Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES During the year ended December 31, 2017, as a result of the Tax Act, we recorded provisional estimates related to the revaluation of our net deferred tax assets at the lower U.S. corporate income tax rate and the additional tax expense associated with the deemed repatriation tax. During the year ended December 31, 2018, we recorded measurement period adjustments related to the provisional estimates. While we consider our accounting for the Tax Act to be complete, we continue to evaluate new guidance and legislation as it is issued. We have not changed our indefinite reinvestment assertion, and we have elected to account for the impact of global intangible low tax income based on the period cost method.

The following table sets forth income before taxes and the expense for income taxes:


	Year Ended December 31,
	2019		2018		2017
	(in thousands)
Income (loss) before taxes:
U.S.	$	58,822	$	10,088	$	(34,406)
Foreign	60,500		55,069		52,586
Total income (loss) before taxes	$	119,322	$	65,157	$	18,180
Income tax expense (benefit):
Current income taxes:
U.S. federal	$	1,284	$	1,156	$	1,383
U.S. state	1,427		246		127
Foreign	13,373		12,359		9,525
Total current income taxes	16,084		13,761		11,035
Deferred income taxes:
U.S. federal	(10,249)		276		1,300
U.S. state	(3,579)		—		—
Foreign	(2,431)		683		(4,393)
Total deferred income taxes	(16,259)		959		(3,093)
Total income tax expense (benefit)	$	(175)	$	14,720	$	7,942

The following table sets forth income reconciliations of the statutory federal income tax rate to actual rates based on income or loss before income taxes:


	Year Ended December 31,
	2019						2018						2017
	(in thousands)
Income tax expense and rate attributable to:
Federal income tax rate	$	25,058	21.0	%	$	13,683	21.0	%	$	6,363	35.0	%
State income tax rate, net of federal benefit	5,983		5.0	%	1,271		2.0	%	53		0.3	%
Foreign income tax rate differential	1,994		1.7	%	7,630		11.6	%	(11,768)		(64.7)	%
Enacted changes in tax law	634		0.5	%	495		0.8	%	17,645		97.1	%
GILTI, net	7,585		6.4	%	3,443		5.3	%	—		—	%
Non-deductible / non-taxable items	6,727		5.7	%	3,602		5.5	%	6,006		33.0	%
Change in valuation allowance	(33,691)		(28.2)	%	(5,304)		(8.1)	%	24,400		134.2	%
U.S. tax on foreign earnings	—		—	%	—		—	%	(32,427)		(178.4)	%
Foreign tax credits	(12,541)		(10.5)	%	(7,709)		(11.9)	%	(7,980)		(43.9)	%
Uncertain tax positions	278		0.2	%	(1,696)		(2.6)	%	1,054		5.8	%
Audit settlements	391		0.3	%	183		0.3	%	354		1.9	%
Share-based compensation	(2,715)		(2.3)	%	764		1.2	%	882		4.9	%
Deferred income tax account adjustments	—		—	%	(25)		—	%	2,679		14.7	%
Other	122		0.1	%	(1,617)		(2.5)	%	681		3.8	%
Effective income tax expense and rate	$	(175)	(0.1)	%	$	14,720	22.6	%	$	7,942	43.7	%

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table sets forth deferred income tax assets and liabilities as of the date shown:


	December 31,
	2019		2018
	(in thousands)
Non-current deferred tax assets:
Share-based compensation expense	$	2,218	$	2,051
Accruals, reserves, and other expenses	13,726		18,734
Net operating loss	29,997		37,727
Intangible assets	990		1,363


Foreign tax credit	64,355		66,321
Operating lease liabilities ⁽¹⁾	36,996		—
Other	4,467		3,611
Valuation allowance	(79,023)		(113,237)
Total non-current deferred tax assets	$	73,726	$	16,570
Non-current deferred tax liabilities:
Unrealized gain on foreign currency	$	(529)	$	(164)
Property and equipment	(13,713)		(7,332)
Right-of-use assets ⁽¹⁾	(34,470)		—
Other	(267)		(411)
Total non-current deferred tax liabilities	$	(48,979)	$	(7,907)

⁽¹⁾ Adoption of new lease accounting guidance as of January 1, 2019, as described in Note 2 — Recent Accounting Pronouncements, resulted in the recognition of a right-of-use asset deferred tax liability and an operating lease liability deferred tax asset. These temporary differences will reverse over the life of the leases.

During 2019, valuation allowances recorded against deferred tax assets decreased by $34.2 million. The change in the valuation allowance includes $33.7 million related to income tax expense and $0.5 million, which does not impact the tax provision because this amount reflects the cumulative impact of unrecorded tax attributes related to changes in cumulative translation adjustment. During 2018, valuation allowances decreased by $6.3 million. The change in the valuation allowance includes $5.3 million related to income tax expense and $1.0 million which does not impact the tax provision because this amount reflects the impact of unrecorded tax attributes related to changes in cumulative translation adjustment.

Our valuation allowances are primarily the result of uncertainties regarding the future realization of tax attributes recorded in various jurisdictions. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results and the availability of prudent and feasible tax planning strategies. In assessing our valuation allowance we considered all available evidence, including the magnitude of recent and current operating results, the duration of statutory carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating results of these jurisdictions and our assessment regarding the sustainability of their profitability. The weight we give to any particular item is, in part, dependent upon the degree to which it can be objectively verified. As of December 31, 2019, certain jurisdictions, for which we have historically recorded significant valuation allowances, have sufficient history of sustained profitability. As a result, valuation allowances recorded against deferred tax assets decreased by $34.2 million.

In certain other jurisdictions, we recorded additional attributes, primarily driven by operational losses recognized based on local tax accounting requirements. These carryforwards were generated in jurisdictions where results indicate it is not more likely than not the deferred tax assets would be realized. We maintain a valuation allowance against the majority of these deferred tax assets.

We have recorded deferred tax assets related to U.S. federal tax carryforwards, including foreign tax credits and other tax credits, which expire at various dates between 2024 and 2039 of $39.7 million and $46.6 million as of December 31, 2019 and 2018, respectively. We recorded deferred tax assets related to U.S. state tax net operating loss carryforwards which expire at

various dates between 2020 and those which do not expire of $6.7 million and $11.1 million at December 31, 2019 and 2018, respectively. We recorded deferred tax assets related to foreign tax carryforwards, including foreign tax credits and net operating losses, which expire starting in 2020 and those which do not expire of $48.0 million and $47.7 million as of December 31, 2019 and 2018, respectively. The valuation allowance maintained against our U.S. deferred tax assets as of December 31, 2019 primarily relates to foreign tax credits and state net operating losses carryforwards that have a limited carryforward period and are not anticipated to be utilized prior to expiration. We also maintain a valuation allowance against a portion of the foreign carryforwards.

The transition tax in the Tax Act imposed a tax on undistributed and previously untaxed foreign earnings at various tax rates. This tax largely eliminated the differences between the financial reporting and income tax basis of foreign undistributed earnings. Furthermore, as of December 31, 2019, foreign withholding taxes have not been provided on unremitted earnings of subsidiaries operating outside of the U.S. as these amounts are considered to be indefinitely reinvested.

The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits:


	Year Ended December 31,
	2019		2018		2017
	(in thousands)
Unrecognized tax benefit as of January 1	$	4,511	$	6,204	$	4,750
Additions in tax positions taken in prior period	631		250		683
Reductions in tax positions taken in prior period	(1,532)		(690)		—
Additions in tax positions taken in current period	1,786		461		966
Settlements	(391)		(621)		(123)
Lapse of statute of limitations	(368)		(1,045)		(414)
Cumulative foreign currency translation adjustment	(24)		(48)		342
Unrecognized tax benefit as of December 31	$	4,613	$	4,511	$	6,204

We recorded a net expense of $0.3 million related to increases in 2019 unrecognized tax benefits combined with amounts effectively settled under audit. Unrecognized tax benefits as of December 31, 2019 relate to tax years that are currently open under the statute of limitation. The primary impact of uncertain tax benefits on the rate reconciliation includes audit settlements, net increases in position changes, and accrued interest expense.

Interest and penalties related to income tax liabilities are included in ‘Income tax expense (benefit)’ in the consolidated statements of operations. For the years ended December 31, 2019, 2018, and 2017, we recorded approximately $0.4 million, $0.2 million, and $0.2 million, respectively, of penalties and interest. During the year ended December 31, 2019, we released $0.2 million of interest from settlements, lapse of statutes, and change in certainty. The cumulative accrued balance of penalties and interest was $0.7 million, $0.6 million, and $0.7 million, as of December 31, 2019, 2018, and 2017, respectively.

Unrecognized tax benefits of $4.0 million, $4.5 million and $6.2 million as of December 31, 2019, 2018, and 2017, respectively, if recognized, would reduce the annual effective tax rate offset by deferred tax assets recorded for uncertain tax positions.

The following table sets forth the tax years subject to examination for the major jurisdictions where we conduct business as of December 31, 2019:


The Netherlands			2005 to 2019
Canada			2011 to 2019
Japan			2012 to 2019
China			2009 to 2019
Singapore			2014 to 2019
United States			2010 to 2019

We are currently under audit in Japan and Taiwan. U.S. state tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to the states. As such, U.S. state income tax returns for us are generally subject to examination for the years 2014 to 2019. Although the timing of income tax audit

resolutions and negotiations with taxing authorities is highly uncertain, we do not anticipate a significant change in the total amount of unrecognized tax benefits within the next twelve months.