15. Income Taxes

The components of loss before income taxes for the years ended December 31, 2017, 2016 and 2015 includes the following:





Income tax expense (benefit) differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to loss before income taxes as a result of the following:







The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2017 and 2016 are presented below:







Effects of the Tax Cuts and Jobs Act

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changes the existing U.S. tax laws, including a reduction in the corporate tax rate to 21% effective for tax years including or commencing January 1, 2018 and a move from a worldwide tax system to a territorial system, limitations on the deductibility of interest expense and executive compensation, as well as other changes.

Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

The SAB summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Cuts and Jobs Act.



Amounts recorded where accounting is complete principally relate to the reduction in the U.S. corporate income tax rate to 21%, which resulted in the Company reducing its Net deferred tax asset and associated valuation allowance by $82.8 million.



The new law includes a one-time mandatory repatriation transition tax on the net accumulated earnings and profits of a U.S. taxpayer’s foreign subsidiaries. The Company has performed an earnings and profits analysis, and as a result of accumulated losses since inception, there will be no income tax effect in the current or any future period. Therefore, the accounting for this matter is complete.



Effects of tax law changes where a reasonable estimate of the accounting effects has not yet been made include the excessive executive compensation limitation which could impact the deferred tax asset and associated valuation allowance related to stock compensation.



Other significant provisions that are not yet effective but may impact income taxes in future years include: an exemption from U.S. tax on dividends of future foreign earnings, limitation on the current deductibility of net interest expense in excess of 30 percent of adjusted taxable income, a limitation of net operating losses generated after January 1, 2018 to 80 percent of taxable income, an incremental tax (base erosion anti-abuse tax or BEAT) on excessive amounts paid to foreign related parties, and a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or GILTI).



Effects of other Recent Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting which is intended to improve the accounting for share-based payment transactions as part of the FASB’s simplification initiative. The Company adopted ASU 2016-09 during the first quarter of 2017. As a result of this guidance, the Company recorded $58.7 million of additional deferred tax assets, which are fully offset by a valuation allowance.

Net Operating Losses

As of December 31, 2017 and 2016, the Company had net operating loss carryforwards, or NOLs, for U.S. Federal income tax purposes of $628.0 million and $562.3 million, respectively, which expire between 2024 and 2037. The Company also has certain state and foreign NOLs in varying amounts depending on the different state and foreign tax laws.

The Company’s ability to utilize its NOLs may be limited under Section 382 of the Internal Revenue Code or similar rules. The Section 382 limitations apply if an “ownership change” occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). The Company has evaluated whether one or more ownership changes under Section 382 have occurred since its inception and have determined that there have been at least two such changes. Although the Company believes that these ownership changes have not resulted in material limitations on its ability to use these NOLs, its ability to utilize these NOLs may be limited due to future ownership changes or for other reasons. Additionally, tax laws limit the time during which NOLs and certain other tax attributes may be utilized against future taxes. As a result, the Company may not be able to take full advantage of its carryforwards for U.S. Federal, state, and foreign tax purposes.

Valuation Allowance

At December 31, 2017 and 2016, the Company maintained a full valuation allowance on its deferred tax assets since it has not yet achieved sustained profitable operations. As a result, the Company has not recorded any income tax benefit since its inception. In 2017, the valuation allowance for deferred tax assets increased by approximately $59.3 million. This includes an increase of $0.3 million, $6.8 million, and $52.5 million for U.S. Federal, state, and foreign tax, respectively, partially offset by a decrease of $0.3 million to equity.

Unrecognized Tax Benefits

At December 31, 2017 and 2016, the Company had no reserves for unrecognized tax benefits. 

The Company and its subsidiaries are subject to taxation in the U.S. and various foreign jurisdictions. Of the major jurisdictions, the Company is subject to examination in: the United States for U.S. Federal purposes for 2014 and forward and generally for state purposes for 2013 and forward; and the United Kingdom for 2015 and forward. However, NOLs are subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin.