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INCOME TAXES | 12 Months Ended
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Dec. 31, 2014
Income Tax Disclosure [Abstract] |
INCOME TAXES |
16. | INCOME TAXES:
The components of income before income taxes are as follows (in thousands):
|  | Year ended December 31,
|  | 2014 |  | 2013 |  | 2012
United States |  | $ | 60,485 |  |  | $ | 57,258 |  |  | $ | 20,069 |
Foreign |  | (1,158 | ) |  | (18,250 | ) |  | (5,201 | )
Income before income tax |  | $ | 59,327 |  |  | $ | 39,008 |  |  | $ | 14,868 |
The components of the income tax benefit (expense) are as follows (in thousands):
|  | Year ended December 31,
|  | 2014 |  | 2013 |  | 2012
Current income tax benefit (expense): |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | 226 |  |  | $ | (225 | )
State |  | (2 | ) |  | — |  |  | — |
Foreign |  | (8,363 | ) |  | (6,600 | ) |  | (4,994 | )
|  | (8,365 | ) |  | (6,374 | ) |  | (5,219 | )
Deferred income tax (expense) benefit: |  |  |  |  |  |
Federal |  | (9,652 | ) |  | (16,811 | ) |  | — |
State |  | 575 |  |  | (1,192 | ) |  | — |
Foreign |  | (31 | ) |  | 69 |  |  | 11 |
|  | (9,108 | ) |  | (17,934 | ) |  | 11 |
Adjustments to the beginning-of-year valuation allowance |  | — |  |  | 59,352 |  |  | — |
Income tax benefit (expense) |  | $ | (17,473 | ) |  | $ | 35,044 |  |  | $ | (5,208 | )
Reconciliation of the statutory U.S. federal tax rate to the Company's effective tax rate is as follows:
|  | Year ended December 31,
|  | 2014 |  | 2013 |  | 2012
Statutory U.S. federal income tax rate |  | 35.0 | % |  | 35.0 | % |  | 34.0 | %
State income taxes, net of federal benefit |  | (0.4 | )% |  | (1.3 | )% |  | (2.3 | )%
State apportionment change |  | — | % |  | 0.3 | % |  | 23.8 | %
U.S. federal rate change |  | — | % |  | (3.6 | )% |  | — | %
Effect of foreign operations |  | 0.7 | % |  | 10.9 | % |  | 7.1 | %
Subpart F income |  | (4.5 | )% |  | 15.6 | % |  | — | %
Nondeductible employee compensation |  | 0.5 | % |  | 2.3 | % |  | 4.2 | %
Research tax credits |  | (2.5 | )% |  | (3.4 | )% |  | — | %
Change in valuation allowance |  | (0.4 | )% |  | (146.4 | )% |  | (29.3 | )%
Other |  | 1.0 | % |  | 0.8 | % |  | (2.5 | )%
Effective tax rate |  | 29.4 | % |  | (89.8 | )% |  | 35.0 | %
As of December 31, 2014, the Company had net operating loss and credit carry forwards. The Company’s net operating loss carry forwards below differ from the Company's accumulated deficit principally due to the timing of the recognition of certain revenues and expenses. A portion of the Company’s net operating loss carry forwards relates to tax deductions from stock-based compensation that will be accounted for as an increase to additional paid-in capital for financial reporting purposes to the extent such future deductions are utilized by the Company (see below). Pursuant to Internal Revenue Code (IRC) sections 382 and 383, utilization of the Company’s federal and state net operating loss and tax credit carry forwards could be subject to an annual limitation because of certain ownership changes. The following table summarizes Company tax loss and tax credit carry forwards for tax return purposes at December 31, 2014 (in thousands):
|  | Related Tax Deduction |  | Tax Benefit |  | Expiration Date
Loss carry forwards: |  |  |  |  |  |
Federal net operating loss |  | $ | 22,348 |  |  | $ | 7,822 |  |  | 2028 to 2031
Foreign net operating loss |  | 19,315 |  |  | 2,425 |  |  | n/a
Total loss carry forwards |  | $ | 41,663 |  |  | $ | 10,247 |  |  |
Tax credit carry forwards: |  |  |  |  |  |
Research tax credits |  | n/a |  | $ | 12,416 |  |  | 2020 to 2034
Foreign tax credits |  | n/a |  | 22,076 |  |  | 2020 to 2024
State research tax credits |  | n/a |  | 2,896 |  |  | 2022 to 2029
Total credit carry forwards |  | n/a |  | $ | 37,388 |  |  |
_______________________________________________ This tables includes $72.3 million (tax benefit of $25.8 million) related to excess tax benefits which are not included in deferred tax assets on the consolidated balance sheet and are not recognized until the deduction reduces taxes payable (see below). Significant components of the Company's net deferred tax assets and liabilities are as follows (in thousands):
|  | December 31,
|  | 2014 |  | 2013
Deferred tax asset: |  |  |  |
Net operating loss carry forwards |  | $ | 2,425 |  |  | $ | 6,280 |
Capitalized technology license |  | 2,146 |  |  | 2,519 |
Capitalized research expenditures |  | 12,227 |  |  | 14,012 |
Accruals and reserves |  | 3,021 |  |  | 2,172 |
Retirement plan |  | 3,761 |  |  | 3,315 |
Deferred revenue |  | 541 |  |  | 1,393 |
Tax credit carry forwards |  | 19,395 |  |  | 26,965 |
Stock-based compensation |  | 2,060 |  |  | 1,389 |
Other |  | 1,589 |  |  | 1,329 |
|  | 47,165 |  |  | 59,374 |
Valuation allowance |  | (12,372 | ) |  | (12,598 | )
Deferred tax assets |  | 34,793 |  |  | 46,776 |
Deferred tax liability: |  |  |  |
Subpart F income |  | (3,400 | ) |  | (6,070 | )
Deferred tax liabilities |  | (3,400 | ) |  | (6,070 | )
Net deferred tax assets |  | $ | 31,393 |  |  | $ | 40,706 |
During 2014, the Company retained the valuation allowance that relates to UDC Ireland, U.S. foreign tax credits and New Jersey research and development credits. Deferred tax assets and the gross valuation allowance, and the resulting reconciliation of the statutory U.S. federal tax rate to the Company's effective tax rate, previously reported in 2012 have been adjusted to exclude the impact of the windfall tax benefits that were previously reflected as a deferred tax asset, as well as to adjust the net deferred tax assets for additional stock-based compensation related items. The adjustments had no effect on consolidated net income or the consolidated balance sheet as previously reported. During the years ended December 31, 2014, 2013 and 2012, the Company paid foreign taxes on South Korean royalty and license fee income of $8.3 million, $6.6 million and $4.9 million, respectively, which were recorded as current income tax expense. For periods prior to May 2010, the Company filed for and was granted a five year exemption on withholding tax on royalty payments received from SDC under its patent license agreement as part of a tax incentive program in South Korea. The exemption was granted in May 2005 and remained in effect until May 2010. Since then, SDC has been required to withhold tax at a rate of 16.5% upon payment of royalties and license fees to the Company. The Company has elected to recognize as earnings taxable in the United States, and to record related deferred tax liabilities with respect to, deferred Subpart F earnings related to foreign subsidiaries in the period the Subpart F earnings are generated, even though the income is not currently taxable based upon current tax laws which limit Subpart F income to the amount of earnings and profits of the subsidiary. During the year ended December 31, 2013, the Company recorded U.S. income tax expense and a corresponding deferred tax liability of $6.1 million for future recapture of the earnings for activities of UDC Ireland which currently has a deficit in earning and profits. During the year ended December 31, 2014, this amount has been reduced to $3.4 million. Due to the Company's net operating loss position, deferred tax assets relating to tax benefits of employee stock-based compensation have been reduced related to stock options exercised and restricted stock vested for which the tax deduction exceeded the aggregate compensation expense recorded for financial reporting purposes. Although these additional tax benefits or windfalls are reflected in net operating loss carryforwards in the tax return, the additional tax benefit associated with the windfalls is not recognized until the deduction reduces taxes payable. The Company follows the “with and without” approach (excluding indirect tax effects to items such as R&D credits) described in ASC 740 Income Taxes which gives primacy to continuing operations in determining realized tax benefits. Under the with and without approach, the excess tax benefit of deductions from stock-based compensation is reflected as an increase in additional paid-in capital only if an incremental benefit is provided after considering all other tax attributes available to the Company. Accordingly, windfall tax benefits are not considered to offset current year taxable income and a benefit is not recorded in paid-in-capital if the amount of available net operating loss and tax credit carryforwards generated from continuing operations is sufficient to offset current year taxable income before considering windfall tax benefits. Given the Company's net operating loss carry forward position, no incremental benefit has been recognized in paid-in capital for such excess tax benefits. When recognizing deferred tax assets for employee stock based awards that may be subject to limitation under IRC Section 162(m), and calculating the resulting windfall benefit, the Company prioritizes the impact of future cash compensation over stock-based compensation. Accordingly, if the anticipated cash compensation is equal to or greater than the total tax deductible annual compensation amount for a covered employee, the Company does not record a deferred tax asset associated with any stock-based compensation for that individual. As noted above, in accounting for the indirect effect of stock-based compensation on the Company's research tax credits, the Company does not set apart these credits when measuring the windfall tax benefit; instead the Company follows the practice of recognizing the full effect of research tax credits in income from continuing operations. As of December 31, 2014 and 2013, windfalls included in net operating loss carryforwards and tax credit carryforwards but not reflected in deferred tax assets totaled $72.3 million and $68.6 million, respectively. 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 on the Company's ability to generate future taxable income to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. As part of its assessment management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. During the year ended December 31, 2014, based on previous earnings history, a current evaluation of expected future taxable income and other evidence, the Company retained the valuation allowance that relates to UDC Ireland, U.S. foreign tax credits and New Jersey research and development credits. The Company's valuation allowance decreased by $226,000, $57.1 million and $4.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. The Company did not record a liability for uncertain tax positions as of December 31, 2014, 2013, and 2012, respectively. Company management does not anticipate any material change in its uncertain tax positions in the next twelve months. The Company’s federal income tax returns for 2011 through 2013 are open tax years and are subject to examination by the Internal Revenue Service. State tax years 2010 to 2013 remain open to examination by the jurisdictions (Pennsylvania and New Jersey) in which the Company is subject to tax. However, due to the Company's net operating losses, the Company's federal income tax returns for 1995 and later will remain subject to examination until the losses are utilized or expire; certain state returns remain subject to examination as well. In addition, the Company's foreign returns for 2010 and thereafter remain subject to examination.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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