Income Taxes

Income (loss) before income taxes consisted of the following:



	Year Ended December 31,
	2017			2016		2015
	(In thousands)
Domestic	$	(84,278	)	$	33,543	$	107,158
Foreign	18,634			82,325		142,613
Total	$	(65,644	)	$	115,868	$	249,771

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



	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Current:
Federal	$	20,435		$	8,461		$	33,017
Foreign	(2,671		)	15,246			28,229
Total current	17,764			23,707			61,246
Deferred:
Federal	20,592			1,121			(1,611		)
Foreign	(3,361		)	(2,181		)	(1,872		)
Total deferred	17,231			(1,060		)	(3,483		)
Total	$	34,995		$	22,647		$	57,763

The difference between the effective income tax rate reflected in the provision for income taxes and the U.S. federal statutory rate was as follows:



	Year Ended December 31,
	2017		2016		2015
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
Foreign income tax rate differential	2.4		(11.7	)	(7.3	)
Foreign development tax incentive	1.8		(0.9	)	(1.3	)
Manufacturing benefit	—		(1.1	)	(1.4	)
Foreign intellectual property tax benefit	16.1		(1.0	)	(0.8	)
Tax Cuts and Jobs Act (TCJA) Transition Tax	(49.7	)	—		—
Deferred tax rate change	(20.7	)	—		—
Change in valuation allowance	(35.6	)	—		—
Other	(2.6	)	(0.8	)	(1.1	)
Effective income tax rate	(53.3	)%	19.5	%	23.1	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets (liabilities) are as follows:



	As of December 31,
	2017			2016
	(In thousands)
Net current deferred tax assets:
Inventory	$	20,816		$	21,531
Net operating losses	5,380			3,019
Allowance for doubtful accounts	1,200			1,311
Reserve for accrued liabilities	3,177			840
Stock options	3,553			6,052
Other	1,811			867
Net current deferred tax assets	35,937			33,620
Valuation allowance	$	(26,445	)	$	(3,071	)
Net non-current deferred tax liability:
Property, plant and equipment	(2,618		)	(7,899		)
Goodwill & Intangibles	(4,161		)	(1,653		)
Other	(781		)	1,699
Net non-current deferred tax liabilities	(7,560		)	(7,853		)
Net deferred tax asset	$	1,932		$	22,696

Net operating loss carryforwards totaled $23.3 million at December 31, 2017. These operating losses will expire as shown in the table below.



Net operating losses		Expiration
(In thousands)
$	5,132	2019-2024
6,993		2025-2031
2,200		2032-2037
8,995		Indefinite
$	23,319

In assessing the realizability of our deferred tax assets, the Company has considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination we are allowed to consider taxable income in prior years if carryback is permitted, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Based on the Company anticipating to be in a projected three year cumulative loss at December 31, 2017 in the United States and certain foreign subsidiaries and the inability to generate future taxable income from the four sources outlined, we have determined it is more likely than not that a portion of deferred taxes will not be realized. Therefore, the Company has recorded a valuation allowance at the December 31, 2017 of $26.4 million.

On December 22, 2017, the US Tax Reform was enacted. US Tax Reform includes a number of changes which will impact our business. These changes include but are not limited to, a reduction in the corporate tax rate from 35% to 21% starting in 2018, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. US Tax Reform also transitions U.S international taxation from a worldwide tax system to a modified territorial system, which includes base erosion prevention measures on non-U.S. earnings, which may have the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation. US Tax Reform also includes a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

Changes in tax rates and tax law are accounted for in the period of enactment. Therefore, during the year ended December 31, 2017, we recorded a charge totaling $46.2 million for our current estimate related to the provisions of US Tax Reform.

US Tax Reform eliminated the deferral of U.S. income tax on the historical unrepatriated earnings by imposing a transition tax, which is a one-time mandatory deemed repatriation tax on undistributed earnings. The transition tax is assessed on the U.S. shareholder’s share of the foreign corporation’s accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%. As of December 31, 2017, we have accrued income tax liabilities of $32.6 million under the transition tax.

Our deferred tax assets and liabilities are measured at the rate expected to apply when these temporary differences are expected to be realized or settled.

As our deferred tax assets exceeded the balance of our deferred tax liabilities at the date of enactment, we have recorded an adjustment of $13.6 million, reflecting the decrease in the U.S. corporate income tax rate and other changes to U.S. tax law. For the GILTI provisions of US Tax Reform, a provisional estimate could not be made as the Company has not yet completed its assessment or elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred.

The Company is also still evaluating whether to change its indefinite reinvestment assertion in light of US Tax Reform and consider that conclusion to be incomplete under guidance issued by the SEC. If the Company subsequently changes its assertion during the measurement period, the Company will account for the change in assertion as part of the US Tax Reform enactment.

The Company is required to recognize the impact of a tax position that is more likely than not to be sustained upon examination based upon the technical merits of the position, including resolution of any appeals. An evaluation was performed for the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2017, which are the years ended December 31, 2011 through December 31, 2017. The Company has occasionally been assessed interest or penalties by major tax jurisdictions; these assessments historically have not materially impacted the Company’s financial results. Interest expense assessed by tax jurisdictions is included with interest expense and assessed penalties are included in selling, general and administrative expenses.

The Company evaluates uncertain tax positions for recognition and measurement in the consolidated financial statements. To recognize a tax position, the Company determines whether it is more likely than not that the tax positions will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the consolidated financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The Company had an uncertain tax position of $18.9 million at December 31, 2017 due to uncertainty in special provisions in U.S. and foreign tax jurisdictions.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions for the year ended December 31, 2017 is as follows:



	2017
	(In thousands)
Balance at beginning of year	$	5,717
Additions for tax positions related to the current year	16,800
Settlements with tax authorities	(3,628		)
Balance at end of year	$	18,889

It is reasonably possible that the Company's existing liabilities for unrecognized tax benefits may increase or decrease in the year ending December 31, 2017, primarily due to the progression of any audits and the expiration of statutes of limitation. However, the Company cannot reasonably estimate a range of potential changes in its existing liabilities for unrecognized tax benefits due to various uncertainties, such as the unresolved nature of any possible audits. As of December 31, 2017, if recognized, $16.8 million of the Company's unrecognized tax benefits, including interest and penalties, would favorably impact the effective tax rate.

The Company paid $8.4 million, $23.0 million and $61.7 million in income taxes in 2017, 2016 and 2015, respectively.