As of December 31, 2017, the Company had not completed its accounting for the tax effects of the Tax Cuts and Jobs Act (Tax Act); however, in accordance with guidance provided by Staff Accounting Bulletin No. 118 (SAB 118), the Company made a provisional estimate of $20,153 for the effects on our existing deferred tax balances, the one-time transition tax and our indefinite reinvestment assertion regarding foreign subsidiary earnings. The measurement period begins in the reporting period that includes the Tax Act’s enactment date, which was December 22, 2017, and ends when the additional information is obtained, prepared, or analyzed to complete the accounting requirements under ASC Topic 740. The measurement periods should not extend beyond one year from the enactment date.

As of December 31, 2018, the Company evaluated the provisional amounts initially recorded for the year ended December 31, 2017 and recorded adjustments based on updates to the Company’s assumptions and the application of additional interpretative guidance as issued during 2018. The adjustments are primarily a result of refining the net deferred tax asset position with the completion of our 2017 U.S. income tax return and changing tax accounting methods that affected the timing of certain US tax deductions. These adjustments resulted in (i) a decrease in our existing deferred tax asset balances which resulted in an income tax expense of $4,950 and (ii) a net increase to the one-time transition tax which resulted in an income tax expense of $24,625. No adjustment was required to the $9,578 tax benefit included in the provision for income taxes as of December 31, 2017 to offset the one-time transition tax related to the previous deferred tax liability that existed for the undistributed foreign earnings that were not permanently reinvested. As of December 31, 2018, the total income tax expense was $19,997 for the year ended December 31, 2017, as compared to the provisional estimate of $20,153. In accordance with the Security and Exchange Commission’s Staff Accounting Bulletin No. 118 (SAB 118), at December 31, 2018, the Company had completed its accounting for the tax effects of the Tax Act.

The deferred tax assets and deferred tax liabilities and related valuation allowance were comprised of the following:

	December 31,
	2018			2017
Deferred tax assets:
Net operating losses		7,666			12,731
Intangible assets		42,853			—
Research and development credits		8,211			27,257
Depreciation		6,321			5,571
Valuation reserves and accrued liabilities		4,849			6,020
Foreign tax credit		376			—
Stock compensation		4,128			3,955
Inventory		1,069			2,062
Patents		150			163
Defined benefit obligation		1,796			1,977
Other credits		1,291			589
Unrealized foreign currency exchange loss		—			2,556
Other		2,499			36
		81,209			62,917
Valuation allowance		(9,977	)		(27,578	)
Deferred tax liabilities:
Intangible assets		—			(2,925	)
Unrealized foreign currency exchange gains		(554	)		—
Undistributed profits of subsidiary		(4,352	)		(6,450	)
Property and equipment		(2,896	)		(1,611	)
Other		(583	)		(548	)
		(8,385	)		(11,534	)
Net deferred tax asset	$	62,847		$	23,805

Reconciliations between the statutory Federal income tax rate of 21% and 34% and the effective rate of income tax expense for each of the three years in the period ended December 31, 2018 are as follows:

	Year Ended December 31,
	2018			2017			2016
Statutory Federal income tax rate		21.0	%		34.0	%		34.0	%
Increase (Decrease) resulting from:
U.S. Taxes on foreign income, net of taxes paid credit		—			—			1.3	%
Change in valuation allowance		(6.6	%)		10.6	%		5.3	%
Foreign, state and local tax, net of Federal benefit		1.8	%		0.8	%		1.1	%
Nondeductible expenses		3.4	%		2.4	%		2.4	%
Stock option compensation		—			(2.2	%)		—
Research and development credits		(2.5	%)		(4.6	%)		(0.7	%)
Effect of different tax rates of foreign jurisdictions		(6.6	%)		(20.8	%)		(15.0	%)
Undistributed profits of subsidiaries		1.2	%		5.8	%		7.9	%
Tax reform items		10.8	%		29.1	%		—
Other tax exempt income		—			—			—
Tax effects of intercompany transfers		0.8	%		(5.0	%)		(5.3	%)
Other		4.6	%		(1.0	%)		(0.3	%)
Effective rate		27.9	%		49.1	%		30.7	%

A portion of the U.S. Federal NOLs was incurred prior to the June 8, 1999 Preferred Financing, which qualified as a change in ownership under Section 382 of the Internal Revenue Code (“IRC”). Due to this change in ownership, the NOL accumulated prior to the change in control can only be utilized against current earnings up to a maximum annual limitation of approximately $591. As a result of the annual limitation, approximately $2,191 remaining of these carryforwards are expected to expire before ultimately becoming available to reduce future tax liabilities in addition to $17,158 in NOLs generated prior to the change in control which have already expired without being utilized.

We have incurred NOLs in various states associated with the benefits of the state dividends received reduction along with the foreign royalty exclusion. The state net operating loss carryforwards expire at various dates from 2019 to 2037. Management has concluded that it is more likely than not that a majority of these NOLs will not be utilized, and thus has not recognized the benefit of these NOLs.

At December 31, 2018, certain non-U.S. subsidiaries have net operating loss carryforwards totaling $21,688. This amount includes $15,912 in NOLs that expire at various dates from 2019 through 2038 and the remaining $5,776 have no expiration date. The Company has a valuation allowance recorded against $5,746 of the total non-U.S. subsidiaries’ net operating loss carryforwards as of December 31, 2018. In 2014 through 2018, we incurred NOLs in Vietnam associated with the startup activities of new production facilities. The remaining NOLs are expected to be utilized in 2019 through 2020 as the locations maintain profitability. We also incur NOLs in Luxembourg associated with our foreign holding company legal structure. Management has concluded that it is more likely than not these NOLs will not be utilized, and thus has not recognized the benefit of these NOLs.

On January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09, “Improvements to Employee Share-Based Payment Accounting.” Under the new standard, income tax benefits and deficiencies are recognized as an income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the period they occur. The update also requires the Company to recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. The standard also required a modified retrospective adoption for previously unrecognized excess tax benefits. Accordingly, the Company recognized a deferred tax asset and a corresponding credit to retained earnings equal to $1,496 in conjunction with the adoption. The effects of adopting the other provisions of ASU 2016-09 resulted in approximately 2% reduction of the effective tax rate during 2017.

The earnings before income taxes and our tax provision are comprised of the following:

	Year Ended December 31,
	2018		2017		2016
Income before income taxes:
Domestic	$	10,092	$	1,258	$	12,981
Foreign		48,027		67,997		97,582
Total income before income taxes	$	58,119	$	69,255	$	110,563

	Year Ended December 31,
	2018			2017			2016
Current income tax expense (benefit):
Federal	$	340		$	4,140		$	9,215
State and local		(71	)		150			749
Foreign		9,224			24,672			32,844
Total current income tax expense	$	9,493		$	28,962		$	42,808
Deferred income tax expense (benefit):
Federal	$	(1,422	)	$	15,207		$	(10,597	)
State and local		20			2,308			(742	)
Foreign		8,129			(12,449	)		2,496
Total deferred income tax expense	$	6,727		$	5,066		$	(8,843	)
Total tax expense	$	16,220		$	34,028		$	33,965

As of December 31, 2018 the previously recognized deferred taxes related to earnings from foreign subsidiaries has been reversed since all of these earnings are subject to the one-time transition tax and are not taxable upon repatriation to the United States. However, the Company continues to provide a deferred tax liability for foreign withholding tax that will be incurred with respect to the undistributed foreign earnings that are not permanently reinvested.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of December 31, 2018, the Company is no longer subject to U.S. Federal examinations by tax authorities for tax years before 2014 and is no longer subject to foreign examinations by tax authorities for tax years before 2012.

During 2015, to entice the Company to construct a new facility in Macedonia, the government of Macedonia granted the Company a tax holiday that released the Company from the obligation to pay corporate income taxes for a ten year period, subject to certain limitations. The amount of corporate income tax savings realized by the Company as a result of this tax holiday during 2018 and 2017, respectively, was zero as a result of operating losses generated during each period. The aggregate dollar effect and per share effect of the corporate income tax holiday during 2018 and 2017 was, therefore, immaterial.

At December 31, 2018, 2017 and 2016, the Company had total unrecognized tax benefits of $2,854, $4,522 and $4,486, respectively, all of which, if recognized, would affect the effective income tax rates. The reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	Year Ended December 31,
	2018			2017			2016
Balance at beginning of year	$	4,522		$	4,486		$	4,443
Additions based on tax position related to current year		221			1,758			80
Additions based on tax positions related to prior year		458			4			366
Reductions from settlements and statute of limitation expiration		(2,179	)		(2,247	)		(299	)
Effect of foreign currency translation		(168	)		529			(104	)
Balance at end of year	$	2,854		$	4,522		$	4,486

The Company classifies income tax-related penalties and net interest as income tax expense. In the years ended December 31, 2018, 2017 and 2016 income tax related interest and penalties were insignificant. The Company believes that it is reasonably possible that there may be a decrease to its unrecognized tax benefits in the next 12 months due to audit settlements and statute expirations, but the amount expected to reverse is insignificant in relation to the consolidated financial statements.