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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES
20.
INCOME TAXES:

The components of income before income taxes are as follows (in thousands):

 

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

United States

 

$

60,066

 

 

$

38,839

 

 

$

53,629

 

Foreign

 

 

168,181

 

 

 

124,690

 

 

 

116,276

 

Income before income taxes

 

$

228,247

 

 

$

163,529

 

 

$

169,905

 

 

The components of the income tax expense are as follows (in thousands):

 

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Current income tax (expense) benefit:

 

 

 

 

 

 

 

 

 

Federal

 

$

(16,433

)

 

$

(14,773

)

 

$

(20,108

)

State

 

 

(641

)

 

 

(568

)

 

 

(755

)

Foreign

 

 

(25,212

)

 

 

(19,262

)

 

 

(16,514

)

 

 

 

(42,286

)

 

 

(34,603

)

 

 

(37,377

)

Deferred income tax (expense) benefit:

 

 

 

 

 

 

 

 

 

Federal

 

 

(844

)

 

 

4,883

 

 

 

5,208

 

State

 

 

(734

)

 

 

(34

)

 

 

1,054

 

Foreign

 

 

(170

)

 

 

(403

)

 

 

(486

)

 

 

 

(1,748

)

 

 

4,446

 

 

 

5,776

 

Income tax expense

 

$

(44,034

)

 

$

(30,157

)

 

$

(31,601

)

 

Reconciliation of the statutory U.S. federal tax rate to the Company's effective tax rate is as follows:

 

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Statutory U.S. federal income tax rate

 

 

21.0

%

 

 

21.0

%

 

 

21.0

%

State income taxes, net of federal benefit

 

 

0.2

 

 

 

0.2

 

 

 

0.1

 

Effect of foreign operations

 

 

(5.0

)

 

 

(5.2

)

 

 

(5.4

)

Accruals and reserves

 

 

(0.8

)

 

 

(1.0

)

 

 

(1.1

)

Nondeductible employee compensation

 

 

3.0

 

 

 

2.6

 

 

 

2.5

 

Research tax credits

 

 

(1.4

)

 

 

(1.8

)

 

 

(1.4

)

Stock based compensation

 

 

(0.3

)

 

 

(0.9

)

 

 

(1.7

)

U.S. International Tax (Sub F, GILTI, FDII)

 

 

2.1

 

 

 

3.5

 

 

 

3.8

 

Other

 

 

0.5

 

 

 

—

 

 

 

0.8

 

Effective tax rate

 

 

19.3

%

 

 

18.4

%

 

 

18.6

%

 

The following table summarizes Company tax credit carry forwards for tax return purposes as of December 31, 2021 (in thousands):

 

 

 

Tax Benefit

 

 

Expiration Date

Tax credit carry forwards:

 

 

 

 

 

State research tax credits

 

$

6,156

 

 

2029 to 2036

Total credit carry forwards

 

$

6,156

 

 

 

 

Significant components of the Company's net deferred tax assets and liabilities are as follows (in thousands):

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Deferred tax asset:

 

 

 

 

 

 

Capitalized technology license and patents

 

$

561

 

 

$

580

 

Capitalized research expenditures

 

 

3,150

 

 

 

4,291

 

Accruals and reserves

 

 

4,733

 

 

 

4,178

 

Retirement plan

 

 

14,560

 

 

 

15,444

 

Deferred revenue

 

 

11,361

 

 

 

16,834

 

Tax credit carry forwards

 

 

6,156

 

 

 

4,589

 

Stock-based compensation

 

 

1,110

 

 

 

1,059

 

Other

 

 

5,819

 

 

 

1,914

 

 

 

 

47,450

 

 

 

48,889

 

Valuation allowance

 

 

(5,911

)

 

 

(4,560

)

Deferred tax assets

 

 

41,539

 

 

 

44,329

 

Deferred tax liability:

 

 

 

 

 

 

Accruals and reserves

 

 

(8,086

)

 

 

(6,634

)

Deferred tax liabilities

 

 

(8,086

)

 

 

(6,634

)

Net deferred tax assets

 

$

33,453

 

 

$

37,695

 

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 has historically been recorded for the New Jersey research and development credit.

On December 27, 2018 the Korean Supreme Court, citing prior cases, held that only royalties paid with respect to Korean registered patents are Korean source income and subject to Korean withholding tax under the applicable law and interpretation of the Korea-U.S. Tax Treaty. The Company has incurred Korean withholding tax of $14.9 million each year since the year ended December 31, 2018. Based on the Korean Supreme Court decision, in October 2021, a tax refund request on behalf of the Company was filed with the Korean National Tax Service (KNTS) for over-withheld taxes from 2018 to the second quarter of 2021. The Company has been advised by a leading Korean law firm that there is a more-likely-than-not chance of success. As a result, as of December 31, 2021 and December 31, 2020, the Company has recorded a long-term asset of $53.2 million and $40.1 million, respectively, representing the allocation of withholding to non-Korean patents. Also, the Company has recorded a long-term liability of $31.6 million and $32.7 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 (MAP) which was accepted by the 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. The Internal Revenue Service and KNTS are currently exchanging information with respect to the MAP. 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 research and development credits of $20.7 million has been recorded on the December 31, 2021 and December 31, 2020 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 underlying intellectual property. Based on this authority, UDC Ireland has paid the assessment which is recorded as a long-term asset as of December 31, 2021 and December 31, 2020. In September 2020, the Korean District Court ruled entirely in the favor of UDC Ireland on the beneficial ownership issue and the ruling was affirmed by the Korean High Court in August 2021. The KNTS appealed the ruling to the Korean Supreme Court. On January 13, 2022, the Korean Supreme Court dismissed the appeal from the KNTS. UDC Ireland is expected to recover the charge of $13.2 million for withholding plus interest for the three-year period within a year after January 13, 2022.

The Company’s federal income tax returns for the years 2018 to 2021 are open and subject to examination. The State of New Jersey has closed the 2014 to 2017 tax return audit of UDC, Inc. with no change to tax expense or tax credit carry forwards. The state and foreign tax returns are open for a period of generally three to four years.