Note 13 - Income Taxes

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

13. INCOME TAXES

The income tax provision or benefit for interim periods is generally determined using an estimate of the Company’s annual effective tax rate and adjusted for discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if the Company’s estimated tax rate changes, a cumulative adjustment is made.

The income tax expense for the three months ended September 30, 2022 was $27.5 million, or 18.1% of pre-tax income. The income tax expense for the nine months ended September 30, 2022 was $65.6 million, or 17.1% of pre-tax income. The effective tax rates were lower than the federal statutory rate primarily due to foreign income from the Company’s subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the global intangible low-taxed income (“GILTI”) tax.

The income tax expense for the three months ended September 30, 2021 was $9.2 million, or 11.7% of pre-tax income. The income tax expense for the nine months ended September 30, 2021 was $20.9 million, or 11.0% of pre-tax income. The effective tax rates were lower than the federal statutory rate primarily due to foreign income from the Company’s subsidiaries in Bermuda and China being taxed at lower statutory tax rates, the impact of federal tax credits from research and development (“R&D”) activities, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.

The Company’s uncertain tax positions relate to the allocation of income and deductions among its global entities and to the determination of the research and development tax credit. It is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, it is not possible to determine either the magnitude or the range of increases or decreases at this time.

On August 9, 2022, the U.S. government enacted the U.S. CHIPS and Science Act of 2022 (the “CHIPS Act”) to provide certain financial and tax incentives to the semiconductor industry, primarily for manufacturing activities within the United States. On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted and signed into law. The IRA, among other things, introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations, and imposes a 1% surcharge on stock repurchases. This excise tax is effective January 1, 2023. The Company does not believe the CHIPS Act or the IRA will have a material impact on its income tax provisions, results of operations or financial condition for the year ending December 31, 2022. The Company will continue to monitor any new developments related to the CHIPS Act and the IRA and evaluate their impact on its financial statements.