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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES |
18. | INCOME TAXES:
The components of income before income taxes are as follows (in thousands):
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
United States |  | $ | 13,565 |  |  | $ | 100,260 |  |  | $ | 69,595 |
Foreign |  |  | 50,746 |  |  |  | 49,277 |  |  |  | (997 | )
Income before income tax |  | $ | 64,311 |  |  | $ | 149,537 |  |  | $ | 68,598 |
The components of the income tax expense are as follows (in thousands):
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current income tax expense: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (9,097 | ) |  | $ | (5,817 | ) |  | $ | (4,485 | )
State |  |  | (511 | ) |  |  | (54 | ) |  |  | (47 | )
Foreign |  |  | (8,677 | ) |  |  | (15,406 | ) |  |  | (12,902 | )
|  |  | (18,285 | ) |  |  | (21,277 | ) |  |  | (17,434 | )
Deferred income tax (expense) benefit: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 12,622 |  |  |  | (24,425 | ) |  |  | (2,683 | )
State |  |  | 611 |  |  |  | (23 | ) |  |  | (503 | )
Foreign |  |  | (419 | ) |  |  | 73 |  |  |  | 92 |
|  |  | 12,814 |  |  |  | (24,375 | ) |  |  | (3,094 | )
Income tax expense |  | $ | (5,471 | ) |  | $ | (45,652 | ) |  | $ | (20,528 | )
Reconciliation of the statutory U.S. federal tax rate to the Company's effective tax rate is as follows:
|  | Year ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Statutory U.S. federal income tax rate |  |  | 21.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | (0.2 | )% |  |  | 0.0 | % |  |  | 0.5 | %
Effect of foreign operations |  |  | (4.7 | )% |  |  | (7.1 | )% |  |  | 0.9 | %
Accruals and reserves |  |  | 0.0 | % |  |  | 0.1 | % |  |  | 3.2 | %
Nondeductible employee compensation |  |  | 1.7 | % |  |  | 1.5 | % |  |  | 1.5 | %
Research tax credits |  |  | (2.7 | )% |  |  | (0.7 | )% |  |  | (1.3 | )%
Change in valuation allowance |  |  | 0.0 | % |  |  | (4.1 | )% |  |  | (9.7 | )%
Stock based compensation |  |  | (2.7 | )% |  |  | (1.9 | )% |  |  | 0.0 | %
U.S. Tax Cuts and Jobs Act |  |  | (3.5 | )% |  |  | 7.7 | % |  |  | 0.0 | %
U.S. International Tax (Sub F, GILTI, FDII) |  |  | (1.2 | )% |  |  | 0.0 | % |  |  | 0.0 | %
Other |  |  | 0.8 | % |  |  | 0.0 | % |  |  | (0.2 | )%
Effective tax rate |  |  | 8.5 | % |  |  | 30.5 | % |  |  | 29.9 | %
The following table summarizes Company tax loss and tax credit carry forwards for tax return purposes at December 31, 2018 (in thousands):
|  | Related Tax Deduction |  | Tax Benefit |  |  | Expiration Date
Tax credit carry forwards: |  |  |  |  |  |  |  |
State research tax credits |  | n/a |  | $ | 2,893 |  |  | 2026 to 2033
Total credit carry forwards |  | n/a |  | $ | 2,893 |  |  |
Significant components of the Company's net deferred tax assets and liabilities are as follows (in thousands):
|  | December 31, |
|  | 2018 |  |  | 2017 |
Deferred tax asset: |  |  |  |  |  |  |  |
Capitalized technology license |  | $ | 553 |  |  | $ | 804 |
Capitalized research expenditures |  |  | 4,710 |  |  |  | 3,719 |
Accruals and reserves |  |  | 2,890 |  |  |  | 962 |
Retirement plan |  |  | 9,570 |  |  |  | 7,125 |
Deferred revenue |  |  | 12,028 |  |  |  | 206 |
Tax credit carry forwards |  |  | 2,895 |  |  |  | 21,562 |
Stock-based compensation |  |  | 1,701 |  |  |  | 1,819 |
Other |  |  | 47 |  |  |  | 59 |
|  |  | 34,394 |  |  |  | 36,256 |
Valuation allowance |  |  | (2,893 | ) |  |  | (2,460 | )
Deferred tax assets |  |  | 31,501 |  |  |  | 33,796 |
Deferred tax liability: |  |  |  |  |  |  |  |
Accruals and reserves |  |  | (7,124 | ) |  |  | (6,774 | )
Deferred tax liabilities |  |  | (7,124 | ) |  |  | (6,774 | )
Net deferred tax assets |  | $ | 24,377 |  |  | $ | 27,022 |
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. At this time there is no evidence to release the valuation allowance that relates to the New Jersey research and development credit. On December 27, 2018 the Korean Supreme Court, citing prior cases, held that the applicable law and interpretation of the Korea-US Tax Treaty were clear that only royalties paid with respect to Korean registered patents are Korean source income and subject to Korean withholding tax. Based on this recent decision, the Company has decided to immediately litigate the Korean withholding on the 2018 royalty payments while continuing the US- Korean Mutual Agreement Procedure (MAP) for the years 2011 through 2017. UDC has engaged a leading Korean law firm to litigate the 2018 withholding and has been advised that there is a more-likely-than-not chance of success. As a result, UDC has recorded a long-term asset of $13.6 million representing the allocation of withholding to non-Korean patents and a tax expense of $1.3 million representing an allocation of withholding to Korean registered patents. With respect to the Korean withholding for the years 2011 through 2017, UDI has decided to continue the MAP which was accepted by the Korean National Tax Service on September 15, 2017. The Company believes that it is more-likely-than-not that a favorable settlement will be reached resulting in a reduction of the Korean withholding taxes previously withheld since 2011. A long-term receivable of $36.9 million for estimated refunds due from the Korean government, a long-term payable of $16.2 million for estimated amounts due to the U.S. Federal government based on amendment of prior year U.S. tax returns for the lower withholding amounts, and a reduction of deferred tax assets for foreign tax credits and R&D credits of $20.7 million has been recorded on the December 31, 2018 balance sheet for this matter. On October 30, 2018, the Korean National Tax Service (KNTS) concluded a tax audit with LG Display (LGD) that included the licensing and royalty payments made to UDI during the years 2015 through 2017. KNTS questioned whether UDI was the beneficial owner of these payments and assessed UDI a charge of $13.2 million for withholding and interest for the three-year period. UDI has engaged a leading Korean law firm which believes it is more-likely-than-not that UDI has beneficial ownership of the underlining intellectual property. As a result, a petition has been filed with the Tax Tribunal. Based on this authority, UDI has paid the assessment which is recorded as a long-term asset as of December 31, 2018. The above estimates may change in the future and ultimately upon settlement of these uncertain tax positions. For the years ended December 31, 2018, 2017 and 2016, the Company has incurred Korean withholding tax of $14.9 million, $17.6 million and $14.4 million, respectively; which is currently being appealed based on the interpretation of the Korean – U. S. tax treaty and recent Korean Supreme Court decisions. The Company’s 2013 federal income tax return was audited by the Internal Revenue Services with no change; the years 2014 to 2016 are open and subject to examination. The state and foreign tax returns are open for a period of generally three to four years.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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