13. Income Taxes
The components of the pretax loss from operations for the years ended December 31, 2016 and 2015 are as follows (in thousands):
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
U.S. domestic |
|
$ |
2,189 |
|
|
$ |
(53,783 |
) |
|
$ |
(37,525 |
) |
|
Foreign |
|
|
(26,580 |
) |
|
|
(13,528 |
) |
|
|
— |
|
|
Pretax loss from operations |
|
$ |
(24,391 |
) |
|
$ |
(67,311 |
) |
|
$ |
(37,525 |
) |
The provision for income taxes from continuing operations consists of the following (in thousands):
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(2 |
) |
|
$ |
1,348 |
|
|
$ |
— |
|
|
State |
|
|
135 |
|
|
|
28 |
|
|
|
— |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total current |
|
|
133 |
|
|
|
1,376 |
|
|
|
— |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total deferred |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total income tax expense (benefit) |
|
$ |
133 |
|
|
$ |
1,376 |
|
|
$ |
— |
|
A reconciliation of income taxes to the amount computed by applying the statutory federal income tax rate to the net loss is summarized as follows:
|
|
|
December 31, |
|
|||||||||
|
(In thousands) |
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Income tax expense (benefit) at statutory rates |
|
$ |
(8,537 |
) |
|
$ |
(23,559 |
) |
|
$ |
(13,133 |
) |
|
State income tax, net of federal benefit |
|
|
1,276 |
|
|
|
(59 |
) |
|
|
(422 |
) |
|
Permanent items |
|
|
683 |
|
|
|
553 |
|
|
|
2,157 |
|
|
Uncertain tax positions |
|
|
971 |
|
|
|
5,943 |
|
|
|
843 |
|
|
Research and development credits |
|
|
(2,429 |
) |
|
|
(1,877 |
) |
|
|
(2,041 |
) |
|
Mark to market - financial instruments |
|
|
(2,555 |
) |
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
6,252 |
|
|
|
548 |
|
|
|
751 |
|
|
Tax attribution limitation |
|
|
(1,305 |
) |
|
|
(22,908 |
) |
|
|
— |
|
|
Foreign rate differential |
|
|
5,992 |
|
|
|
3,890 |
|
|
|
— |
|
|
Change in rate |
|
|
(2,347 |
) |
|
|
4,565 |
|
|
|
(2,624 |
) |
|
State net operating loss |
|
|
1,203 |
|
|
|
(1,529 |
) |
|
|
— |
|
|
Deferred intercompany profit |
|
|
(1 |
) |
|
|
23,320 |
|
|
|
— |
|
|
Change in valuation allowance |
|
|
930 |
|
|
|
12,489 |
|
|
|
14,469 |
|
|
Income tax expense (benefit) |
|
$ |
133 |
|
|
$ |
1,376 |
|
|
$ |
— |
|
Significant components of the Company's deferred tax assets as of December 31, 2016 and 2015 are shown below. A valuation allowance has been recognized to offset the net deferred tax assets as realization of such deferred tax assets has not met the more likely than not threshold.
|
|
|
December 31, |
|
|||||
|
(In thousands) |
|
2016 |
|
|
2015 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
98,995 |
|
|
$ |
72,064 |
|
|
Research and development credits |
|
|
6,190 |
|
|
|
4,733 |
|
|
Capitalized research and development expenditures |
|
|
2,733 |
|
|
|
1,460 |
|
|
Deferred revenue |
|
|
— |
|
|
|
26,761 |
|
|
Stock-based compensation |
|
|
9,410 |
|
|
|
12,143 |
|
|
Other, net |
|
|
9,163 |
|
|
|
3,531 |
|
|
Total deferred tax assets |
|
|
126,491 |
|
|
|
120,692 |
|
|
Valuation allowance for deferred tax assets |
|
|
(113,009 |
) |
|
|
(112,290 |
) |
|
Deferred tax assets, net of valuation allowance |
|
|
13,482 |
|
|
|
8,402 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Convertible debt |
|
|
(13,482 |
) |
|
|
(8,402 |
) |
|
Total deferred tax liabilities |
|
|
(13,482 |
) |
|
|
(8,402 |
) |
|
|
|
$ |
— |
|
|
$ |
— |
|
At December 31, 2016, federal, state and foreign net operating loss carryforwards are approximately $445.4 million, $417.4 million and $39.0 million, respectively, not considering the IRC Section 382 annual limitation discussed below. The federal loss carryforwards begin to expire in 2027, and the state loss carryforwards begin to expire in 2017, unless previously utilized. At December 31, 2016, federal and state research and development tax credit carryforwards are $21.8 million and $7.0 million, respectively. The federal research and development tax credit carryforwards begin to expire in 2024 unless previously utilized. The state research and development tax credits and foreign net operating losses carry forward indefinitely.
The California net operating loss carry forwards are scheduled to expire as follows (in thousands):
|
Year |
|
Amount |
|
|
|
2017 |
|
$ |
49,841 |
|
|
2018 |
|
|
3,841 |
|
|
2028 and beyond |
|
|
336,492 |
|
Approximately $12.2 million of the net operating loss carryforwards relate to excess tax deductions for stock compensation, the income tax benefit of which will be recorded as additional paid-in-capital if and when realized.
Additionally, the utilization of the net operating loss and research and development tax credit carryforwards is subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes limit the amount of the net operating loss and research and development tax credit carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. The Company has completed an ownership change analysis in accordance with Section 382 from inception through December 31, 2016. As a result of the analysis, it was determined that the Company experienced several ownership changes during this period with the last one occurring in December 2014. The analysis to determine the limitation of NOLs and federal credits as a result of the ownership changes has not been finalized. Based on the preliminary analysis of the limitation of the net operating losses and federal credits, deferred tax assets for net operating losses of $189.4 million and $162.5 million for federal and state, respectively, and federal research and development credits of $12.0 million have been removed from the deferred tax asset schedule. A corresponding decrease to the valuation allowance has also been recorded. Due to the existence of the valuation allowance, future changes in the deferred tax assets related to these tax attributes will not impact the effective tax rate.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2016, 2015 and 2014 (in thousands):
|
|
|
December 31, |
|
|||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
Gross unrecognized tax benefits at the beginning of the year |
|
$ |
16,119 |
|
|
$ |
7,309 |
|
|
$ |
6,396 |
|
|
Increases related to current year tax positions |
|
|
912 |
|
|
|
822 |
|
|
|
960 |
|
|
Increases related to prior year tax positions |
|
|
196 |
|
|
|
7,988 |
|
|
|
— |
|
|
Increases (decreases) related to prior year tax positions |
|
|
— |
|
|
|
— |
|
|
|
(35 |
) |
|
Expiration of unrecognized tax benefits |
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
Gross unrecognized tax benefits at the end of the year |
|
$ |
17,227 |
|
|
$ |
16,119 |
|
|
$ |
7,309 |
|
Due to the valuation allowance, none of the unrecognized tax benefits as of December 31, 2016, if recognized, would reduce the Company’s annual effective tax rate. The Company does not expect a significant change in unrecognized tax benefits over the next 12 months.
The Company files income tax returns in the United States, Ireland and in various state jurisdictions with varying statutes of limitations. Due to net operating losses incurred, the Company’s tax returns from inception to date are subject to examination by taxing authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of December 31, 2016, the Company had no interest or penalties accrued for uncertain tax positions.