Income Taxes

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



	Year Ended December 31,
	2018			2017			2016
	(In thousands)
Domestic	$	(120,784	)	$	(84,278	)	$	33,543
Foreign	5,795			18,634			82,325
Total	$	(114,989	)	$	(65,644	)	$	115,868

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



	Year Ended December 31,
	2018			2017			2016
	(In thousands)
Current:
Federal	$	(24,366	)	$	20,435		$	8,461
Foreign	9,163			(2,671		)	15,246
Total current	(15,203		)	17,764			23,707
Deferred:
Federal	—			20,592			1,121
Foreign	(4,091		)	(3,361		)	(2,181		)
Total deferred	(4,091		)	17,231			(1,060		)
Total	$	(19,294	)	$	34,995		$	22,647

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,
	2018		2017		2016
Federal income tax statutory rate	21.00	%	35.00	%	35.00	%
Foreign income tax rate differential	(0.94	)	2.41		(11.66	)
Foreign development tax incentive	0.24		1.78		(0.93	)
Nondeductible goodwill impairment	(5.21	)	—		—
Exempt income	2.32		—		—
Foreign inclusions (SubF / GILTI net of FTC)	(2.40	)	—		—
Transition tax (net of FTC)	5.80		(28.62	)	—
Nondeductible expenses	(1.03	)	(1.75	)	0.54
Foreign intellectual property tax benefit	—		16.06		(1.08	)
Manufacturing benefit	(1.18	)	—		(0.99	)
Change in valuation allowance	(1.99	)	(35.61	)	—
Changes to PY Accruals	(1.17	)	(4.01	)	0.48
Deferred tax rate change	0.66		(20.66	)	—
Change in Uncertain tax positions	(0.78	)	(25.59	)	—
Interest on net equity	1.02		3.15		—
Other	0.44		4.53		(1.81	)
Effective tax rate	16.78	%	(53.31	)%	19.55	%

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,
	2018		2017
	(In thousands)
Deferred tax assets:
Foreign tax credit carryforward	2,918		3,094
Inventory	28,181		20,816
Net operating losses	4,899		5,380
Allowance for doubtful accounts	1,729		1,200
Reserve for accrued liabilities	3,357		3,177
Stock options	3,908		3,553
Other	1,003		1,811
Total deferred tax assets	45,995		39,031
Valuation allowance	(31,833	)	(29,539	)
Deferred tax liabilities:
Property, plant and equipment	(6,601	)	(2,618	)
Goodwill & Intangibles	(881	)	(4,161	)
Other	(1,151	)	(781	)
Total deferred tax	(8,633	)	(7,560	)
Net deferred tax asset (liability)	5,529		1,932

Tax operating loss carryforwards totaled $18.1 million at December 31, 2018. These operating losses will expire as shown in the table below.



Tax operating losses		Expiration
(in thousands)
$	2,258	2019-2024
10,990		2025-2031
2,431		2032-2037
2,409		Indefinite
$	18,088

In assessing the realizability of our deferred tax assets, the Company has assessed 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, the Company considered taxable income in prior years, if carryback is permitted, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. The Company has a three-year cumulative loss at December 31, 2018 in the United States and certain foreign jurisdictions and has recorded a valuation allowance at December 31, 2018 of $31.8 million against deferred tax assets in those jurisdictions.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (US Tax Reform). In 2017, we recorded provisional amounts for certain enactment-date effects of US Tax Reform by applying the guidance provided in Staff Accounting Bulletin 118 because we had not yet completed our enactment-date accounting for these said effects. In 2017, the Company recorded tax expense related to the enactment-date effects of US Tax Reform that included recording the one-time transition tax liability related to undistributed earnings of certain foreign subsidiaries that were not previously taxed and adjusting deferred tax assets and liabilities. The changes to the 2017 enactment-date provisional amounts increased the effective tax rate in 2018 by 13.7%. At December 31, 2018, we have now completed our accounting for all the enactment-date income tax effects of US Tax Reform. As further discussed below, during 2018, we recognized adjustments of $15.8 million to the provisional amounts recorded at December 31, 2017 and included these adjustments as a component of income tax expense from continuing operations.

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 accrued income tax liabilities of $32.6 million under the transition tax.

Upon further analyses of US Tax Reform and additional Notices and regulations issued and proposed by the US Department of the Treasury and the Internal Revenue Service, we finalized our calculations of the transition tax liability during 2018. We decreased our December 31, 2017 provisional amount by $15.8 million, which is included as a component of income tax expense from continuing operations.

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 of December 31, 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, by recording a provisional amount of $13.6 million. Upon further analysis of certain aspects of US Tax Reform and refinement of our calculations during the year ended December 31, 2018, we adjusted our provisional amount by $1.6 million, which is included as a component of income tax expense from continuing operations.

US Tax Reform subjects a US shareholder to tax on Global Intangible Low-Taxed Income (GILTI). We have elected to account for GILTI in the year that the tax is incurred as a period expense.

Certain undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for income taxes has been provided thereon. The estimate of undistributed earnings of the Company’s foreign subsidiaries amounted to $453 million as of December 31, 2018. Upon distribution of those earnings in the form of dividends or otherwise, after consideration of the transition tax, the Company may be subject to both income taxes and withholding taxes payable. Determination of the amount of the potential tax liability on repatriation is not practicable at this time.

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 $18.6 million at December 31, 2018 due to uncertainty in tax positions taken in the U.S. and certain foreign tax jurisdictions. The tax years which remain subject to examination by major tax jurisdictions are the years ended December 31, 2012 through December 31, 2018.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows:



	2018		2017			2016
	(In thousands)
Balance at beginning of year	$	18,323	$	5,151		$	—
Additions for tax positions related to the current year	—		16,800			—
Additions for tax positions related to the prior year	325		—			3,628
Additions related to acquisitions	—		—			1,523
Settlements with tax authorities	—		(3,628		)	—
Balance at end of year	$	18,648	$	18,323		$	5,151

The amounts above exclude accrued interest and penalties of $1.1 million, $0.6 million, and $0.6 million at December 31, 2018, 2017 and 2016 respectively. The Company classifies interest and penalties relating to uncertain tax positions within Tax expense(benefit) in the Consolidated Statement of Income (Loss).

It is reasonably possible that the Company's existing liabilities for unrecognized tax benefits may increase or decrease in the year ending December 31, 2019, 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, 2018, if recognized, $8.2 million of the Company's unrecognized tax benefits would favorably impact the effective tax rate.

The Company paid $3.8 million, $8.4 million and $23.0 million in income taxes in 2018, 2017 and 2016, respectively.