Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

14. INCOME TAXES:

We recorded income tax expense of $514,000 in the three months ended September 30, 2021, compared to an income tax expense of $409,000 in the three months ended September 30, 2020. We recorded income tax expense of $1.4 million in the nine months ended September 30, 2021, compared to income tax expense of $462,000 in the nine months ended September 30, 2020. Income tax expense in the three and nine months ended September 30, 2021 reflected effective tax rates of 10% and 13%, respectively. Income tax expense in the three and nine months ended September 30, 2020 reflected effective tax rates of 19% and 10%, respectively. Fluctuations in the effective income tax rate in the three and nine months ended September 30, 2021, when compared to the three and nine months ended September 30, 2020, was mainly due to fluctuations in the level of excess tax benefits from employee stock option exercises and vesting of restricted shares. Excess tax benefits in the three and nine months ended September 30, 2021 totaled $412,000 and $414,000, respectively, compared to excess tax benefits in the three and nine months ended September 30, 2020 of $11,000 and $367,000, respectively. On a recurring basis, our effective income tax rate is favorably impacted by the U.S. federal R&D tax credit, foreign tax credit and the impact from Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI).

We have significant deferred tax assets as a result of temporary differences between the taxable income on our tax returns and U.S. GAAP income, R&D tax credit carry forwards and state net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our consolidated financial statements become deductible for income tax purposes, when net operating loss carry forwards could be applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.  

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with credit and loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. In addition, we considered both our near-term and long-term financial outlook. After considering all available evidence (both positive and negative), we concluded that recognition of valuation allowances for substantially all of our U.S. and Singapore based deferred tax assets was not required at September 30, 2021 or December 31, 2020.

The Inland Revenue Authority of Singapore has initiated a routine compliance review of our 2018 income tax return. We presently anticipate that the outcome of this audit will not have a significant impact on our financial position or results of operations.