Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.6.0.2
INCOME TAXES
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
 
Income from continuing operations before provision (benefit) for income taxes are taxed under the following jurisdictions (dollar amounts in thousands):
Year Ended December 31,
 
2016
 
2015
 
2014
Domestic
 
$
6,420

 
$
6,290

 
$
4,577

Foreign
 
2,846

 
6,990

 
14,437

Total
 
$
9,266

 
$
13,280

 
$
19,014


 
Components of the provision (benefit) for income taxes from continuing operations for each of the three years in the period ended December 31, 2016 are as follows (dollar amounts in thousands):
Year Ended December 31,
 
2016
 
2015
 
2014
Current:
 
 

 
 

 
 

Federal
 
$
1,987

 
$
537

 
$
(2,713
)
State
 
498

 
73

 
514

Foreign
 
5,345

 
4,503

 
5,539

Subtotal
 
7,830

 
5,113

 
3,340

Deferred:
 
 

 
 

 
 

Federal
 
496

 
(3,624
)
 
(3,804
)
State
 
(14
)
 
430

 
(326
)
Foreign
 
279

 
(179
)
 
47

Subtotal
 
761

 
(3,373
)
 
(4,083
)
Total provision (benefit) for income taxes
 
$
8,591

 
$
1,740

 
$
(743
)

 
The provision (benefit) for income taxes, as a percentage of income from continuing operations before provision (benefit) for income taxes, differs from the statutory U.S. federal income tax rate due to the following:
Year Ended December 31,
 
2016
 
2015
 
2014
Statutory U.S. federal income tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of U.S. federal income tax benefit
 
3.4

 
2.7

 
0.6

U.S. tax impact of foreign operations
 
(53.4
)
 
2.8

 
(73.0
)
Valuation allowance change
 
77.6

 
(24.5
)
 
48.8

Unrecognized tax benefits
 
4.7

 
11.2

 
(8.6
)
Domestic manufacturing deduction
 
(2.8
)
 
(1.3
)
 
(2.2
)
Permanent foreign items
 
26.8

 
(7.4
)
 
(1.8
)
Non-income tax contingencies
 
—

 
(2.0
)
 
(0.9
)
Other
 
1.4

 
(3.4
)
 
(1.8
)
Effective income tax rate
 
92.7
 %
 
13.1
 %
 
(3.9
)%

 
Pretax earnings of a foreign subsidiary or affiliate are subject to U.S. taxation when effectively repatriated. The Company does not intend to reinvest undistributed earnings indefinitely in the Company’s foreign subsidiaries.
 
Adjustments relating to the U.S. impact of foreign operations decreased the effective tax rate by 53.4 percentage points in 2016, increased the effective tax rate by 2.8 percentage points in 2015, and decreased the effective tax rate by 73.0 percentage points in 2014. The components of this calculation were:
Components of U.S. tax impact of foreign operations
 
2016
 
2015
 
2014
Dividends received from foreign subsidiaries
 
65.9
 %
 
5.4
 %
 
59.5
 %
Foreign tax credits
 
(91.8
)
 
(1.1
)
 
(121.3
)
Foreign tax rate differentials
 
(27.1
)
 
(1.2
)
 
(11.0
)
Unremitted earnings
 
0.2

 
(0.3
)
 
(0.2
)
Other adjustments
 
(0.6
)
 
—

 
—

Total
 
(53.4
)%
 
2.8
 %
 
(73.0
)%


The significant components of the deferred tax assets (liabilities) are as follows (dollar amounts in thousands):
As of December 31,
 
2016
 
2015
Inventory
 
$
1,520

 
$
1,200

Accrued liabilities
 
4,178

 
4,104

Deferred compensation
 
498

 
387

Equity-based compensation
 
5,034

 
4,660

Intangibles assets
 
237

 
267

Bad debts
 
76

 
52

Net operating losses
 
7,143

 
5,364

Foreign tax and withholding credits
 
13,183

 
11,732

Non-income tax accruals
 
57

 
54

Health insurance accruals
 
257

 
154

Other deferred tax assets
 
1,735

 
2,070

Capital loss carryforward
 
510

 
1,047

Valuation allowance
 
(11,250
)
 
(6,565
)
Total deferred tax assets
 
$
23,178

 
24,526

Other deferred tax liabilities
 
(1,597
)
 
(2,167
)
Total deferred tax liabilities
 
(1,597
)
 
(2,167
)
Total deferred taxes, net
 
$
21,581

 
$
22,359


 
The components of deferred tax assets (liabilities), net are as follows (dollar amounts in thousands):
As of December 31,
 
2016
 
2015
Net current deferred tax assets
 
$
5,620

 
$
5,021

Net non-current deferred tax assets
 
15,970

 
17,339

Total net deferred tax assets
 
21,590

 
22,360

 
 
 
 
 
Net current deferred tax liabilities
 
(1
)
 
(1
)
Net non-current deferred tax liabilities
 
(8
)
 
—

Total net deferred tax liabilities
 
(9
)
 
(1
)
 
 
 
 
 
Total deferred taxes, net
 
$
21,581

 
$
22,359


 
Net current deferred tax liabilities are included in accrued liabilities and net non-current deferred tax liabilities are included in other liabilities in the consolidated balance sheets.
 
Management has provided a valuation allowance of $11.3 million and $6.6 million as of December 31, 2016 and 2015, respectively, for certain deferred tax assets, including foreign net operating losses, for which management cannot conclude it is more likely than not that they will be realized. The Company reviewed its tax positions and increased its valuation allowance by approximately $4.7 million in 2016 primarily due to a domestic increase of $3.0 million and a foreign increase of $1.7 million.
 
At December 31, 2016, foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $7.1 million. The net operating losses will expire at various dates from 2017 through 2026, with the exception of those in some foreign jurisdictions where there is no expiration. At December 31, 2016, the Company had approximately $13.2 million of foreign tax and withholding credits, most of which expire in 2024.
 
The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The Company believes it has appropriately provided for income taxes for all years. Several factors drive the calculation of its tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations; (iii) the issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to the Company’s reserves, which would impact its reported financial results.
 
The Company’s U.S. federal income tax returns for 2013 through 2015 are open to examination for federal tax purposes. The Company has several foreign tax jurisdictions that have open tax years from 2008 through 2015.

The total outstanding balance for liabilities related to unrecognized tax benefits at December 31, 2016 and 2015 were $6.8 million and $7.8 million, respectively, all of which would favorably impact the effective tax rate if recognized. Included in these amounts is approximately $1.8 million and $2.0 million, respectively, of combined interest and penalties.  The Company decreased interest and penalties approximately $0.1 million for the year ended December 31, 2016 and increased interest and penalties approximately $0.3 million for the year ended 2015. The Company accounts for interest expense and penalties for unrecognized tax benefits as part of its income tax provision.
 
During the years ended December 31, 2016, 2015 and 2014, the Company added approximately $1.4 million, $1.6 million and $2.3 million, respectively, to its liability for unrecognized tax benefits. Included in these amounts are approximately $0.3 million, $0.3 million and $0.3 million for the years ended December 31, 2016, 2015 and 2014, respectively, related to interest expense and penalties. In addition, the Company recorded a benefit related to the lapse of applicable statute of limitations of approximately $2.5 million, $0.1 million and $0.3 million for the years ended December 31, 2016, 2015 and 2014, respectively, all of which favorably impacted the Company’s effective tax rate. Included in the amount for the year ended December 31, 2016 is approximately $0.4 million related to interest and penalties.
 
A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits, excluding interest and penalties, is as follows for the years (dollar amounts in thousands):
Year Ended December 31,
 
2016
 
2015
 
2014
Unrecognized tax benefits, opening balance
 
$
5,825

 
$
4,950

 
$
11,050

Settlement of liability reclassified as income tax payable
 
—

 
(104
)
 
(591
)
Payments on liability
 
—

 
—

 
—

Tax positions taken in a prior period
 
 

 
 

 
 

Gross increases
 
—

 
—

 
—

Gross decreases
 
—

 
(47
)
 
(6,614
)
Tax positions taken in the current period
 
 

 
 

 
 

Gross increases
 
1,182

 
1,252

 
1,934

Gross decreases
 
—

 
—

 
—

Lapse of applicable statute of limitations
 
(2,121
)
 
(69
)
 
(244
)
Currency translation adjustments
 
22

 
(157
)
 
(585
)
Unrecognized tax benefits, ending balance
 
$
4,908

 
$
5,825

 
$
4,950


 
The Company anticipates that liabilities related to unrecognized tax benefits will increase approximately $0.2 million to $0.6 million within the next twelve months due to additional transactions related to commissions and transfer pricing.
 
The Company believes that it is reasonably possible that unrecognized tax benefits may change by $0 to $0.2 million within the next twelve months due to the expiration of statutes of limitations in various jurisdictions.
 
Although the Company believes its estimates are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals.  Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which the Company makes such determination.