Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

11.  INCOME TAXES

The components of income before income taxes are as follows (in thousands):

	Year Ended December 31,
	2023			2022			2021
United States	$	(15,066	)	$	(30,190	)	$	(15,542	)
Foreign		520,907			555,127			287,761
Income before income taxes	$	505,841		$	524,937		$	272,219

The components of the income tax expense are as follows (in thousands):

	Year Ended December 31,
	2023			2022			2021
Current:
Federal	$	61,064		$	95,176		$	24,955
State		4,257			12			35
Foreign		5,702			5,019			3,801
Deferred:
Federal		(1,705	)		(8,523	)		4,929
State		(744	)		-			-
Foreign		9,893			(4,419	)		(3,524	)
Income tax expense	$	78,467		$	87,265		$	30,196

The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows:

	Year Ended December 31,
	2023			2022			2021
U.S. statutory federal tax rate		21.0	%		21.0	%		21.0	%
Foreign income at lower rates		(21.9	)		(22.8	)		(23.2	)
GILTI		13.5			16.0			11.4
Changes in valuation allowance		2.9			0.2			0.5
Stock-based compensation		2.2			2.8			1.6
Return to provision true-up adjustment		(2.0	)		-			(1.1	)
Tax credits, net of reserves		(1.1	)		(1.2	)		(0.5	)
State income taxes		-			(0.2	)		1.6
Other adjustments		0.9			0.8			(0.2	)
Effective tax rate		15.5	%		16.6	%		11.1	%

The prior years’ return to provision true-up adjustment has been disaggregated to conform with the current-year presentation.

The components of net deferred tax assets consist of the following (in thousands):

	December 31,
	2023			2022
Deferred tax assets:
Tax credits	$	37,518		$	32,037
Stock-based compensation		3,404			2,900
Deferred compensation		11,126			9,844
Net operating losses		12,115			9,000
Other expenses not currently deductible		7,755			8,891
Deferred tax assets, gross		71,918			62,672
Valuation allowance		(35,008	)		(20,321	)
Deferred tax assets, net of valuation allowance		36,910			42,351
Deferred tax liabilities:
Depreciation and amortization		(6,420	)		(5,927	)
Undistributed foreign earnings		(817	)		(358	)
Other expenses currently deductible		(1,619	)		(814	)
Deferred tax liabilities		(8,856	)		(7,099	)
Net deferred tax assets	$	28,054		$	35,252

GILTI:

The Company accounts for GILTI as a period cost. 

Valuation Allowance:

The Company periodically evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize the assets using a more likely than not analysis. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. As of December 31, 2023 and 2022, the Company has evaluated the realization of its deferred tax assets and recorded a valuation allowance for assets that do not meet the more-likely-than-not recognition threshold. 

A reconciliation of the beginning and ending balance of valuation allowances is as follows (in thousands):

Period	Balance at Beginning of Period		Additions		Reductions			Balance at End of Period
Year ended December 31, 2021	$	18,190	$	1,560	$	(230	)	$	19,520
Year ended December 31, 2022	$	19,520	$	1,743	$	(942	)	$	20,321
Year ended December 31, 2023	$	20,321	$	15,405	$	(718	)	$	35,008

The additions in 2023 were primarily the result of a change in foreign tax law in 2023 that negatively impacted the realizability of foreign deferred tax assets.

Undistributed Earnings of Subsidiaries:

The Company has analyzed its global working capital and cash requirements, and has determined that it plans to repatriate cash from its Bermuda subsidiary on an ongoing basis to fund its future U.S.-based expenditures and dividends. For the years ended December 31, 2023 and 2021, the Company repatriated $140.0 million and $70.0 million from its Bermuda subsidiary, respectively. No cash was repatriated from the subsidiary during the year ended December 31, 2022.

For all other foreign subsidiaries, the Company expects to indefinitely reinvest undistributed earnings to fund their operations and R&D. As of December 31, 2023 and 2022, the undistributed earnings were approximately $85.0 million and $67.4 million, respectively. An actual repatriation of the undistributed earnings could be subject to additional foreign withholding taxes and U.S. state taxes. The Company expects to be able to take a dividend received deduction to offset any U.S. federal income tax liability on the undistributed earnings. Determination of the unrecognized state and withholding deferred tax liability is not practicable at this time due to the complexities associated with the hypothetical calculation.

Other Income Tax Provision Matters

As of December 31, 2023, the Company did not have federal net operating loss carryforwards. As of December 31, 2023, the state net operating loss carryforwards for income tax purposes were $3.6 million, which will expire beginning in 2029. As of December 31, 2023, the Company has foreign net operating loss carryforwards for income tax purposes of $92.7 million, which will expire beginning in 2029. 

As of December 31, 2023, the Company had no R&D tax credit carryforwards for federal income tax purposes, and $40.6 million for state income tax purposes, which can be carried forward indefinitely.

In the event of a change in ownership, as defined under federal and state tax laws, the Company’s net operating loss and tax credit carryforwards could be subject to annual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization.

  

As of December 31, 2023, the Company had $62.7 million of unrecognized tax benefits, $48.9 million of which would affect its effective tax rate if recognized after considering the valuation allowance. As of December 31, 2022, the Company had $49.3 million of unrecognized tax benefits, $38.3 million of which would affect its effective tax rate if recognized after considering the valuation allowance. 

A reconciliation of the gross unrecognized tax benefits is as follows (in thousands): 

Balance as of January 1, 2021	$	33,499
Increase for tax position of current year		9,191
Decrease for tax position of prior year		(657	)
Decrease due to settlement with tax authorities		(54	)
Decrease due to lapse of statute of limitation		(458	)
Balance as of December 31, 2021		41,521
Increase for tax position of current year		10,965
Increase for tax position of prior year		247
Decrease due to settlement with tax authorities		(970	)
Decrease due to lapse of statute of limitation		(2,486	)
Balance as of December 31, 2022		49,277
Increase for tax position of current year		14,108
Increase for tax position of prior year		2,209
Decrease due to lapse of statute of limitation		(1,926	)
Decrease for tax positions of prior year		(1,008	)
Balance as of December 31, 2023	$	62,660

The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 2023 and 2022, the Company has $5.7 million and $4.3 million, respectively, of accrued interest related to uncertain tax positions, which were recorded in income tax liabilities on the Consolidated Balance Sheets.

  

Uncertain tax positions relate to the allocation of income and deductions among the Company’s global entities and to the determination of the R&D 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.

  

The Company currently has reduced tax rates in its subsidiaries in Chengdu and Hangzhou, China through 2026 and 2024, respectively, for performing R&D activities.

On December 27, 2023, the Bermuda CIT Act was enacted and signed into law. It includes a 15% CIT applicable to Bermuda businesses that are MNE with annual revenue of €750M or more beginning in 2025. The Bermuda CIT Act also includes an ETA that requires MNE’s to revalue their assets and liabilities, excluding goodwill, at their fair value as of September 30, 2023. There is an election to opt out of the ETA. As the Bermuda CIT Act is not effective until January 1, 2025, the Company is evaluating whether or not to adopt this ETA. Based on the information available, the Company has not recorded any changes to income tax expense related to the Bermuda CIT Act as of December 31, 2023.

On August 9, 2022, the U.S. government enacted 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 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% excise tax on certain stock repurchases. This excise tax is effective January 1, 2023. The CHIPS Act and the IRA had no material impact on the income tax provisions, results of operations or financial condition of the Company for the year ended December 31, 2023 and 2022.

Income Tax Examination

The Company is subject to examination of its income tax returns by the IRS and other tax authorities. In general, the tax years for 2007 and forward are open for examination for U.S. federal and state income tax purposes.