) before income taxes attributable to domestic and foreign operations were as follows:

	Year ended December 31,
	2019		2018		2017
	(in thousands)
Domestic	$	(78,486)	$	(286,561)	$	(101,573)
Foreign		530		(147,273)		12,583
Total	$	(77,956)	$	(433,834)	$	(88,990)

Significant components of the expense (benefit) for income taxes consisted of the following:

	Year ended December 31,
	2019		2018		2017
	(in thousands)
Current:
Federal	$	—	$	(1,682)	$	—
Foreign		304		2,518		(2,246)
State and local		113		38		15
Total current expense (benefit) for income taxes		417		874		(2,231)
Deferred:
Federal		162		205		(35,912)
Foreign		116		(27,932)		1,291
State and local		82		107		(742)
Total deferred expense (benefit) for income taxes		360		(27,620)		(35,363)
Total expense (benefit) for income taxes	$	777	$	(26,746)	$	(37,594)

The income tax expense was reconciled to the tax expense computed at the U.S. federal statutory tax rate as follows:

	Year ended December 31,
	2019		2018		2017
	(in thousands)
Income tax expense (benefit) at U.S. statutory rates	$	(16,396)	$	(91,105)	$	(31,147)
State taxes, net of U.S. federal impact		(835)		(2,848)		(2,523)
Effect of international operations		785		11,847		10,158
Research and development tax credit		(1,692)		(2,230)		620
Net change in valuation allowance		15,098		7,747		1,883
Change in accrual for unrecognized tax benefits		1,232		2,868		(4,772)
Share-based compensation		1,947		1,848		99
Effect of 2017 Tax Act		—		(1,690)		(11,344)
Asset impairment		495		46,872		—
Other		143		(55)		(568)
Total expense (benefit) for income taxes	$	777	$	(26,746)	$	(37,594)

The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with SAB 118, which provided SEC staff guidance for the application of ASC 740 in the reporting period in which the 2017 Tax Act was signed into law. As such, the Company’s 2017 financial results included provisional amounts for specific income tax effects of the 2017 Tax Act for which the accounting under ASC 740 was incomplete but for which a reasonable estimate could be determined. During the year ended December 31, 2018, the Company finalized the accounting for the tax effects of 2017 Tax Act based on legislative updates currently available and recorded an additional income tax benefit of $1.7 million for alternative minimum tax credits that became refundable in accordance with the 2017 Tax Act. The Company also reported an increase in deferred tax assets of $6.8 million as a result of adjustments to tax attributes utilized for one-time transition tax, which was offset by a full valuation allowance.

The most significant impacts of the 2017 Tax Act on the Company’s federal income taxes for the year ended December 31, 2017 were as follows:

Reduction of the U.S. Corporate Income Tax Rate

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were re-measured as of December 22, 2017 to reflect the reduction in the U.S. corporate income tax rate from

35 percent to 21 percent. The Company recorded an income tax benefit of $4.8 million for the year ended December 31, 2017, as the net deferred tax assets were reduced by $25.6 million with a corresponding valuation allowance reduction of $30.4 million.

One-Time Transition Tax on Foreign Earnings

As of December 31, 2017, the Company had $180.1 million of foreign earnings that was subject to the one-time transition tax. The Company used its 2017 and carryforward net operating losses to offset the impact of the transition tax. As the Company maintains a full valuation allowance against its U.S. deferred tax assets, the Company did not record an income tax expense related to the transition tax for the year ended December 31, 2017.

Valuation Allowance

The 2017 Tax Act modified the Net Operating Loss ("NOL") provisions to provide for an indefinite carryforward of NOLs arising in tax years beginning after December 31, 2017. The 2017 Tax Act also limits the amount of NOL deductions that can be used in any one year to 80 percent of the taxpayer’s taxable income, effective with respect to NOLs arising in tax years beginning after December 31, 2017. The Company recognized an income tax benefit of $6.5 million for the year ended December 31, 2017 related to a reduction in the Company’s valuation allowance as a result of the Company scheduling out the reversals of its net deferred tax assets which resulted in tax amortization on indefinite-lived intangible assets becoming available to offset existing deferred tax assets that are now expected to have an indefinite life.

Deferred income taxes reflect the effect of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary differences were as follows:

	December 31,
	2019		2018
	(in thousands)
Deferred tax assets:
Inventory valuation	$	11,170	$	8,943
Net operating losses		63,342		67,787
Credit carry forwards		55,103		52,592
Warranty and installation accruals		1,391		1,695
Share-based compensation		6,296		6,981
Other		9,496		2,182
Total deferred tax assets		146,798		140,180
Valuation allowance		(130,053)		(114,955)
Net deferred tax assets		16,745		25,225
Deferred tax liabilities:
Purchased intangible assets		9,345		15,401
Convertible Senior Notes		8,831		11,265
Depreciation		2,668		2,380
Total deferred tax liabilities		20,844		29,046
Net deferred taxes	$	(4,099)	$	(3,821)

The Company is no longer permanently reinvesting future earnings from certain foreign jurisdictions and has accrued for foreign tax withholdings of $0.6 million on its unremitted earnings as of December 31, 2019.

At December 31, 2019, the Company had U.S. federal NOL carryforwards of approximately $270.9 million, of which $6.4 million has an indefinite carryforward period, with the remaining expiring in varying amounts between 2033 and 2037, if not utilized. In connection with the Ultratech acquisition, the Company has $120.8 million of historical NOL carryforwards which are subject to an annual limitation. The Company has $3.5 million of capital loss carryforwards that expire in 2021. At December 31, 2019, the Company had U.S. federal research and development credits of $29.8 million that will expire between 2020 and 2039. The Ultratech acquisition resulted in the carryover of $11.4 million of research and development credit carryforwards, which are subject to an annual limitation. The Company also has $9.4 million of foreign tax credits that expire in 2027. Additionally, the Company has state and local NOL carryforwards of approximately $127.5 million (a net deferred tax asset of $8.1 million, net of federal tax benefits and before the valuation allowance) that will expire between 2020 and 2039. Finally, the Company has state credits of $28.4 million, some of which are indefinite and others that will expire between 2020 and 2034.

The Company makes assessments to estimate if sufficient taxable income will be generated in the future to use existing deferred tax assets. As of December 31, 2019, the Company continued to have a cumulative three year loss with respect to its U.S. operations. As such, the Company has recorded a valuation allowance against its U.S. deferred tax assets. During 2019, the Company’s valuation allowance increased by approximately $15.1 million.

A roll-forward of the Company’s uncertain tax positions for all U.S. federal, state, and foreign tax jurisdictions was as follows:

	December 31,
	2019		2018		2017
	(in thousands)
Balance at beginning of year	$	11,137	$	8,269	$	7,452
Additions for tax positions related to current year		3,075		2,154		511
Additions for tax positions related to prior years		21		1,721		3
Reductions for tax positions related to prior years		(1,814)		(934)		(4,877)
Reductions due to the lapse of the statute of limitations		—		(26)		(122)
Settlements		(50)		(47)		(287)
Additions for business combination		—		—		5,589
Balance at end of year	$	12,369	$	11,137	$	8,269

If the amount of unrecognized tax benefits at December 31, 2019 were recognized, the Company’s income tax provision would decrease by $1.5 million. The gross amount of interest and penalties accrued in income tax payable in the Consolidated Balance Sheets was approximately $0.4 million and $0.3 million at December 31, 2019 and 2018, respectively.

The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions. All material consolidated federal income tax matters have been concluded for years through 2016 subject to subsequent utilization of NOLs generated in such years. All material state and local income tax matters have been reviewed through 2012. The majority of the Company’s foreign jurisdictions have been reviewed through 2015. The Company’s major foreign jurisdictions’ statutes of limitation remain open with respect to the tax years 2017 and 2018 for China, 2015 through 2018 for Germany and Singapore, and 2018 for Taiwan. The Company does not anticipate that its uncertain tax position will change significantly within the next twelve months subject to the completion of the ongoing tax audits and any resultant settlement.