Income Taxes

12 Months Ended

Dec. 31, 2018

Income Taxes [Abstract]

Income Taxes

12. Income Taxes:

The components of income tax expense are as follows:

	Year Ended December 31,
	2018			2017			2016
Current:
Federal	$	4,423		$	6,020		$	6,084
State		1,038			507			983
Foreign		626			3,159			838
		6,087			9,686			7,905
Deferred:
Federal		1,961			17,034			4,765
State		(73	)		643			184
Foreign		275			(470	)		62
		2,163			17,207			5,011
Total income tax expense	$	8,250		$	26,893		$	12,916

The income before tax is comprised of the following:

	Year Ended December 31,
	2018		2017		2016
Domestic operations	$	49,089	$	57,079	$	47,599
Foreign operations	$	4,257	$	2,723	$	2,269

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 21% for the year ended December 31, 2018, and 35% for years ended December 31, 2017 and 2016 to income before provision for income taxes as follows:

	Year Ended December 31,
	2018			2017			2016
Federal income tax provision at statutory rate	$	11,203		$	20,931		$	17,454
State taxes, net of federal effect		747			573			822
Foreign taxes, net of federal effect		17			(238	)		(1,613	)
Domestic manufacturing benefit		—			(1,569	)		(1,244	)
FDII Deduction, related to the Tax Act		(2,217	)		—			—
GILTI income net of S250 deduction, related to the Tax Act		113			—			—
Section 162(m)		526			—			—
Research tax credit		(2,298	)		(1,559	)		(692	)
Deferred tax true-up		57			41			(1,644	)
Remeasurement of deferred tax balances, related to the Tax Act		(33	)		8,020			—
Transition tax on foreign earnings, related to the Tax Act		138			(106	)		—
Other		(3	)		800			(167	)
Provision for income taxes	$	8,250		$	26,893		$	12,916
Effective tax rate		15	%		45	%		26	%

The U.S. government enacted the Tax Act on December 22, 2017. 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 affected 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate; (2) the creation of the Base Erosion and Anti-Abuse (“BEAT”), a new minimum tax; (3) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax Global Intangible Low-Taxed Income (“GILTI”), which allows for the possibility of using foreign tax credits and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (5) the repeal of the domestic production activity deduction; (6) limitations on the deductibility of certain executive compensation; (7) limitations on the use of foreign tax credits to reduce the U.S. income tax liability; and (8) a new provision designed to allow a benefit for the foreign-derived intangible income (“FDII”).  In 2018 we evaluated the effects and have determined what accounting policies needed to change and we have calculated the impact of the above provisions. 

At December 31, 2018, the Company has completed its accounting for the tax effects of enactment of the Tax Act and, therefore, recorded final adjustments as follows:

• Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. For certain of its deferred tax assets and deferred tax liabilities, the Company has recorded a provisional decrease of $8.0 million, respectively, with a corresponding net adjustment to deferred income tax expense of $8.0 million for the year ended December 31, 2017. During the fourth quarter of 2018, the Company completed the accounting for such revaluation and determined that no adjustment was required. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear and the Company expects ongoing guidance to be issued at both the federal and state levels. The Company will continue to monitor and assess the impact of any new developments.

• Transition tax: The transition tax is a tax on previously deferred earnings and profits (“E&P”) of certain of its foreign subsidiaries. To determine the amount of the transition tax, the Company 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. The Company was able to make a reasonable estimate of the transition tax in the prior year ended on December 31, 2017 and recorded a provisional transition tax obligation of $1.5 million with a corresponding adjustment to current income tax expense. The Company also computed a Section 78 foreign tax credit from the post-1986 E&P of the relevant subsidiaries that resulted in a current income tax benefit of $1.5 million.  An additional $0.1 million was expensed in the third quarter of 2018 due to finalization of the prior year provisional Tax Act calculations.

• Valuation allowances: The Company, as of December 31, 2017, had to assess whether its valuation allowance analyses are affected by various aspects of the Tax Act. Since, as discussed herein, the Company has 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. The Company concluded that with all the facts that are available at this point in time that that a full valuation allowance on all carry forward foreign tax credits were needed.  The Company recorded the valuation allowance as of December 31, 2017 in the amount of $1.5 million with a corresponding adjustment to current income tax expense.  Per the completion of the analysis in 2018, the Company concluded that a full valuation allowance of the foreign tax credits is still required against such deferred tax assets.  As of December 31, 2018, the Company’s foreign tax credit carry forwards have a full valuation allowance recorded in the amount of $2.2 million.

Deferred tax assets and liabilities are comprised of the following:

	December 31,
	2018			2017
Research and development credit carryforward	$	198		$	216
Reserves and accruals not currently deductible		1,969			1,883
Deferred revenue		1,201			1,075
Domestic net operating loss carryforwards		832			892
Foreign net operating loss and credit carryforwards		3,146			2,551
Intangibles		4,402			5,388
Share-based compensation		1,259			1,500
Inventory obsolescence reserve		2,774			3,260
Other		810			1,135
Gross deferred tax assets		16,591			17,900
Valuation allowance for deferred tax assets		(3,172	)		(2,447	)
Deferred tax assets after valuation allowance		13,419			15,453
Gross deferred tax liabilities		(609	)		(574	)
Net deferred tax assets	$	12,810		$	14,879

At December 31, 2018 and 2017, the Company had recorded valuation allowances of $3,172 and $2,447, respectively, on certain of the Company’s deferred tax assets to reflect the deferred tax assets at the net amount that is more likely than not to be realized.  The Company recorded a full valuation allowance on all foreign tax credits as of December 31, 2018 in the amount of $2,155, as well as increases to China net operating loss valuation allowance in the amount of $112 based on current year utilization and offset by write-downs of expired net operating losses.

In assessing the realizability of deferred tax assets, the Company uses a more likely than not standard. If it is determined that it is more-likely-than-not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of the assets is dependent on the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies when making this assessment.  In making the determination that it is more likely than not that the Company’s deferred tax assets will be realized as of December 31, 2018, the Company relied primarily on projected future taxable income.

At December 31, 2018, the Company had federal, state and foreign net operating loss carryforwards of $497, $205 and $990, respectively. The federal, state and foreign net operating loss carryforwards expire on various dates through December 31, 2032, December 31, 2032 and December 31, 2026, respectively.  At December 31, 2018, the Company had federal and state research & development credits and foreign tax credit carryforwards of $0, $318 and $2,155, respectively.  The state research & development credits are set to expire at various dates through December 21, 2024. The foreign tax credit is set to expire at various dates through December 31, 2028.

A provision has not been made at December 31, 2018 for U.S. nor foreign withholding taxes recorded on approximately $7,914 of undistributed earnings of the Company’s foreign subsidiaries in Europe and Japan nor on any additional outside basis differences inherent in these entities because it is the present intention of management to permanently reinvest these undistributed earnings.  The estimated amount of additional tax would not be expected to have a significant impact on the Company’s results of operations.

The total amount of unrecognized tax benefits are as follows:

	December 31,
	2018			2017			2016
Balance, beginning of the period	$	4,880		$	4,827		$	5,236
Gross increases—tax positions in prior period		496			171			118
Gross decreases—tax positions in prior period		(61	)		(362	)		(735	)
Gross increases—current-period tax positions		213			244			208
Lapse of statute of limitations		—			—			—
Balance, end of the period	$	5,528		$	4,880		$	4,827

Included in the Company’s unrecognized tax benefit ending balance at December 31, 2018 and 2017 are unrecognized tax benefits of $4,995 and $4,403, respectively, which would be reflected as an adjustment to income tax expense if recognized.  The year over year increase from 2017 to 2018 is primarily due to additional unrecognized tax benefits related to federal tax exposures.  It is reasonably possible that certain amounts of unrecognized tax benefits may reverse in the next 12 months; however, the Company does not expect such reversals to have a significant impact on its results of operations or financial position.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2018, 2017 and 2016, the Company recognized approximately $199, $246 and $76, respectively, in interest and penalties expense associated with uncertain tax positions. As of December 31, 2018 and 2017, the Company had accrued interest and penalties expense related to unrecognized tax benefits of $1,445 and $1,190, respectively.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions.   The Company files U.S. federal, U.S. state and foreign tax returns. For U.S. federal tax purposes, the Company is generally no longer subject to tax examinations for years 2014 and prior. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for years 2013 and prior. For foreign tax purposes, the Company is generally no longer subject to examination for tax periods 2013 and prior. Certain carryforward tax attributes generated in prior years remain subject to examination and adjustment.  The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.

In the normal course of business, the Company is subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes or other taxes against it. Although the Company believes its tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from the Company’ s historical income tax provisions and accruals. The results of an audit or litigation could have a material adverse effect on the Company’ s results of operations or cash flows in the period or periods for which that determination is made.