|12 Months Ended|
Dec. 31, 2016
|Income Tax Disclosure [Abstract]|
Income before provision for income tax is as follows (in thousands):
The components of income tax expense for the years ended December 31, 2016, 2015 and 2014 (in thousands):
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows (in thousands):
The income tax expense in the accompanying statements of income differs from the provision calculated by applying the U.S. federal statutory income tax rate of 35% in 2016, 2015, and 2014 to income before taxes due to the following:
At December 31, 2016, the Company had U.S. federal and state net operating loss carryforwards of $7.7 million and $7.9 million, respectively. These net operating loss carryforwards will begin to expire in 2036 and 2017, respectively. As December 31, 2016, the Company had U.S. federal and state R&D credit carryforwards of $0.5 million and $0.2 million, respectively. These R&D credit carryforwards will begin to expire in 2036 and 2021, respectively. At December 31, 2016, the Company had $1.7 million of U.S. foreign tax credit carryforwards that can be used to offset future U.S. tax liabilities related to foreign source taxable income. The foreign tax credits will start to expire in 2022.
At December 31, 2016, certain foreign subsidiaries had deferred tax assets attributable to net operating loss carryforwards as follows: $1.9 million in France, $0.7 million in Canada, and $0.5 million in United Kingdom. These foreign net operating loss carryforwards, if not utilized to offset taxable income in future periods, will expire in various amounts beginning in 2028.
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, valuation allowances of $3.7 million and $4.0 million were recorded at December 31, 2016 and 2015, respectively. The decrease of $0.3 million of valuation allowance was primarily due to a partial release of valuation allowance against the Company's net operating loss carryforward in the United Kingdom.
The realizability of the deferred tax assets is primarily dependent on the Company's ability to generate sufficient taxable income in future periods. The Company's management weighed the aggregate effect of all positive evidence and negative evidence in determining the likelihood of realization of the deferred tax assets. The factors used by management to collect evidence included historical earnings of the applicable taxing jurisdiction, the cash refund opportunity to utilize the tax losses, and the future forecast of profitability in the jurisdiction. Weighing all the positive and negative evidence, the Company has recorded a valuation allowance related primarily to net operating losses in certain foreign jurisdictions and U.S. foreign tax credits where it is more likely than not that the tax benefit of the net operating losses and tax credits will not be realized.
The Company elected to early adopt ASU 2016-09 in the first quarter of 2016 which was applied using a modified retrospective approach. For the year ended December 31, 2016, the Company recorded all excess tax benefits and tax deficiencies as income tax expense or benefit. The Company receives tax deductions from the gains recognized by employees on the exercise of certain non-qualified stock options, vesting activities related to restricted shares and certain non-qualified disposition of shares acquired from employee stock purchase plan program. During the year to December 31, 2016, the Company recorded a tax benefit resulting from the tax deduction of $1.9 million and $0.3 million tax expense from shortfall transactions in writing off certain deferred tax assets.
The Company has not provided for U.S. federal income and foreign withholding taxes on the majority of undistributed earnings from non-U.S. operations because such earnings are intended to be reinvested indefinitely outside of the U.S. As of December 31, 2016, the amount of undistributed earnings for which no taxes were provided was $147.0 million. The Company intends to reinvest these earnings in foreign subsidiaries in these regions for foreign acquisitions. If these earnings were distributed to the U.S. in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes and foreign withholding taxes. As of December 31, 2016, the tax impact of undistributed earnings from non-U.S. operations has not been estimated as the determination is not practicable. The Company's foreign subsidiaries held $155.8 million of cash and short term investments out of the Company's total cash and short term investments of $248.0 million. If the foreign earnings were repatriated, the cash and short term investments available for other foreign financing activities will be reduced by the foreign withholding taxes paid on the repatriation of earnings in these regions.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is as follows (in thousands):
For the year ended December 31, 2016, unrecognized tax benefits decreased by $0.4 million and $0.2 million of tax benefits in the income tax provision were recorded. The decrease was primarily attributable to the lapse of applicable statute of limitations in certain jurisdictions.
The unrecognized tax benefits for the tax years ended December 31, 2016, 2015 and 2014 were $5.9 million, $6.3 million and $3.4 million, respectively which include $2.5 million, $2.4 million and $2.0 million, respectively that would impact the effective tax rate if recognized.
The Company expects a range from zero to $1.5 million of unrecognized tax benefit that will impact the effective tax rate in the next 12 months due to the lapse of statute of limitations provided that no taxing authority conducts a new examination.
At December 31, 2016, 2015 and 2014, the Company had cumulatively accrued $0.6 million, $0.4 million, and $0.3 million for estimated interest and penalties related to uncertain tax positions. The Company records interest and penalties related to unrecognized tax positions as a component of income tax expense (benefit), which totaled $0.2 million, $0.1 million, and $0.0 million for the years ended December 31, 2016, 2015, and 2014, respectively.
The Company is currently unaware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviation in this estimate over the next 12 months.
The Company's tax returns remain open to examination as follows: U.S. federal, 2013 through 2016; U.S. states, generally 2012 through 2016; and significant foreign jurisdictions, generally 2012 through 2016.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef