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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
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, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
United States |  | $ | 53,629 |  |  | $ | 13,565 |  |  | $ | 100,260 |
Foreign |  |  | 116,276 |  |  |  | 50,746 |  |  |  | 49,277 |
Income before income taxes |  | $ | 169,905 |  |  | $ | 64,311 |  |  | $ | 149,537 |
The components of the income tax expense are as follows (in thousands):
|  | Year ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current income tax expense: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (20,108 | ) |  | $ | (9,097 | ) |  | $ | (5,817 | )
State |  |  | (755 | ) |  |  | (511 | ) |  |  | (54 | )
Foreign |  |  | (16,514 | ) |  |  | (8,677 | ) |  |  | (15,406 | )
|  |  | (37,377 | ) |  |  | (18,285 | ) |  |  | (21,277 | )
Deferred income tax benefit (expense): |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 5,208 |  |  |  | 12,622 |  |  |  | (24,425 | )
State |  |  | 1,054 |  |  |  | 611 |  |  |  | (23 | )
Foreign |  |  | (486 | ) |  |  | (419 | ) |  |  | 73 |
|  |  | 5,776 |  |  |  | 12,814 |  |  |  | (24,375 | )
Income tax expense |  | $ | (31,601 | ) |  | $ | (5,471 | ) |  | $ | (45,652 | )
Reconciliation of the statutory U.S. federal tax rate to the Company's effective tax rate is as follows:
|  | Year ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Statutory U.S. federal income tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 0.1 |  |  |  | (0.2 | ) |  |  | — |
Effect of foreign operations |  |  | (5.4 | ) |  |  | (4.7 | ) |  |  | (7.1 | )
Accruals and reserves |  |  | (1.1 | ) |  |  | — |  |  |  | 0.1 |
Nondeductible employee compensation |  |  | 2.5 |  |  |  | 1.7 |  |  |  | 1.5 |
Research tax credits |  |  | (1.4 | ) |  |  | (2.7 | ) |  |  | (0.7 | )
Change in valuation allowance |  |  | — |  |  |  | — |  |  |  | (4.1 | )
Stock based compensation |  |  | (1.7 | ) |  |  | (2.7 | ) |  |  | (1.9 | )
U.S. Tax Cuts and Jobs Act |  |  | — |  |  |  | (3.5 | ) |  |  | 7.7 |
U.S. International Tax (Sub F, GILTI, FDII) |  |  | 3.8 |  |  |  | (1.2 | ) |  |  | — |
Other |  |  | 0.8 |  |  |  | 0.8 |  |  |  | — |
Effective tax rate |  |  | 18.6 | % |  |  | 8.5 | % |  |  | 30.5 | %
The following table summarizes Company tax loss and tax credit carry forwards for tax return purposes at December 31, 2019 (in thousands):
|  | Related Tax Deduction |  | Tax Benefit |  |  | Expiration Date
Tax credit carry forwards: |  |  |  |  |  |  |  |
State research tax credits |  | n/a |  | $ | 3,368 |  |  | 2026 to 2034
Total credit carry forwards |  | n/a |  | $ | 3,368 |  |  |
Significant components of the Company's net deferred tax assets and liabilities are as follows (in thousands):
|  | December 31, |
|  | 2019 |  |  | 2018 |
Deferred tax asset: |  |  |  |  |  |  |  |
Capitalized technology license |  | $ | 560 |  |  | $ | 553 |
Capitalized research expenditures |  |  | 3,319 |  |  |  | 4,710 |
Accruals and reserves |  |  | 4,130 |  |  |  | 2,890 |
Retirement plan |  |  | 11,363 |  |  |  | 9,570 |
Deferred revenue |  |  | 14,354 |  |  |  | 12,028 |
Tax credit carry forwards |  |  | 3,997 |  |  |  | 2,895 |
Stock-based compensation |  |  | 1,884 |  |  |  | 1,701 |
Other |  |  | 1,682 |  |  |  | 47 |
|  |  | 41,289 |  |  |  | 34,394 |
Valuation allowance |  |  | (3,368 | ) |  |  | (2,893 | )
Deferred tax assets |  |  | 37,921 |  |  |  | 31,501 |
Deferred tax liability: |  |  |  |  |  |  |  |
Accruals and reserves |  |  | (7,546 | ) |  |  | (7,124 | )
Deferred tax liabilities |  |  | (7,546 | ) |  |  | (7,124 | )
Net deferred tax assets |  | $ | 30,375 |  |  | $ | 24,377 |
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-U.S. 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 decision, the Company has decided to litigate the Korean withholding taxes paid or withheld on the 2018 and 2019 royalty payments and has engaged a leading Korean law firm which has advised that there is a more-likely-than-not chance of success. As a result, as of December 31, 2019 and 2018, the Company has recorded a long-term asset of $26.9 million and $13.6 million, respectively, representing the allocation of withholding to non-Korean patents and a long-term liability of $25.7 million and $7.7 million, respectively, for estimated amounts due to the U.S. Federal government based on the amendment of U.S. tax returns for lower withholding amounts. With respect to the Korean withholding for the years 2011 through 2017, the Company has decided to continue the U.S.-Korean Mutual Agreement Procedure which was accepted by the Korean National Tax Service (KNTS) 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 asset 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, 2019 and 2018 Consolidated Balance Sheets for this matter. On October 30, 2018, the KNTS concluded a tax audit with LG Display that included the licensing and royalty payments made to UDC Ireland during the years 2015 through 2017. The KNTS questioned whether UDC Ireland was the beneficial owner of these payments and assessed UDC Ireland a charge of $13.2 million for withholding and interest for the three-year period. UDC Ireland has engaged a leading Korean law firm which believes it is more-likely-than-not that UDC Ireland has beneficial ownership of the underlining intellectual property. As a result, a petition has been filed with the Tax Tribunal. Based on this authority, UDC Ireland has paid the assessment which is recorded as a long-term asset as of December 31, 2019 and 2018. For the years ended December 31, 2019, 2018 and 2017, the Company has incurred Korean withholding tax of $14.9 million, $14.9 million and $17.6 million, respectively; which is currently being appealed based on the interpretation of the Korea-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 201 6 to 201 9 are open and subject to examination. The State of New Jersey is currently auditing the 2014 to 2017 tax returns of UDC Inc. The state and foreign tax returns are open for a period of generally three to four years. The above estimates may change in the future and ultimately upon settlement of these uncertain tax positions.

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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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