Income Taxes
Our loss before provision for income taxes was as follows (in thousands):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
United States | $ | (22,994 | ) | | $ | (8,174 | ) | | $ | (7,641 | ) |
Foreign | 79 |
| | (424 | ) | | (278 | ) |
Loss before provision for income taxes | $ | (22,915 | ) | | $ | (8,598 | ) | | $ | (7,919 | ) |
The tax provision for the years ended December 31, 2017, 2016 and 2015 consists primarily of taxes attributable to foreign operations and the tax effect of unrealized gains on our available for sale securities. The components of the provision for income taxes are as follows (in thousands):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current provision (benefit): | | | | | |
Federal | $ | — |
| | $ | — |
| | $ | — |
|
State | 5 |
| | 5 |
| | 5 |
|
Foreign | 64 |
| | (14 | ) | | (13 | ) |
Total current provision (benefit) | 69 |
| | (9 | ) | | (8 | ) |
Deferred provision (benefit): | | | | | |
Federal | — |
| | — |
| | (293 | ) |
State | — |
| | — |
| | (21 | ) |
Foreign | 12 |
| | (31 | ) | | (16 | ) |
Total deferred provision (benefit) | 12 |
| | (31 | ) | | (330 | ) |
Provision for (benefit from) income taxes | $ | 81 |
| | $ | (40 | ) | | $ | (338 | ) |
Reconciliation of the provision for income taxes calculated at the statutory rate to our provision for (benefit from) income taxes is as follows (in thousands):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Tax benefit at federal statutory rate | $ | (7,791 | ) | | $ | (2,924 | ) | | $ | (2,693 | ) |
State taxes | 48 |
| | 127 |
| | 1,126 |
|
Research and development credits | (399 | ) | | (161 | ) | | (85 | ) |
Foreign operations taxed at different rates | (2 | ) | | 30 |
| | 31 |
|
Stock-based compensation | (216 | ) | | 327 |
| | 77 |
|
Other nondeductible items | 399 |
| | 660 |
| | (43 | ) |
Change in valuation allowance | (26,058 | ) | | 1,901 |
| | 1,249 |
|
Change in statutory tax rate | 34,100 |
| | — |
| | — |
|
Provision for (benefit from) income taxes | $ | 81 |
| | $ | (40 | ) | | $ | (338 | ) |
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
Significant components of our deferred tax assets and liabilities are as follows (in thousands):
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Net operating losses | $ | 53,901 |
| | $ | 72,588 |
|
Credits | 6,221 |
| | 5,016 |
|
Deferred revenues | 3,334 |
| | 1,025 |
|
Stock-based compensation | 2,872 |
| | 3,750 |
|
Reserves and accruals | 2,028 |
| | 2,952 |
|
Depreciation | 1,573 |
| | 2,516 |
|
Intangible assets | 3,172 |
| | 5,536 |
|
Capital losses | 576 |
| | 933 |
|
Unrealized gain/loss | 295 |
| | 277 |
|
Other assets | 78 |
| | 110 |
|
Total deferred tax assets: | 74,050 |
| | 94,703 |
|
Deferred tax liabilities: | | | |
Other | (115 | ) | | (103 | ) |
Total deferred tax liabilities: | (115 | ) | | (103 | ) |
Valuation allowance | (74,010 | ) | | (94,663 | ) |
Net deferred tax liabilities | $ | (75 | ) | | $ | (63 | ) |
ASC Topic 740 requires that the tax benefit of NOLs, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a valuation allowance against our deferred tax assets. Accordingly, the net deferred tax assets in all our jurisdictions have been fully reserved by a valuation allowance. The net valuation allowance decreased by $20.7 million during the year ended December 31, 2017; and increased by $1.9 million and $1.2 million, during the years ended December 31, 2016 and 2015, respectively. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.
The following table sets forth our federal, state and foreign NOL carryforwards and federal research and development tax credits as of December 31, 2017 (in thousands):
|
| | | | | |
| December 31, 2017 |
| Amount | | Expiration Years |
Net operating losses, federal | $ | 224,536 |
| | 2022-2037 |
Net operating losses, state | 110,802 |
| | 2017-2037 |
Tax credits, federal | 6,433 |
| | 2022-2037 |
Tax credits, state | 7,970 |
| | Do not expire |
Net operating losses, foreign | 382 |
| | Various |
Current U.S. federal and California tax laws include substantial restrictions on the utilization of NOLs and tax credit carryforwards in the event of an ownership change of a corporation. Accordingly, the Company's ability to utilize NOLs and tax credit carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.
Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC Topic 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from available-for-sale securities recorded as a component of other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. For the year ended December 31, 2017, the Company did not record a tax expense in other comprehensive income related to available-for-sale securities.
In 2014, we determined that the undistributed earnings of our India subsidiary will be repatriated to the United States, and accordingly, we have provided a deferred tax liability totaling $0.1 million as of December 31, 2017. We have not provided for U.S. federal and state income taxes on all of the remaining non-U.S. subsidiaries’ undistributed earnings as of December 31, 2017 as the remaining foreign jurisdictions are in an accumulative loss position.
We apply the provisions of ASC Topic 740 to account for uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
| | | | | | | | | | | |
| Rollforward Table (at Gross): As of |
| December 31, |
| 2017 | | 2016 | | 2015 |
Balance at beginning of year | $ | 8,566 |
| | $ | 8,152 |
| | $ | 7,838 |
|
Additions based on tax positions related to current year | 880 |
| | 459 |
| | 368 |
|
Reductions to tax provision of prior years | (24 | ) | | (45 | ) | | (54 | ) |
Balance at end of year | $ | 9,422 |
| | $ | 8,566 |
| | $ | 8,152 |
|
We recognize interest and penalties as a component of our income tax expense. Total interest and penalties recognized in the consolidated statement of operations was $31,000, $35,000 and $24,000, respectively, in 2017, 2016 and 2015. Total penalties and interest recognized in the balance sheet was $323,000 and $292,000, respectively, in 2017 and 2016. The total unrecognized tax benefits that, if recognized currently, would impact the Company’s effective tax rate were $0.4 million as of December 31, 2017 and 2016. We do not expect any material changes to our uncertain tax positions within the next 12 months. We are not subject to examination by United States federal or state tax authorities for years prior to 2002 and foreign tax authorities for years prior to 2010.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. The Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal statutory tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S federal income taxes on dividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (vii) creating a tax on global intangible low-taxed income (GILTI) of foreign subsidiaries; (viii) creating a new limitation on deductible interest expense; (ix) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (x) modifying the officer’s compensation limitation.
Because ASC 740-10-25-47 requires the effect of a change in tax laws or rates to be recognized as of the date of enactment, we remeasured our deferred tax assets and liabilities, and offsetting valuation allowance in the current period. There was no impact to tax expense as the remeasurement of net deferred tax assets was completely offset by a corresponding change in valuation allowance. The reduction to U.S. deferred tax assets and the offsetting valuation allowance was $34.1 million. We did not incur a tax liability from the deemed repatriation of accumulated foreign earnings due to an accumulated deficit in foreign earnings and profits.
The GILTI provisions in the Tax Act will require us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. We are currently assessing the GILTI provisions and have not yet selected an accounting policy for its application; however, we do not anticipate that it will have a material impact on our future tax expense as the operations of our non-U.S. subsidiaries are not material.
The BEAT provisions in the Tax Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and imposes a minimum base erosion anti-abuse tax if greater than regular tax. We do not expect to be subject to this tax based on its assessment of the BEAT provisions.