Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The income tax expense (benefit) consists of the following:

	Year Ended December 31,
	2019			2018			2017
	(In thousands)
Current:
US federal	$	1,378		$	22,353		$	2,390
US state	909			847			1,153
Non US	12,861			15,212			8,266
	15,148			38,412			11,809
Deferred:
US federal	(3,781		)	5,617			(5,558		)
US state	(3,107		)	(1,031		)	(976		)
Non US	(8,040		)	(10,497		)	(4,498		)
	(14,928		)	(5,911		)	(11,032		)
Total	$	220		$	32,501		$	777

Income (loss) before income taxes includes the following components:

	Year Ended December 31,
	2019			2018			2017
	(In thousands)
US	$	(47,574	)	$	(36,202	)	$	(13,355	)
Non US	138,365			161,784			116,715
Total	$	90,791		$	125,582		$	103,360

A reconciliation of the statutory federal income tax rate to the effective income tax rate consists of the following:

	Year Ended December 31,
	2019		2018		2017
Statutory US federal income tax rate	21.0	%	21.0	%	34.0	%
US state income taxes, net of federal benefit	(2.3	)%	(0.3	)%	(0.8	)%
Non-US tax rate differential	(13.6	)%	(15.2	)%	(28.7	)%
GILTI Related	18.6	%	15.1	%	—	%
SubPart F	—	%	0.7	%	—	%
Tax holidays	(6.0	)%	(3.4	)%	(3.5	)%
Tax Credits	(15.0	)%	(10.6	)%	(1.4	)%
Passive income exemption	(1.2	)%	(0.9	)%	(2.1	)%
Acquisition contingent earnout liability adjustments	(4.0	)%	(0.2	)%	—	%
Nondeductible items	1.0	%	(0.1	)%	2.5	%
Effect of valuation allowance	1.2	%	(0.1	)%	(3.6	)%
Prior year Transition Tax and related true-ups	0.7	%	19.5	%	1.1	%
Uncertain tax positions	(0.1	)%	0.1	%	5.8	%
Rate change on deferred taxes primarily due to tax reform	—	%	—	%	(2.4	)%
Other	(0.1	)%	0.3	%	(0.1	)%
Effective income tax rate	0.2	%	25.9	%	0.8	%

The Company's effective tax rate decreased to 0.2% in 2019, compared with 25.9% in 2018. The effective tax rate was substantially higher in 2018 primarily due to the recording of a one-time tax liability of the transition tax resulting from enactment of the TCJA. Excluding this, the remaining decrease in the effective tax rate in 2019 is primarily related to prior year true-ups

Excluding one-time impact of Transition tax and related true-ups, the Company’s consolidated worldwide effective tax rate benefits from the effects of conducting significant operations in certain foreign jurisdictions, specifically India and Dubai, where certain units enjoys tax holidays or tax concessions which is partially offset by GILTI tax in the US.

Deferred tax assets and liabilities are comprised of the following:

	December 31, 2019					December 31, 2018
	Deferred					Deferred
	Assets			Liabilities		Assets			Liabilities
	(In thousands)
Depreciation and amortization	$	—		$	3,562	$	—		$	2,315
Share-based compensation	959			—		521			—
Accruals and prepaids	6,806			—		8,143			—
Bad debts	2,594			—		3,215			—
Acquired intangible assets	—			13,335		—			17,800
Net operating loss carryforwards	27,607			—		19,958			—
Tax credit carryforwards (primarily Minimum Alternative Tax ("MAT") in India)	50,210			—		43,656			—
	88,176			16,897		75,493			20,115
Valuation allowance	(3,288		)	—		(2,031		)	—
Total deferred taxes	$	84,888		$	16,897	$	73,462		$	20,115

Amounts recognized in the consolidated balance sheets:

	2019	2018
	(In thousands)
Non-current deferred tax assets	69,227	54,629
ASU 2013-11 reclass, described below	—	—
Net deferred tax assets	69,227	54,629
Non-current deferred tax liabilities	1,235	1,282

The valuation allowance increased by $1.3 million and $2.0 million during the years ended December 31, 2019 and 2018, respectively. The presentation above has been modified to correctly show the valuation allowances that should have been recorded and to gross up the Company’s deferred tax assets for implied valuation allowances that were inherited through acquisitions.

We have US Federal, state and foreign operating losses and credit carryforwards as follows:

	Year Ended December 31,
	2019		2018
	(In thousands)
US Federal loss carryforwards	$	48,623	$	43,116
US state loss carryforwards	65,412		38,307
Foreign loss carryforwards	58,660		40,349
US Federal credit carryforwards	3,359		901
Foreign credit carryforwards	46,851		42,755

The US federal and state operating loss carryforwards expire at varying dates through 2027. The federal credits begin to expire in 2028. We also have non-US US tax credits (primarily MAT paid in India) carried forward of approximately $46.9 million as of December 31, 2019, which is available for set-off against the future tax liability of certain Indian operations on a staggered basis over a period up-to fifteen years.

On December 22, 2017, the TCJA was enacted, substantially changing the U.S. tax system and affecting the Company in a number of ways. Notably, the TCJA: establishes a flat corporate income tax rate of 21.0% on U.S. earnings; imposes a one-time tax on unremitted cumulative non-U.S. earnings of foreign subsidiaries (“Transition Tax”);imposes a new minimum tax on certain non-U.S. earnings, irrespective of the territorial system of taxation, and generally allows for the repatriation of future

earnings of foreign subsidiaries without incurring additional U.S. taxes by transitioning to a territorial system of taxation; subjects certain payments made by a U.S. company to a related foreign company to certain minimum taxes (Base Erosion Anti-Abuse Tax); eliminates certain prior tax incentives for manufacturing in the United States and creates an incentive for U.S. companies to sell, lease or license goods and services abroad by allowing for a reduction in taxes owed on earnings related to such sales; allows the cost of investments in certain depreciable assets acquired and placed in service after September 27, 2017 to be immediately expensed; and reduces deductions with respect to certain compensation paid to specified executive officers.

In March 2018, the FASB Issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 was issued to incorporate into Topic 740 recent SEC guidance related to the income tax accounting implications of the TCJA. Due to the complexities involved in accounting for the enactment of the TCJA, the SEC Staff had issued SAB No. 118 which allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017. ASU 2018-05 became effective immediately and permitted companies to use provisional amounts for certain income tax effects of the TCJA during a one-year measurement period. The Transition Tax is based on the Company’s total post-1986 earnings and profits that were previously deferred from U.S. income taxes. The Company completed its tax accounting for the TCJA during Q4 2018 and recorded an adjustment of $24.5 million related to the transition tax after taking into consideration carried forward NOLs and other tax attributes available for set-off.

The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. Upon distribution of those earnings in the form of dividends or otherwise, we may be subject to income taxes and withholding taxes payable in various jurisdictions, which could potentially be partially offset by foreign tax credits. At December 31, 2019 the cumulative amount of the Company’s undistributed foreign earnings was approximately $740.5 million, inclusive of income previously taxed in the United States.

The following table summarizes the activity related to provision made by the Company in the books for uncertain tax positions:

	Year Ended December 31,
	2019			2018		2017
	(In thousands)
Beginning Balance	$	9,294		$	9,144	$	3,265
Additions for tax positions related to current year	—			150		—
Additions for tax positions of prior years	195			—		5,879
Reductions for tax position of prior years	(290		)	—		—
Ending Balance	$	9,199		$	9,294	$	9,144

The Company recognizes estimated interest accrued and penalties related to uncertain tax positions as part of the income tax expense provided for such positions. The Company accrued as of December 31, 2019 and 2018 approximately $1.0 million and $1.1 million, respectively, of estimated interest and penalties. These amounts are included in the December 31, 2019 and 2018 balances in the preceding table of $9.2 million and $9.3 million, respectively, which is included in other long term liabilities in the accompanying Consolidated Balance Sheet.

We file income tax returns in the US federal, many US state and local jurisdictions, and certain foreign jurisdictions. We have substantially resolved all US federal income tax matters for tax years prior to 2015. Our state and foreign tax matters may remain open from 2008 forward.