

	Year Ended December 31,
	2019			2018			2017
Current:
Federal	$	15,854		$	10,624		$	78,152
State	2,108			(879		)	2,687
Foreign	30,670			6,307			7,624
	48,632			16,052			88,463
Deferred:
Federal	352,808			(1,271		)	1,569
State	183			554			(639		)
Foreign	(442,494		)	(28		)	359
	(89,503		)	(745		)	1,289
	$	(40,871	)	$	15,307		$	89,752

A reconciliation of the U.S. federal statutory corporate tax rate to the Company’s income tax expense, or effective tax rate, was as follows:



	Year Ended December 31,
	2019		2018		2017
Income tax expense at U.S. federal statutory corporate tax rate	21	%	21	%	35	%
State income taxes, net of federal benefit	2		1		—
Foreign tax rate differential	(9	)	(9	)	(27	)
Tax credit	(1	)	—		(1	)
Discrete tax benefit related to employee stock options	(4	)	(4	)	(14	)
Discrete tax expense (benefit) related to Tax Act	—		(3	)	36
Discrete tax expense related to write-down of deferred tax assets	—		—		5
Discrete tax expense related to migration of acquired IP	18		—		—
Discrete tax (benefit) related to change in tax structure	(268	)	—		—
Discrete tax expense related to GILTI impact of change in tax structure	214		—		—
Other discrete tax events	(1	)	—		(1	)
Other	3		1		1
Income tax expense	(25	)%	7	%	34	%

In 2019, the Company elected to change its method of accounting for the United States Global Intangible Low-Taxed Income (GILTI) tax from recording the tax impact in the period it is incurred to recognizing deferred taxes for temporary tax basis differences expected to reverse as GILTI tax in future years. The change is considered preferable, as it appropriately matches the Company's current and deferred income tax implications related to the change in tax structure noted under the heading "Discrete Tax Events 2019" below.



Statement of Operations
	Year Ended December 31, 2019
	As reported under the new accounting policy			As computed under the previous accounting policy			Effect of change
Income before income tax expense	$	162,994		$	162,994		$	—
Income tax expense (benefit)	(40,871		)	(393,317		)	352,446
Net income	$	203,865		$	556,311		$	(352,446	)

Net income per weighted-average common and common-equivalent share:
Basic	$	1.19		$	3.25		$	(2.06	)
Diluted	$	1.16		$	3.17		$	(2.01	)



Balance Sheet
	December 31, 2019
	As reported under the new accounting policy		As computed under the previous accounting policy		Effect of change
Deferred tax assets	$	449,519	$	469,621	$	(20,102	)
Deferred tax liabilities	$	332,344	$	—	$	332,344



Statement of Shareholders' Equity
	Year Ended December 31, 2019
	As reported under the new accounting policy		As computed under the previous accounting policy		Effect of change
Retained earnings	$	753,268	$	1,105,714	$	(352,446	)

The European Union has enacted a series of tax reform legislation over the past few years regarding low tax structures. The Company made changes to its international tax structure in the fourth quarter of 2019 as a result of this legislation that resulted in an intercompany sale of intellectual property. The Company recorded an associated deferred tax asset and income tax benefit of $437,500,000 in Ireland based upon the fair value of the intellectual property, that will be realized over 15 years as future tax deductions. From a United States perspective, the sale is disregarded, and any future deductions claimed in Ireland will be added back to taxable income as part of GILTI minimum tax. The Company recorded an associated deferred tax liability and income tax expense of $350,000,000, representing the GILTI minimum tax related to the fair value of the intellectual property. The result of these transactions was a net discrete tax benefit of $87,500,000. Management expects its current effective tax rate excluding discrete items to increase slightly in future years as a result of this change.

In connection with the acquisition of Sualab, Co. Ltd., the Company migrated acquired intellectual property to certain subsidiaries in the fourth quarter of 2019 in order to align with its corporate tax structure. As a result of this transaction, the Company recorded a discrete tax expense of $28,528,000, which included a reserve of $3,700,000 for certain related tax uncertainties.

In December 2017, the Tax Cuts and Jobs Act of 2017 (Tax Act) was signed into law. The Tax Act resulted in a decrease in the U.S. federal statutory corporate tax rate from 35% to 21%. As a result of the reduction in anticipated tax rate, the Company remeasured its deferred tax positions as of December 31, 2017 at the new enacted tax rate, and accordingly, recorded tax expense of $12,523,000 in 2017 from the associated write-down of its deferred tax assets. In 2018, the Company recorded an increase in tax expense of $3,240,000 from the write-down of its deferred tax assets primarily relating to guidance under the Tax Act regarding stock-based compensation.

The Tax Act subjects unrepatriated foreign earnings to a one-time transition tax, regardless of the Company's financial statement assertion related to indefinite reinvestment or whether the Company ultimately repatriates any of the foreign earnings, for which the Company recorded estimated tax expense of $101,379,000 in 2017. In 2018, the Company revised its estimate of the one-time transition tax and recorded a decrease in tax expense of $11,028,000, which resulted in a revised estimate for the one-time transition tax of $90,351,000.

The Tax Act replaces the current system of taxing U.S. corporations on repatriated foreign earnings with a partial territorial system that provides a 100% dividends-received deduction to domestic corporations for foreign-source dividends received from 10% or more owned foreign corporations. The Company recorded a decrease in tax expense of $3,843,000 in 2017 from the reversal of the tax effect of a 2016 dividend paid in 2017 from a wholly-owned foreign subsidiary to its domestic entity.

The effective tax rate also included a decrease in tax expense of $6,472,000 in 2019, $8,488,000 in 2018, and $38,569,000 in 2017 related to stock options, primarily from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises. The Company cannot predict the level of stock option exercises by employees in future periods.

Other discrete tax events included a net decrease in tax expense of $1,932,000 in 2019, $1,847,000 in 2018, and $2,502,000 in 2017, consisting primarily of the expiration of the statutes of limitations for certain reserves for income tax uncertainties and the final true-up of the prior year's tax accrual upon filing the related tax returns.

The Company is tax resident in numerous jurisdictions around the world and has identified its major tax jurisdictions as the United States, Ireland, and China. Management has determined that earnings from its legal entity in China will remain indefinitely reinvested to provide local funding for growth, and that earnings from all other jurisdictions will not be indefinitely reinvested. As of December 31, 2019 and 2018, $370,953,000 and $446,346,000, respectively, of the Company’s cash, cash equivalents, and investments were held by foreign subsidiaries and were primarily denominated in U.S. Dollars.

On January 1, 2018, the Company adopted Accounting Standard Update (ASU) 2016-16, "Income Taxes - Intra-Entity Transfers of Assets Other than Inventory." This ASU requires the recognition of deferred income taxes for an intra-entity transfer of an asset other than inventory. As a result of this ASU, the Company recorded $5,961,000 through a cumulative-effect adjustment directly to retained earnings at the beginning of fiscal year 2018.



Balance of reserve for income taxes as of December 31, 2017	$	6,749
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in prior periods	69
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period	1,499
Gross amounts of decreases in unrecognized tax benefits as a result of the expiration of the applicable statutes of limitations	(1,023		)
Balance of reserve for income taxes as of December 31, 2018	7,294
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in prior periods	199
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period	5,259
Gross amounts of decreases in unrecognized tax benefits as a result of the expiration of the applicable statutes of limitations	(1,161		)
Balance of reserve for income taxes as of December 31, 2019	$	11,591

The Company’s reserve for income taxes, including gross interest and penalties, was $12,591,000 as of December 31, 2019, which included $11,563,000 classified as a non-current liability and $1,028,000 recorded as a reduction to non-current deferred tax assets. The Company's reserve for income taxes, including gross interest and penalties, was $8,134,000 as of December 31, 2018, which included $7,106,000 classified as a non-current liability and $1,028,000 recorded as a reduction to non-current deferred tax assets. The amount of gross interest and penalties included in these balances was $1,000,000 and $840,000 as of December 31, 2019 and December 31, 2018, respectively. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period. As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $1,300,000 to $1,400,000 over the next twelve months.

The Company has defined its major tax jurisdictions as the United States, Ireland, and China, and within the United States, Massachusetts. Within the United States, the tax years 2016 through 2019 remain open to examination by the Internal Revenue Service and various state taxing authorities. The tax years 2015 through 2019 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates.



	December 31,
	2019			2018
Non-current gross deferred tax assets:
Intangible asset in connection with change in tax structure	$	437,500		$	—
Stock-based compensation expense	15,042			13,818
Federal and state tax credit carryforwards	8,491			7,395
Foreign net operating losses	4,286			—
Depreciation	3,522			2,475
Inventory and revenue related	2,934			3,233
Bonuses, commissions, and other compensation	1,609			5,470
Other	3,550			2,425
Gross non-current deferred tax assets	476,934			34,816
Valuation allowance	(7,312		)	(6,112		)
	$	469,622		$	28,704

Non-current gross deferred tax liabilities:
GILTI tax basis differences in connection with change in tax structure	$	(350,000	)	$	—
Other GILTI tax basis differences	(2,446		)	—
Nondeductible intangible assets	—			(44		)
Other	—			(962		)
	$	(352,446	)	$	(1,006	)

In 2019, the Company recorded a valuation allowance of $1,200,000 for state research and development tax credits that were not considered to be realizable. Should these credits be utilized in a future period, the reserve associated with these credits would be reversed in the period when it is determined that the credits can be utilized to offset future state income tax liabilities. In addition, the Company had $9,519,000 of state research and development tax credit carryforwards, net of federal tax, as of December 31, 2019, which will begin to expire in 2020.

While the deferred tax assets, net of valuation allowance, are not assured of realization, management has evaluated the realizability of these deferred tax assets and has determined that it is more likely than not that these assets will be realized. In reaching this conclusion, we have evaluated certain relevant criteria including the Company’s historical profitability, current projections of future profitability, and the lives of tax credits, net operating losses, and other carryforwards. Should the Company fail to generate sufficient pre-tax profits in future periods, we may be required to establish valuation allowances against these deferred tax assets, resulting in a charge to current operations in the period of determination.