NOTE

12.

INCOME TAXES

The components of loss before provision for income taxes are as follows (in thousands):

	Year ended December 31,
	2019			2018			2017
Domestic	$	1,129		$	(13,814	)	$	(42,185	)
Foreign		(18,099	)		(15,409	)		(4,810	)
Loss before provision for income taxes	$	(16,970	)	$	(29,223	)	$	(46,995	)

The income tax (benefit) expense is as follows (in thousands):

	Year ended December 31,
	2019			2018			2017
Current:
Federal	$	(2,726	)	$	(773	)	$	(250	)
State		286			227			47
Foreign		(1,084	)		(6,830	)		5,365
Total current income tax (benefit) expense		(3,524	)		(7,376	)		5,162

Deferred:
Federal		343			379			(5,497	)
State		49			48			(372	)
Foreign		(2,317	)		(1,428	)		(1,182	)
Total deferred income (benefit) expense		(1,925	)		(1,001	)		(7,051	)

Income tax (benefit) expense	$	(5,449	)	$	(8,377	)	$	(1,889	)

The reconciliation of income tax at the federal statutory rate to the actual effective income tax rate (benefit) is as follows:

	Year ended December 31,
	2019			2018			2017
Federal statutory rate		(21.0	)%		(21.0	)%		(35.0	)%
Foreign rate differential		(2.9	)%		(3.0	)%		1.5	%
Losses of foreign subsidiaries disregarded for US income tax		—	%		(1.3	)%		(2.5	)%
State income taxes, net of federal benefit		2.9	%		(0.8	)%		(3.0	)%
Nondeductible loan costs		—	%		0.5	%		1.4	%
Nondeductible transaction costs		0.7	%		1.1	%		—	%
Impact of tax liquidation		—	%		10.4	%		—	%
Tax indemnification charges		7.9	%		9.5	%		(1.3	)%
Stock Compensation		1.0	%		(1.4	)%		—	%
Other differences		4.1	%		2.7	%		(2.7	)%
Withholding tax		3.3	%		1.7	%		2.5	%
Tax credits		(2.4	)%		(12.0	)%		(2.1	)%
Uncertain tax positions		(26.0	)%		(38.0	)%		7.3	%
Valuation allowance		0.3	%		22.9	%		47.2	%
Rate change - impact of the Tax Act		—	%		—	%		19.9	%
Repatriation tax - impact of the Tax Act		—	%		(1.0	)%		4.1	%
Tax credits - impact of the Tax Act		—	%		0.6	%		(6.0	)%
Valuation allowance - impact of the Tax Act		—	%		0.4	%		(35.3	)%
Effective tax rate		(32.1	)%		(28.7	)%		(4.0	)%

The components of the net deferred tax assets (liability) consist of the following (in thousands):

	December 31,
	2019			2018
Deferred tax assets:
Accrued expenses	$	2,411		$	3,042
Stock Compensation		3,129			2,164
Foreign tax credits		12,189			13,571
Net operating loss carryforwards		46,872			43,637
Research and development credits		6,313			4,530
Other		6,391			4,492
Total deferred tax assets		77,305			71,436
Valuation allowance		(41,004	)		(40,857	)
Deferred tax assets, net of valuation allowance	$	36,301		$	30,579

Deferred tax liabilities:
Prepaid expenses and other	$	(582	)	$	(511	)
Intangible assets		(19,719	)		(19,552	)
Property and equipment, net		(12,871	)		(9,415	)
Deferred tax liabilities		(33,172	)		(29,478	)
Net deferred tax assets (liabilities)	$	3,129		$	1,101

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the

three

-year period ended

December 31, 2019

in certain tax jurisdictions. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of

December 31, 2019,

a valuation allowance of

$41.0

million has been recorded on US and certain foreign deferred tax assets to recognize only the portion of the deferred tax asset that is more likely than

not

to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is

longer present and additional weight is given to subjective evidence such as our projections for growth.

As of

December 31, 2019,

the Company has

$12.2

million of foreign tax credits which, if unused, will expire in years

2020

through

2029.

In addition, the Company has

$6.3

million of research and development credits which begin to expire in

2028.

The foreign tax credits and research and development credits carryforwards are

not

expected to be realizable in future periods and have a related valuation allowance.

The Company has net operating loss (“NOL”) carryforwards for U.S. federal purposes of

$200.0

million, in foreign jurisdictions of

$10.8

million and various U.S. states of

$83.5

million. The U.S. federal NOL carryforwards begin to expire in

2031,

the foreign NOLs can be carried forward indefinitely, and the U.S. state NOL carryforwards began to expire in

2020.

The U.S. federal, state, and foreign NOL carryforwards are

not

expected to be realizable in future periods and have a related valuation allowance.

Utilization of the net operating loss carryforwards and credits

may

be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of

1986,

as amended (the “Code”), and similar state provisions. Any annual limitation

may

result in the expiration of net operating losses and credits before utilization.

The Company has uncertain tax positions with respect to prior tax filings. The uncertain tax positions, if asserted by taxing authorities, would result in utilization of the Company’s tax credit and operating loss carryovers. The credit and operating loss carryovers presented as deferred tax assets are reflected net of these unrecognized tax benefits.

The Company had the following activity for unrecognized tax benefits in

2019

and

2018

(amounts in thousands):

	December 31, 2019			December 31, 2018
Balance-beginning of year	$	12,580		$	28,673
Acquisitions		1,244			—
Increases based on tax positions of the current year		453			393
Decrease due to tax authority settlements		—			(10,457	)
Decreases due to lapse of statute		(3,225	)		(5,118	)
Increases based on tax positions of the prior years		95			156
Decreases based on tax positions of the prior years		(670	)		(1,065	)
Currency translation adjustments		477			(2	)
Balance-end of year	$	10,954		$	12,580

The Company applies a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes the impact of a tax position in the financial statements when the position is more likely than

not

of being sustained on audit based on the technical merits of the position.

The total amount of unrecognized tax benefits as of

December

31,

2019

was

$11.0

million. Of this amount,

$6.6

million if recognized, would be included in our Consolidated Statements of Operations and Comprehensive Loss and have an impact on our effective tax rate. The Company anticipates a reduction of its liability for unrecognized tax benefits of up to

$3.0

million before

December

31,

2020,

primarily related to lapse of statute, all of which would impact our Consolidated Statements of Operations and Comprehensive Loss.

The Company accrues interest and penalties for unrecognized tax benefits in income tax expense. Related to the unrecognized tax benefits noted above, the Company reduced penalties and interest by

$1.5

million during

2019.

This reduction, primarily related to lapse of statute and tax authority settlements, was recognized as an income tax benefit in our Consolidated Statements of Operations and Comprehensive Loss. As of

December 31, 2019,

the Company has a liability of

$5.3

million for penalties and interest related to unrecognized tax benefits.

The Company is subject to taxation and potential examination in the United States and various state and foreign jurisdictions. We are subject to examinations in the United States for the

2017

2019

tax years and, generally, we remain subject to examination for all periods in various state jurisdiction due to the Company’s NOLs. We are subject to examination in Mexico for the

2014

2019

tax years and remain subject to possible examination in various other jurisdictions that are

not

expected to result in material tax adjustments.

The Company entered into an indemnification agreement with the prior owners of Cadillac Jack whereby the prior owners have agreed to indemnify the Company for changes in tax positions by taxing authorities for periods prior to the acquisition. An indemnification receivable of

$4.2

million and

$9.3

million was recorded as an other asset in the financial statements for the years ended

December 2019

and

2018,

respectively. This amount includes the indemnification of the original pre-acquisition tax positions along with any related accrued interest and penalties and is also recorded as a liability for unrecognized tax benefits in other long-term liabilities. The Company concluded that it is probable the indemnification receivable is realizable based on an evaluation of the ability of Cadillac Jack’s prior owner, including a review of its public filings, that demonstrates its financial resources are sufficient to support the amount recorded. If the related unrecognized tax benefits are subsequently recognized, a corresponding charge to relieve the associated indemnification receivables would be recognized in our Consolidated Statements of Operations and Comprehensive Loss and have an impact on operating income.

December 22, 2017,

President Trump signed the Tax Act into law, which significantly reformed Code, as amended. The new legislation, among other things, changed the U.S. federal tax rates (including permanently reducing the U.S. corporate income tax rate from a maximum of

35.0%

to a flat

21.0%

rate), allowed the expensing of capital expenditures, and put into effect the migration from a “worldwide” system of taxation to a territorial system. As a result, we recorded a provisional net benefit of

$8.1

million during the

fourth

quarter of

2017.

This amount, which is included in Income tax benefit (expense) in the consolidated financial statements is comprised of a

$9.4

million charge resulting from the re-measurement of the Company’s deferred tax assets and liabilities based on the Tax Act’s new corporate tax rate of

21.0%,

$1.9

million charge for the

one

-time mandatory deemed repatriation of foreign earnings, a

$2.8

million benefit for related foreign tax credits and a

$16.6

million benefit related to the reduction in the existing valuation allowance recorded against certain U.S. federal deferred tax assets. SAB

118

allowed for a measurement period of up to

one

year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. In the

fourth

quarter of

2018,

we completed our accounting for the effect of the Tax Act. As a result, we reduced the

one

-time mandatory deemed repatriation of foreign earnings charge by

$0.3

million, reduced the benefit for related foreign tax credits by

$0.2

million and adjusted our valuation allowance recorded against certain U.S. federal deferred tax assets by

$0.1

million.