Income Taxes

12 Months Ended

Dec. 31, 2018

INCOME TAXES

Income before the impact of income taxes for the years ended December 31 consisted of the following:


	2018		2017		2016
U.S.	$	146,855	$	190,480	$	103,798
Foreign	387,540		361,391		262,767
Total	$	534,395	$	551,871	$	366,565

The Company's provision for income taxes for the years ended December 31 consisted of the following:


	2018		2017		2016
Current:
Federal	$	(7,274)	$	(85,761)	$	(41,407)
State	(2,097)		(2,387)		(4,750)
Foreign	(125,431)		(93,254)		(72,600)
Total current	(134,802)		(181,402)		(118,757)
Deferred:
Federal	(2,497)		(12,459)		8,709
State	(8,449)		(649)		383
Foreign	15,522		(9,773)		3,816
Total deferred	4,576		(22,881)		12,908
Provision for income taxes	$	(130,226)	$	(204,283)	$	(105,849)

A reconciliation of income tax expense at the U.S. federal statutory income tax rate to the recorded tax provision for the years ended December 31, were as follows:


	2018		2017		2016
Tax at statutory rate	$	(112,223)	$	(193,155)	$	(128,298)
Non-U.S. rate differential — net	(26,985)		25,795		16,718
State income taxes — net	(3,367)		(3,413)		(2,640)
Stock-based compensation - tax benefit	13,298		14,015		—
Foreign derived intangible income benefit	7,930		—		—
Global intangible low-taxed income taxed in the U.S.	(5,955)		—		—
Effect of 2017 U.S. Tax Cuts and Jobs Act	4,747		(48,126)		—
Effect of changes in enacted tax rates on deferred tax assets and liabilities	(1,422)		(1,281)		(111)
Effect of changes in enacted tax rates on prepaid taxes	(6,585)		—		—
Federal and state tax credits	11,024		9,210		9,840
Change in reserves, including interest and penalties	(2,290)		(4,350)		1,105

Change in valuation allowance	(7,421)		51		26
Other — net	(977)		(3,029)		(2,489)
Provision for income taxes	$	(130,226)	$	(204,283)	$	(105,849)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, were as follows:


	2018		2017
Property, plant and equipment	$	(22,443)	$	(20,191)
Inventory provisions	12,963		13,437
Allowances and accrued liabilities	(2,599)		3,588
Other tax credits	10,771		10,294
Deferred compensation	17,481		(5,223)
Net operating loss carryforwards	3,364		3,993
Valuation allowance	(7,910)		(284)
Net deferred tax assets	$	11,627	$	5,614

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 including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%, (2) requiring a one-time transition tax on certain undistributed earnings of foreign subsidiaries that is payable over eight years, (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (4) providing an incentive benefit for U.S. income from intangibles (Foreign Derived Intangible Income); (5) increasing U.S. taxable income to include all income earned by foreign subsidiaries in excess

of ten percent of the fixed assets in those entities (Global Intangible Low-taxed Income) and (6) providing for bonus depreciation that will allow for full expensing of qualified property.

The Securities and Exchange Commission ("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.

The Company's accounting for the Deemed Repatriation Transition Tax ("Transition Tax") element of the Tax Act is now complete. The final calculation for the 2017 tax return was $43,379. As of December 31, 2017, the Company had recorded a provisional expense for the Transition Tax of $48,126. The decrease of $4,747 was recorded as a reduction in tax expense in the third quarter of 2018. As the Transition Tax is payable over 8 years, $30,263 and $44,366 of this amount is included within other long-term liabilities on the consolidated balance sheets at December 31, 2018 and 2017, respectively. In addition, the Company has calculated a $1,422 reduction in the valuation of net deferred tax assets related to the decrease in the U.S. federal tax rate. As of December 31, 2017, the Company had recorded a provisional decrease of $1,281. The increase of $141 was recorded as an increase to tax expense in the third quarter of 2018. The impact of other provisions in the Tax Act that were effective January 1, 2018, including the tax impact of the Foreign Derived Intangible Income ("FDII") and Global Intangible Low-Taxed Income ("GILTI") sections, are included in the effective tax rate calculation for 2018. The Company has included a benefit from FDII of $7,930 and a detriment from GILTI of $5,955 in the tax expense for 2018.

In 2018 the Company repatriated $521,820 from its German subsidiary, which increased U.S. state taxes by $1,084. No federal taxes were provided as a result of the Tax Act as it provided for a deduction equal to the amount of the dividend. The Company has recorded a $2,225 deferred tax liability for certain withholding and dividend taxes related to possible future distributions from non-U.S. subsidiaries to their non-U.S. parents. With regard to future repatriation of undistributed earnings of non-U.S. subsidiaries back to the U.S., the Company continues to consider these earnings to be indefinitely reinvested and, accordingly, has not recorded any deferred income taxes for state tax or withholding taxes that would be assessed on such a repatriation. At December 31, 2018 and 2017, the cumulative undistributed earnings in non-U.S. subsidiaries were approximately $930,993 and $1,266,000, respectively.

As of December 31, 2018 and 2017, the Company had state tax credit carry-forwards of $11,801 and $10,294, respectively. The state tax credit carry-forwards begin expiring in 2020. The Company has determined that it is not more likely than not that some of the state credits will be used before the expiration date and had provided a valuation allowance of $7,439 in 2018. In addition, at December 31, 2018, the Company has net operating loss carry-forwards available for future periods of $2,888 related to its U.K. subsidiary. The U.K. net operating loss can be carried-forward indefinitely; however, the Company does not believe it is more likely than not it can be used and has provided a valuation allowance for part of this amount.

The Company's acquisition of Menara Networks, Inc. ("Menara") in 2016 included net operating loss carry-forwards of $22,242. As of December 31, 2018 and 2017 , the Company had $12,577 and $16,202 of these net operating loss carry-forwards remaining, respectively. No valuation allowance has been provided for these carry-forwards as the Company expects to be able to fully utilize them to offset future income.

We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves recorded are based on a determination of whether and how much of a tax benefit taken by us in our tax filings or positions is "more likely than not" to be realized following resolution of any potential contingencies present related to the tax benefit, assuming that the matter in question will be raised by the tax authorities. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:


	2018		2017
Balance at January 1	$	10,370	$	6,403
Change in prior period positions	(1,067)		(2,240)
Additions for tax positions in current period	2,726		6,207
Foreign exchange adjustments	$	(823)
Balance at December 31	11,206		10,370

Substantially all of the liability for uncertain tax benefits related to various federal, state and foreign income tax matters, would benefit the Company's effective tax rate, if recognized.

Estimated penalties and interest related to the underpayment of income taxes were $631, $121 and ($163) for the years ended December 31, 2018, 2017 and 2016, respectively, and are included within the provision for income taxes. Total accrued penalties and interest related to the underpayment of income taxes were $1,419 and $789 at December 31, 2018 and 2017, respectively.

The Company's uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. If these uncertain tax positions were realized, they would benefit the Company’s effective tax rate. The Company is currently under a tax audit in Germany for the years 2013 to 2016. Open tax years by major jurisdictions are:



United States						2016 - 2018
Germany						2013 - 2018
Russia						2015 - 2018

At December 31, 2018, we had $243.4 million of cash and cash equivalents and $500.4 million in short-term investments in the United States and $301.0 million of cash and cash equivalents at foreign locations. Cash and cash equivalents outside of the United States are intended to fund working capital, capital expenditures and business expansion outside the United States.