Income Taxes

12 Months Ended

Dec. 31, 2019

Pre-tax earnings by significant geographical locations are as follows (in thousands):



	Year Ended December 31,
	2019		2018		2017
United States	$	81,695	$	165,719	$	143,924
Foreign	160,221		141,384		135,141
	$	241,916	$	307,103	$	279,065

The provisions for income taxes are as follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
Current tax expense (benefit):
Federal	$	5,791		$	17,900		$	112,673
State	5,895			5,980			5,035
Foreign	9,061			(16,008		)	19,689
	20,747			7,872			137,397
Deferred tax expense (benefit):
Federal	11,459			1,273			34,857
State	(719		)	235			473
Foreign	38,832			15,298			(885		)
	49,572			16,806			34,445
Total income tax provision	$	70,319		$	24,678		$	171,842

Net deferred tax assets (liabilities) were classified on the balance sheet as follows (in thousands):



	December 31,
	2019			2018
Deferred tax assets, non-current	$	39,983		$	100,620
Deferred tax liabilities, non-current	(53,544		)	(22,927		)
Net deferred tax assets	$	(13,561	)	$	77,693


Note 16.	Income Taxes - (Continued)

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and deferred tax liabilities were as follows (in thousands):



	December 31,
	2019			2018
Deferred tax assets:
Accrued liabilities and allowances	$	17,850		$	19,783
Tax credit and loss carry-forwards	19,471			30,831
Stock-based compensation	10,660			12,461
Inventory basis differences	11,306			10,749
Deferred revenue	2,869			2,900
Intangible assets	—			20,882
Unremitted earnings of foreign subsidiaries	—			2,121
Other assets	265			1,156
Gross deferred tax assets	62,421			100,883
Valuation allowance	(2,787		)	(3,196		)
Total deferred tax assets, net	59,634			97,687
Deferred tax liabilities:
Intangible assets	(38,209		)	—
Property and equipment	(16,536		)	(14,070		)
Unremitted earnings of foreign subsidiaries	(13,225		)	—
Other liabilities	(5,225		)	(5,924		)
Total deferred tax liabilities	(73,195		)	(19,994		)
Net deferred tax assets	$	(13,561	)	$	77,693

At December 31, 2019, the Company had United States tax net operating loss carry-forwards totaling approximately $9.4 million which expire between 2032 and 2039 and are subject to annual limitation under Section 382 of the Internal Revenue Code. The Company also has various foreign net operating loss carry-forwards totaling approximately $62.8 million, a portion of which expire between 2019 and 2039, and a portion of which have an indefinite carry-forward period.

As of December 31, 2019, the Company has determined that a valuation allowance against its deferred tax assets of $2.8 million is required, primarily related to foreign net operating losses and capital losses carried forward. A review of all available positive and negative evidence is considered, including past and future performance, the market environment in which the Company operates, utilization of tax attributes in the past, length of carry-back and carry-forward periods, and evaluation of potential tax planning strategies, when evaluating the realizability of deferred tax assets. The Company believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.


Note 16.	Income Taxes - (Continued)

The provision for income taxes differs from the amount of tax determined by applying the applicable United States statutory federal income tax rate to pretax income as a result of the following differences:



	Year Ended December 31,
	2019		2018		2017
Statutory federal tax rate	21.0	%	21.0	%	35.0	%
(Decrease) increase in rates resulting from:
State taxes	2.6		2.5		1.8
Difference between statutory rate and foreign effective rate	2.7		(0.2	)	(10.7	)
Foreign, federal and state income tax credits	(3.3	)	(1.5	)	(2.0	)
European Union state aid matter	—		(10.8	)	0.1
United States transition tax	—		(2.6	)	23.8
Tax rate change on deferred items	1.0		—		5.1
Unremitted earnings of foreign subsidiaries	2.3		(0.8	)	5.4
Audit settlements	6.7		—		—
Other	(3.9	)	0.4		3.1
Effective tax rate	29.1	%	8.0	%	61.6	%

The Company's effective tax rate in 2019 was higher than the United States Federal tax rate of 21.0 percent mainly due to accruals for settlements with various taxing authorities, state taxes, additional withholding tax due on future distributions of foreign earnings included in the transition tax levied by the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), and higher tax rates on income earned in foreign jurisdictions. These amounts were offset by tax credits generated in the United States and foreign jurisdictions as well as excess tax benefits from stock compensation. The Company's effective tax rate in 2018 was lower than the United States Federal tax rate of 21.0 percent mainly due to recognition of previously unrecognized tax benefits relating to the European Union state aid recovery discussed above, excess tax benefits from stock compensation and a reduction in the accrual for the United States transition tax, offset partially by state taxes, higher tax rates applied to income earned in certain foreign jurisdictions, and other discrete items. The Company's effective tax rate in 2017 was higher than the United States federal tax rate of 35.0 percent mainly due to the Company's estimate of the impact of the Tax Act. Unrecognized tax benefits for intercompany pricing increased in various jurisdictions in 2017, but this was partially offset by excess tax benefits for stock compensation and the mix of lower foreign tax rates.

During the three-month period ending December 31, 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of the Company's non-operating subsidiaries in Sweden. The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and assesses taxes and penalties totaling approximately $321.3 million (Swedish kroner 3.0 billion). The Company believes the STA’s assertions in the reassessment are not in accordance with Swedish tax regulations and plans to defend the Company's positions through the Swedish court system, as necessary. Consequently, no adjustment to the Company's unrecognized tax benefits has been recorded in relation to this matter.

During the three-month period ended September 30, 2019, the European Commission announced the opening of a separate review to assess whether an excess profit tax ruling granted by Belgium to one of the Company's international subsidiaries is in breach of European Union state aid rules. The Company believes all taxes assessed by Belgium have been paid and has not adjusted unrecognized tax benefits in relation to this matter.

As of December 31, 2019 and 2018, the Company has accrued income tax liabilities of $37.1 million and $44.4 million, respectively, related to the Tax Act's transition tax which is paid in installments over an eight-year period and will not accrue interest. Due to prior year over payments, no amounts are due within the next twelve months.

As of December 31, 2019, the Company has undistributed earnings generated after January 1, 2018 by certain foreign subsidiaries of approximately $183.0 million that the Company intends to indefinitely invest outside the United States and on which it has not recognized deferred tax. Estimating the amount of potential tax is not practicable due to the complexity and variety of assumptions required.

Note 16. Income Taxes - (Continued)

Management believes that the Company's recorded tax liabilities are adequate in the aggregate for its income tax exposures.

The following table summarizes the activity related to unrecognized tax benefits, including amounts accrued for potential interest and penalties (in thousands):



	Year Ended December 31,
	2019			2018			2017
Balance, beginning of year	$	33,205		$	77,275		$	51,851
Increases related to current year tax positions	2,602			—			17,264
Increases related to prior year tax positions	2,719			2,229			5,022
Lapse of statute of limitations	(13,371		)	(1,558		)	(1,260		)
Settlements	(4,402		)	(40,514		)	(986		)
Change due to currency translation	—			(4,227		)	5,384
Balance, end of year	$	20,753		$	33,205		$	77,275

The unrecognized tax benefits at December 31, 2019 relate to the United States, Belgium, United Kingdom, France and various other foreign jurisdictions, of which $19.5 million would affect the Company’s effective tax rate if recognized. The Company anticipates approximately $10.6 million of its net unrecognized tax benefits will be recognized within 12 months as the result of settlements or effective settlements with various tax authorities, the closure of certain audits and the lapse of the applicable statute of limitations.

The Company classifies interest and penalties related to unrecognized tax benefits in the income tax provision. As of December 31, 2019, the Company had $3.9 million of accrued interest and penalties related to unrecognized tax benefits that are recorded as current and non-current accrued income taxes on the Consolidated Balance Sheet.

The Company files United States federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company currently has the following tax years open to examination by major taxing jurisdictions:



	Tax Years:
United States Federal	2016 - 2018
State of California	2015 - 2018
State of Massachusetts	2015 - 2018
State of Oregon	2016 - 2018
Sweden	2012 - 2018
United Kingdom	2015 - 2018
Belgium	2012 - 2018