PROVISION FOR INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure Abstract

PROVISION FOR INCOME TAXES

11. PROVISION FOR INCOME TAXES:

Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, Income Taxes. Under the provisions of ASC 740, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

U.S. and foreign components of income (loss) before income taxes were:

	Year Ended December 31,
(In thousands)	2021		2020		2019
U.S. operations	$	241	$	(6,252)	$	82,692
Foreign operations		175,894		81,503		139,722
Total income before income taxes	$	176,135	$	75,251	$	222,414

The components of the provision for income taxes are as follows:

	Year Ended December 31,
(In thousands)	2021		2020		2019
Current provision (benefit):
Federal	$	23,648	$	2,788	$	18,293
State		2		(181)		184
Foreign		1,608		1,677		1,293
		25,258		4,284		19,770
Deferred provision (benefit):
Federal		(11,449)		348		9,683
State		—		—		—
Foreign		(2,087)		(557)		(507)
		(13,536)		(209)		9,176
Total	$	11,722	$	4,075	$	28,946

The provision for income taxes differs from the amount that would result by applying the applicable federal income tax rate to income before income taxes, as follows:

	Year Ended December 31,
	2021		2020		2019
Provision (benefit) computed at Federal statutory rate	21.0	%	21.0	%	21.0	%
Business tax credits	(3.6)		(7.4)		(2.4)
Stock-based compensation	(0.6)		(0.1)		(0.2)
Foreign income taxed at different rate	(23.8)		(22.0)		(12.7)
GILTI inclusion	13.1		10.7		6.2
Valuation allowance	1.3		2.6		0.8
Other	(0.7)		0.6		0.3
Total	6.7	%	5.4	%	13.0	%

The Company’s effective tax rate is impacted by the geographic distribution of the Company’s world-wide earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-based payments. These benefits were partially offset by foreign income subject to U.S. tax, known as global intangible low-taxed income. The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. The Company has not been granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction.

The components of the net deferred income tax assets (liabilities) were as follows:

	December 31,
(In thousands)	2021		2020
Deferred tax assets:
Other reserves and accruals	$	17,193	$	3,707
Tax credit carry-forwards		23,647		20,713
Stock compensation		1,278		1,494
Capital losses		159		158
Net operating loss		2,370		2,303
Other		692		1,023
Valuation allowance		(27,085)		(24,160)
		18,254		5,238
Deferred tax liabilities:
Depreciation		(1,750)		(1,974)
		(1,750)		(1,974)
Net deferred tax assets	$	16,504	$	3,264

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income. In the event

that the Company determines, based on available evidence and management judgment, that all or part of the net deferred tax assets will not be realized in the future, the Company would record a valuation allowance in the period the determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position.

As of December 31, 2021, the Company continues to maintain a valuation allowance primarily as a result of capital losses for federal purposes, and on its California, New Jersey and Canada deferred tax assets as the Company believes that it is not more likely than not that the deferred tax assets will be fully realized.

As of December 31, 2021, the Company had utilized all of its federal research and development tax credit carryforwards. As of December 31, 2021, the Company had California research and development tax credit carryforwards of approximately $33.9 million (there is no expiration of research and development tax credit carryforwards for the state of California) and California net operating losses of $45.6 million which will begin to expire in 2032. As of December 31, 2021, the Company had Canadian scientific research and experimental development tax credit carryforwards of approximately $3.9 million and New Jersey research and experimental development tax credit carryforwards of approximately $0.8 million, which will start to expire in 2030 and 2026, respectively.

The Tax Act signed into law on December 22, 2017, generally allows companies to repatriate accumulated foreign earnings without incurring additional U.S. federal taxes beginning after December 31, 2017. Local foreign and U.S. states taxes may still be incurred upon repatriation. The Company has not provided for U.S. taxes on its undistributed earnings of foreign subsidiaries. The determination of the future tax consequences of the remittance of these earnings is not practicable.

Unrecognized Tax Benefits

The Company applies the provisions of ASC 740-10, relating to accounting for uncertain income taxes. Reconciliation of the beginning and ending amount of unrecognized tax benefits:

	Unrecognized
(In thousands)	Tax Benefits
Unrecognized Tax Benefits Balance at January 1, 2019	$	18,607
Gross Increase for Tax Positions of Current Year		1,379
Gross Decrease for Tax Positions of Prior Years		(937)
Unrecognized Tax Benefits Balance at December 31, 2019		19,049
Gross Increase for Tax Positions of Current Year		2,002
Gross Decrease for Tax Positions of Prior Years		—
Unrecognized Tax Benefits Balance at December 31, 2020		21,051
Gross Increase for Tax Positions of Current Year		2,068
Gross Decrease for Tax Positions of Prior Years		(1,756)
Unrecognized Tax Benefits Balance at December 31, 2021	$	21,363

The Company’s total unrecognized tax benefits as of December 31, 2021, 2020 and 2019, were $21.4 million, $21.1 million and $19.0 million, respectively. An income tax benefit of $10.6 million, net of valuation allowance adjustments, would be recorded if these unrecognized tax benefits are recognized. The Company cannot reasonably estimate the amount of the unrecognized tax benefit that could be adjusted in the next twelve months.

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had accrued interest and penalties of $0.8 million and $0.1 million as of December 31, 2021 and 2020, respectively, which have been recorded in long-term income taxes payable in the accompanying consolidated balance sheets.

As of December 31, 2021, the Company has concluded all U.S. federal income tax matters for the years through 2012. However, due to tax attributes, the IRS may calculate tax adjustments for subsequent years for positions taken prior to 2012. As of December 31, 2021, the Company’s 2018 and 2019 tax years are under audit by the California Franchise Tax Board.