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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The summary of the income tax expense (benefit) for the years ended December 31, 2021, 2020, and 2019 is as follows (dollars in thousands):
 Years Ended December 31,
 202120202019
Current   
Federal$16,606 $29,893 $29,333 
State8,196 11,234 10,930 
Deferred
Federal(1,651)2,200 (4,551)
State(3,400)(1,629)(1,281)
Total income tax expense$19,751 $41,698 $34,431 
A reconciliation of income tax expense at the U.S. federal statutory income tax rate to annual income tax expense at the Company's effective tax rate is as follows (dollars in thousands):
 Years Ended December 31,
 202120202019
Income tax expense computed at U.S. federal statutory income tax rate$15,367 $35,417 $30,972 
State income taxes3,088 7,281 7,543 
Permanent items1,465 2,654 1,332 
Research and development credits(1,016)(3,602)(2,071)
Uncertain income tax position(314)348 (2,992)
Change in valuation allowance250 — — 
Other911 (400)(353)
Income tax expense$19,751 $41,698 $34,431 
The significant components of the Company's deferred income tax assets (liabilities) are as follows (dollars in thousands):
 As of December 31,
 20212020
Deferred tax assets:  
Convertible bond hedge$6,910 $12,420 
Accrued product returns and rebates19,506 17,529 
Accrued compensation and stock based compensation17,802 13,547 
Research and development credit carryforwards4,448 3,151 
Net operating loss carryforwards126,333 13,164 
Operating lease liability12,146 14,542 
Interest limitation7,860 1,055 
Investment7,819 2,501 
Charitable contributions7,730 1,613 
Other4,256 3,911 
Total deferred tax assets214,810 83,433 
Less: valuation allowance(70,529)(582)
Total deferred tax asset, net of valuation allowance144,281 82,851 
Deferred tax liabilities:
Amortization of intangibles(199,240)(79,545)
Debt discount on 2023 Notes(5,671)(10,190)
Patent infringement legal costs(10,689)(10,897)
Operating lease assets(9,099)(10,674)
Other(4,937)(6,760)
Total deferred tax liabilities(229,636)(118,066)
Net deferred tax liabilities$(85,355)$(35,215)
In assessing the realizability of deferred income tax assets, the Company considers whether it is more-likely-than-not that some or all of the deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the net operating loss (NOL) and tax credit carryforwards are available. The Company considers projected future taxable income, the scheduled reversal of deferred income tax liabilities, and available tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the NOL and credit carryforwards are available to reduce income taxes payable, management had determined it is not more-likely-than-not to realize all such net deferred tax assets.
A reconciliation of the deferred asset valuation allowance is as follows (dollars in thousands):
Years Ended December 31,
202120202019
Beginning balance$582 $11 $9 
Acquisition Accounting (1)
69,697 573 — 
Additions250 — 2 
Deductions— (2)— 
Ending balance70,529 582 11 
(1) Amount comprised principally of acquisitions and purchase accounting adjustments in connect with acquisitions
The Company recorded a valuation allowance of $70.5 million as of December 31, 2021, of which $69.7 million is associated with the Adamas Acquisition. The valuation allowance is primarily related to federal and state net operating losses carryforwards acquired from the Adamas Acquisition that are not expected to be realizable in the future.
The Company has NOL and other tax credit carryforwards in several jurisdictions. Due to changes in the Company's ownership, the utilization of net operating loss carryforwards and research and development credit carryforwards, that can be used to offset future taxable income, are subject to annual limits in accordance with Internal Revenue Code (IRC) provisions, as well as similar state provisions. In addition, states may also impose other future limitations through state legislation or similar measures. Despite the NOL carryforwards, the Company may incur higher state income tax expense in the future.
As of December 31, 2021, the U.S. federal and state NOL carryforwards amounted to approximately $449.3 million ($413.7 million related to the Adamas Acquisition) and $431.9 million ($387.3 million related to the Adamas Acquisition), respectively, and will expire in various years beginning in 2031. For the year ended December 31, 2021, the Company utilized federal NOLs of approximately $7.2 million and state NOLs of approximately $5.3 million.
As of December 31, 2021, the Company has available research and development credit carryforwards of $1.6 million, which became available in 2022 and will expire, if unused, starting in 2030.
The Company is no longer subject to U.S. Federal income tax examinations for years prior to 2018. Operating loss or tax credit carryforwards generated prior to 2018 may be subject to tax audit adjustment.
The Company accounts for uncertain income tax positions pursuant to the guidance in ASC Topic 740, Income Taxes. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. Some uncertain income tax position liabilities have been recorded against the Company's deferred income tax assets to offset such tax attribute carryforwards and other positions that cannot be offset by tax attributes until liability has been booked.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (dollars in thousands):
 Years Ended December 31,
 202120202019
Balance as of January 1$5,881 $5,978 $8,848 
Gross increases related to current year tax positions898 1,027 208 
Gross increases related to prior year tax positions— 221 — 
Gross decreases related to prior year tax positions(363)— (49)
Lapse of statute of limitations(316)(1,345)(3,029)
Balance as of December 31$6,100 $5,881 $5,978 
The Company recorded $0.1 million, $0.6 million, and $3.0 million of net tax benefit in 2021, 2020 and 2019, respectively, as a result of the expiration of statutes of limitation. The Company also recorded $0.3 million, $0.3 million, and $0.2 million for uncertain tax positions related to research and development tax credits in 2021, 2020, and 2019, respectively, and an additional expense of $0.2 million related to a prior year position. The Company does not anticipate a material impact to the financial statements in the next 12 months as a result of uncertain tax positions and expiring statutes of limitation.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act is an emergency economic stimulus package that includes spending and tax incentives to strengthen the U.S. economy and fund a nationwide effort to curtail the effect of the COVID-19 pandemic. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company's financial statements include the removal of certain limitations on the utilization of net operating losses, increasing the ability to deduct interest expense, and amending certain provisions of the previously enacted Tax Cuts and Jobs Act.
As of December 31, 2021, the Company expects that these provisions will not have a material impact, as the Company does not have net operating losses that would fall under the provisions of this legislation, nor does it expect interest expense to be limited. The ultimate impact of the CARES Act may differ from this estimate due to changes in interpretations and assumptions, additional guidance that may be issued, and actions the Company may take in response to the CARES Act. The Company will continue to assess the impact that various provisions may have on its business.