Income Taxes

9 Months Ended

Sep. 30, 2022

Income Taxes

Income Taxes

Note 14.  Income Taxes

Income tax expense was $4.7 million for the three months ended September 30, 2022, compared to $6.7 million for the three months ended September 30, 2021. The $2.0 million decrease was primarily due to the Foreign Derived Intangible Income (“FDII”) deduction on export sales. Income tax expense was $13.0 million during the nine months ended September 30, 2022, compared with $12.3 million for the nine months ended September 30, 2021. The $0.7 million increase was primarily due to a $63.9 million increase in pretax income offset by the FDII deduction on export sales.

The effective tax rate for the three and nine months ended September 30, 2022 was less than the U.S. statutory rate of 21% due to forecasted FDII, Federal research and development tax credits and a favorable discrete item related to equity compensation that reduces the annual tax rate. The effective tax rate for the three and nine months ended September 30, 2021 was less than the U.S. statutory rate of 21% due to favorable discrete items related to equity compensation in the period and Federal research and development tax credits that reduce the annual tax rate.

The deferred income taxes of $28.4 million and $35.5 million as of September 30, 2022 and December 31, 2021, respectively, reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carryforwards. We have recorded a $9.3 million valuation allowance in the U.S. against certain tax credits and state net operating losses due to the uncertainty of their realization. Realization of our net deferred tax assets is dependent on future taxable income. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be impacted by market conditions and other variables not known or anticipated at this time.