Accounting for Income Taxes	9 Months Ended
Sep. 30, 2018
Accounting for Income Taxes	Accounting for Income Taxes Our provision for income taxes was $24.6 million and $18.3 million for the three months ended September 30, 2018 and 2017, respectively, representing effective tax rates of 19.4% and 17.9%, respectively. Our provision for income taxes was $35.2 million and $26.5 million for the nine months ended September 30, 2018 and 2017, respectively, representing effective tax rates of 10.2% and 10.5%, respectively. As a result of the enactment of the TCJA, the U.S. federal statutory tax rate decreased from 35% to 21% effective January 1, 2018. Our effective tax rate differs from the statutory federal income tax rate of 21% and 35% for both the three and nine months ended September 30, 2018 and 2017, respectively, mainly as a result of the recognition of excess tax benefits related to stock-based compensation, tax benefits recognized related to a statute of limitations expiration, and certain foreign earnings, primarily from the Netherlands and Costa Rica, being taxed at lower tax rates, partially offset by unfavorable tax impact of the TCJA, including non-deductible officers’ compensation described below. On August 21, 2018, the Internal Revenue Service (“IRS”) issued Notice 2018-68, which provides interpretative guidance on the application of the new executive compensation deduction limits enacted under the TCJA. Based upon our assessment of this new guidance, for the three and nine months ended September 30, 2018, we reversed $20.2 million of previously recognized tax benefits associated with officers’ stock-based compensation deductions. The increase in effective tax rate for the three months ended September 30, 2018 compared to the same period in 2017 is primarily attributable to the unfavorable tax impact from IRS Notice 2018-68 related to limitations on officers’ compensation deductions as described above and reduced tax benefits from foreign earnings being taxed at a lower tax rate due to the decrease in corporate tax rate from 35% to 21%, partially offset by the recognition of tax benefits related to a statute of limitations expiration. The decrease in effective tax rate for the nine months ended September 30, 2018 compared to the same period in 2017 is mainly driven by the decrease in corporate tax rate from 35% to 21% pursuant to the enactment of the TCJA, the recognition of tax benefits related to a statute of limitations expiration and the increase in excess tax benefits related to stock-based compensation, offset in part by the unfavorable tax impact of the TCJA including non-deductible officers’ compensation under IRS Notice 2018-68 described above and reduced tax benefits from foreign earnings being taxed at a lower rate. As a result of our assessment of the impact of IRS Notice 2018-68 mentioned above, we reversed $20.2 million of previously recognized tax benefits associated with officers’ stock-based compensation deductions which resulted in a tax expense accrual of $14.7 million for the three months ended September 30, 2018. For the nine months ended September 30, 2018, the excess tax benefits we recognized in our provision for income taxes related to stock-based compensation was $25.2 million. We exercise significant judgment in regards to estimates of future market growth, forecasted earnings and projected taxable income in determining the provision for income taxes and for purposes of assessing our ability to utilize any future benefit from deferred tax assets. We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and the Netherlands. For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before 2015. We are currently under examination by the Internal Revenue Service for tax years 2015 and 2016. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2010. During the three and nine months ended September 30, 2018, a statute of limitations expired. As a result, we recorded approximately $29.0 million of previously unrecognized tax benefits and reduced our accrual for interest by approximately $2.9 million. Our total gross unrecognized tax benefits, excluding interest and penalties, was $27.1 million and $47.7 million as of September 30, 2018 and December 31, 2017, respectively, all of which would impact our effective tax rate if recognized. Our total interest and penalties accrued as of September 30, 2018 was $0.8 million. We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes. The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although it is possible that our balance of gross unrecognized tax benefits could materially change in the next 12 months, given the uncertainty in the development of ongoing income tax examinations, we are unable to estimate the full range of possible adjustments to this balance. In June 2017, the Costa Rica Ministry of Foreign Trade, an agency of the Government of Costa Rica, granted an extension of certain income tax incentives for an additional twelve year period. Under these incentives, all of the income in Costa Rica is subject to a reduced tax rate. In order to receive the benefit of these incentives, we must hire specified numbers of employees and maintain certain minimum levels of fixed asset investment in Costa Rica. If we do not fulfill these conditions for any reason, our incentive could lapse and our income in Costa Rica would be subject to taxation at higher rates which could have a negative impact on our operating results. The Costa Rica corporate income tax rate that would apply, absent the incentives, is 30% for 2018 and 2017. For the three and nine months ended September 30, 2018, the reduction in income taxes due to the reduced tax rate was minimal. As of December 31, 2017, our undistributed earnings totaled $606.5 million. We reassessed our capital needs and investment strategy with regard to the indefinite reinvestment of the undistributed earnings from certain of our foreign subsidiaries as a result of the one-time transition tax on cumulative foreign earnings under the TCJA. During the fourth quarter of 2017, we determined that approximately $591.9 million of the total undistributed foreign earnings are no longer considered to be indefinitely reinvested outside the U.S. As a result, in the fourth quarter of 2017, we recorded a deferred tax liability of approximately $3.3 million, which represents the provisional amount of U.S. state income taxes that would be due in the event these foreign earnings are distributed. The remaining amount of undistributed foreign earnings of approximately $14.7 million continues to be indefinitely reinvested in our international operations. Since U.S. federal income tax has already been provided under the provisions of the TCJA, the additional tax impact of the distribution of such foreign earnings to the U.S. parent would be limited to U.S. state income and withholding taxes and is not significant. As of December 31, 2017, we recorded a provisional tax charge for the estimated impact of the TCJA of $84.3 million, of which $73.9 million was related to a provisional transition tax liability on the mandatory deemed repatriation of foreign earnings and $10.4 million was related to the remeasurement of certain deferred tax assets and liabilities. During the nine months ended September 30, 2018, the cumulative additional provisional tax charge recorded was $3.3 million, primarily resulting from further analysis of our cumulative foreign earnings balances affecting the U.S. transition tax liability and the corresponding state tax impact. As we complete our analysis of the TJCA, we may make further adjustments to the provisional amounts, which may impact our provision for income taxes in the period(s) in which the adjustments are made. The TCJA subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. As of September 30, 2018, we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI. We have included GILTI related to current-year operations only in our estimated annual effective tax rate and have not provided additional GILTI on deferred items.

Accounting for Income Taxes

Our provision for income taxes was $24.6 million and $18.3 million for the three months ended September 30, 2018 and 2017, respectively, representing effective tax rates of 19.4% and 17.9%, respectively. Our provision for income taxes was $35.2 million and $26.5 million for the nine months ended September 30, 2018 and 2017, respectively, representing effective tax rates of 10.2% and 10.5%, respectively. As a result of the enactment of the TCJA, the U.S. federal statutory tax rate decreased from 35% to 21% effective January 1, 2018. Our effective tax rate differs from the statutory federal income tax rate of 21% and 35% for both the three and nine months ended September 30, 2018 and 2017, respectively, mainly as a result of the recognition of excess tax benefits related to stock-based compensation, tax benefits recognized related to a statute of limitations expiration, and certain foreign earnings, primarily from the Netherlands and Costa Rica, being taxed at lower tax rates, partially offset by unfavorable tax impact of the TCJA, including non-deductible officers’ compensation described below.

On August 21, 2018, the Internal Revenue Service (“IRS”) issued Notice 2018-68, which provides interpretative guidance on the application of the new executive compensation deduction limits enacted under the TCJA. Based upon our assessment of this new guidance, for the three and nine months ended September 30, 2018, we reversed $20.2 million of previously recognized tax benefits associated with officers’ stock-based compensation deductions.

The increase in effective tax rate for the three months ended September 30, 2018 compared to the same period in 2017 is primarily attributable to the unfavorable tax impact from IRS Notice 2018-68 related to limitations on officers’ compensation deductions as described above and reduced tax benefits from foreign earnings being taxed at a lower tax rate due to the decrease in corporate tax rate from 35% to 21%, partially offset by the recognition of tax benefits related to a statute of limitations expiration.

The decrease in effective tax rate for the nine months ended September 30, 2018 compared to the same period in 2017 is mainly driven by the decrease in corporate tax rate from 35% to 21% pursuant to the enactment of the TCJA, the recognition of tax benefits related to a statute of limitations expiration and the increase in excess tax benefits related to stock-based compensation, offset in part by the unfavorable tax impact of the TCJA including non-deductible officers’ compensation under IRS Notice 2018-68 described above and reduced tax benefits from foreign earnings being taxed at a lower rate.

As a result of our assessment of the impact of IRS Notice 2018-68 mentioned above, we reversed $20.2 million of previously recognized tax benefits associated with officers’ stock-based compensation deductions which resulted in a tax expense accrual of $14.7 million for the three months ended September 30, 2018. For the nine months ended September 30, 2018, the excess tax benefits we recognized in our provision for income taxes related to stock-based compensation was $25.2 million.

We exercise significant judgment in regards to estimates of future market growth, forecasted earnings and projected taxable income in determining the provision for income taxes and for purposes of assessing our ability to utilize any future benefit from deferred tax assets.

We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and the Netherlands. For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before 2015. We are currently under examination by the Internal Revenue Service for tax years 2015 and 2016. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2010.

During the three and nine months ended September 30, 2018, a statute of limitations expired. As a result, we recorded approximately $29.0 million of previously unrecognized tax benefits and reduced our accrual for interest by approximately $2.9 million.

Our total gross unrecognized tax benefits, excluding interest and penalties, was $27.1 million and $47.7 million as of September 30, 2018 and December 31, 2017, respectively, all of which would impact our effective tax rate if recognized. Our total interest and penalties accrued as of September 30, 2018 was $0.8 million. We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes. The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although it is possible that our balance of gross unrecognized tax benefits could materially change in the next 12 months, given the uncertainty in the development of ongoing income tax examinations, we are unable to estimate the full range of possible adjustments to this balance.

In June 2017, the Costa Rica Ministry of Foreign Trade, an agency of the Government of Costa Rica, granted an extension of certain income tax incentives for an additional twelve year period. Under these incentives, all of the income in Costa Rica is subject to a reduced tax rate. In order to receive the benefit of these incentives, we must hire specified numbers of employees and maintain certain minimum levels of fixed asset investment in Costa Rica. If we do not fulfill these conditions for any reason, our incentive could lapse and our income in Costa Rica would be subject to taxation at higher rates which could have a negative impact on our operating results. The Costa Rica corporate income tax rate that would apply, absent the incentives, is 30% for 2018 and 2017. For the three and nine months ended September 30, 2018, the reduction in income taxes due to the reduced tax rate was minimal.

As of December 31, 2017, our undistributed earnings totaled $606.5 million. We reassessed our capital needs and investment strategy with regard to the indefinite reinvestment of the undistributed earnings from certain of our foreign subsidiaries as a result of the one-time transition tax on cumulative foreign earnings under the TCJA. During the fourth quarter of 2017, we determined that approximately $591.9 million of the total undistributed foreign earnings are no longer considered to be indefinitely reinvested outside the U.S. As a result, in the fourth quarter of 2017, we recorded a deferred tax liability of approximately $3.3 million, which represents the provisional amount of U.S. state income taxes that would be due in the event these foreign earnings are distributed. The remaining amount of undistributed foreign earnings of approximately $14.7 million continues to be indefinitely reinvested in our international operations. Since U.S. federal income tax has already been provided under the provisions of the TCJA, the additional tax impact of the distribution of such foreign earnings to the U.S. parent would be limited to U.S. state income and withholding taxes and is not significant.

As of December 31, 2017, we recorded a provisional tax charge for the estimated impact of the TCJA of $84.3 million, of which $73.9 million was related to a provisional transition tax liability on the mandatory deemed repatriation of foreign earnings and $10.4 million was related to the remeasurement of certain deferred tax assets and liabilities. During the nine months ended September 30, 2018, the cumulative additional provisional tax charge recorded was $3.3 million, primarily resulting from further analysis of our cumulative foreign earnings balances affecting the U.S. transition tax liability and the corresponding state tax impact. As we complete our analysis of the TJCA, we may make further adjustments to the provisional amounts, which may impact our provision for income taxes in the period(s) in which the adjustments are made.

The TCJA subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. As of September 30, 2018, we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI. We have included GILTI related to current-year operations only in our estimated annual effective tax rate and have not provided additional GILTI on deferred items.