Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

Note 18. Income Taxes

Income before income taxes is as follows:

	Year ended December 31,
	2021		2020		2019
	(in thousands)
United States	$	116,380	$	51,934	$	18,148
Foreign		4,048		3,952		2,774
Income before income taxes	$	120,428	$	55,886	$	20,922

Provision for income taxes is as follows:

	Year ended December 31,
	2021		2020		2019
	(in thousands)
Current:
United States
Federal	$	—	$	—	$	—
State		82		157		5
Foreign		1,439		1,062		579
Total current		1,521		1,219		584
Deferred:
Federal		20,521		4,594		3,962
State		406		295		(855)
Foreign		(670)		(204)		197
Total deferred		20,257		4,685		3,304
Income tax provision	$	21,778	$	5,904	$	3,888

Reconciliation of income taxes at the United States Federal statutory rate to the effective income tax rate of 18.1% is as follows:

	Year ended December 31,
	2021		2020		2019
	(in thousands)
Income taxes at the United States statutory rate	$	25,290	$	11,736	$	4,393
State income taxes		387		226		78
Unrecognized tax benefits		(222)		—		(251)
Effect of change in valuation allowance		(1,443)		806		1,492
Foreign income tax rate differentials		152		181		129
Stock based compensation		(3,658)		(2,803)		(1,257)
Credit expirations		2,342		(14)		894
Rate change		159		151		194
Credit generation		(3,096)		(2,473)		(3,124)
Discrete items, net		72		(147)		18
Previously unrecognized tax benefit		—		(4,063)		—
GILTI inclusion		301		732		566
Other, net		1,494		1,572		756
Income tax provision	$	21,778	$	5,904	$	3,888

Significant components of long-term deferred income taxes are as follows:

	Year ended December 31,
	2021		2020
	(in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	5,635	$	23,193
State net operating loss carryforwards		727		969
Foreign net operating loss carryforwards		371		529
Federal tax credit carryforwards		18,840		19,377
State tax credit carryforwards		8,138		7,358
Property, plant and equipment		8,967		9,501
Operating lease liability		792		348
Accrued compensation		280		16
Inventories		1,729		2,271
Stock compensation		1,401		1,566
Warranty		1,471		982
Deferred revenue		836		1,032
Capitalized research and development costs		—		5,785
Gross deferred tax assets		49,187		72,927
Valuation allowance		(7,689)		(9,133)
Net deferred tax assets		41,498		63,794
Deferred tax liabilities:
Intangible assets		(72)		(80)
Right-of-use asset		(4,918)		(4,756)
Other		(1,054)		(1,107)
Gross deferred tax liabilities		(6,044)		(5,943)
Deferred taxes, net	$	35,454	$	57,851

Changes in tax rates and tax laws are accounted for in the period of enactment. Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled.

At December 31, 2021, we had $35.5 million of net deferred tax assets worldwide relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income taxes in future years. At December 31, 2021, we maintain a $7.7 million valuation allowance in the U.S. against certain tax credits and state net operating losses due to the uncertainty of their realization based on long-term Company forecasts and the expiration dates on these attributes. This represents a decrease of $1.4 million from the prior year.

At December 31, 2021, we have federal and state net operating loss carryforwards of $30.5 million and $13.6 million, respectively. Federal and net operating losses will expire between 2033 and 2034. State net operating losses will expire between 2022 and 2034. The federal net operating loss carryforwards are subject to an uncertain tax position reserve of $3.7 million. At December 31, 2021, we have foreign net operating loss carryforwards of $1.5 million. The majority of our foreign net operating losses have an unlimited carryforward period.

At December 31, 2021, we have research and development and other tax credit carryforwards of $38.3 million. These carry forwards are subject to an uncertain tax position reserve of $9.2 million. These credits can be used to reduce future federal and state income tax liabilities and expire principally between 2022 and 2035.

We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2021, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2021, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $10.4 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We and most foreign subsidiaries are subject to income tax examinations by tax authorities for all years dating back to 2009. Our policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. We believe that we have appropriate support for the income tax positions taken and to be taken on our tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

At December 31, 2021, we had unrecognized tax benefits related to uncertain tax positions of approximately $10.0 million, all of which reduced the Company’s deferred tax assets and the offsetting valuation allowance.

A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:

		Year ended December 31,
	2021		2020		2019
	(in thousands)
Balance at beginning of year	$	10,044	$	9,799	$	9,127
(Decrease) / increase in unrecognized tax benefits as a result of tax positions taken during a prior period		(546)		(502)		215
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitation		(472)		—		(334)
Increases in unrecognized tax benefits as a result of tax positions taken during the current period		935		747		791
Balance at end of year	$	9,961	$	10,044	$	9,799
Recorded as other long-term liability	$	—	$	472	$	409
Recorded as a decrease in deferred tax assets		9,961		9,572		9,390
Balance at end of year	$	9,961	$	10,044	$	9,799

As of December 31, 2021, we had $10.0 million of unrecognized tax benefits which, if recognized would reduce the effective tax rate.