Note 14. Income Taxes
The following is a summary of the Company’s provision for income taxes for the years ended December 31, 2017, 2016 and 2015:
|
|
|
December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
26 |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
106 |
|
|
|
(64 |
) |
|
|
155 |
|
|
International |
|
|
1,757 |
|
|
|
387 |
|
|
|
243 |
|
|
Total |
|
|
1,889 |
|
|
|
323 |
|
|
|
398 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(6,231 |
) |
|
|
(10,943 |
) |
|
|
(6,256 |
) |
|
State |
|
|
(2,340 |
) |
|
|
(1,115 |
) |
|
|
(455 |
) |
|
International |
|
|
(185 |
) |
|
|
(98 |
) |
|
|
251 |
|
|
Valuation allowance |
|
|
6,458 |
|
|
|
12,350 |
|
|
|
7,287 |
|
|
Total |
|
|
(2,298 |
) |
|
|
194 |
|
|
|
827 |
|
|
Income taxes |
|
$ |
(409 |
) |
|
$ |
517 |
|
|
$ |
1,225 |
|
United States and foreign income (loss) before income taxes for the years ended December 31, 2017, 2016 and 2015 is as follows:
|
|
|
Years ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
United States |
|
$ |
(69,333 |
) |
|
$ |
(28,855 |
) |
|
$ |
(17,877 |
) |
|
Foreign |
|
|
7,729 |
|
|
|
6,146 |
|
|
|
6,103 |
|
|
Total |
|
$ |
(61,604 |
) |
|
$ |
(22,709 |
) |
|
$ |
(11,774 |
) |
The components of net deferred tax assets (liabilities) are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Acquisition related costs |
|
$ |
502 |
|
|
$ |
603 |
|
|
Deferred revenues |
|
|
1,927 |
|
|
|
2,521 |
|
|
Allowance for doubtful accounts |
|
|
887 |
|
|
|
1,186 |
|
|
Inventory |
|
|
1,350 |
|
|
|
1,420 |
|
|
Deferred compensation |
|
|
2,665 |
|
|
|
5,346 |
|
|
Bonus accruals |
|
|
655 |
|
|
|
942 |
|
|
Vacation accrual |
|
|
203 |
|
|
|
246 |
|
|
Deferred rent |
|
|
625 |
|
|
|
1,051 |
|
|
Warranty accrual |
|
|
970 |
|
|
|
570 |
|
|
Accrued expenses |
|
|
454 |
|
|
|
476 |
|
|
Satellite network and other property |
|
|
10,852 |
|
|
|
7,314 |
|
|
Foreign tax credit |
|
|
1,618 |
|
|
|
3,011 |
|
|
Alternative minimum tax credit |
|
|
325 |
|
|
|
325 |
|
|
Tax loss carryforwards and credits |
|
|
20,628 |
|
|
|
11,128 |
|
|
Other |
|
|
4 |
|
|
|
7 |
|
|
Total deferred tax assets |
|
|
43,665 |
|
|
|
36,146 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Intangible Assets |
|
|
(18,431 |
) |
|
|
(19,309 |
) |
|
Goodwill |
|
|
(2,429 |
) |
|
|
(2,852 |
) |
|
Total deferred tax liabilities |
|
|
(20,860 |
) |
|
|
(22,161 |
) |
|
Net deferred tax assets before valuation allowance |
|
|
22,805 |
|
|
|
13,985 |
|
|
Less valuation allowance |
|
|
(40,347 |
) |
|
|
(32,550 |
) |
|
Net deferred tax asset (liabilities) |
|
|
(17,542 |
) |
|
|
(18,565 |
) |
|
Deferred tax assets, non-current |
|
|
104 |
|
|
|
80 |
|
|
Deferred tax liabilities, non-current |
|
|
(17,646 |
) |
|
|
(18,645 |
) |
|
Net deferred tax assets (liabilities) |
|
$ |
(17,542 |
) |
|
$ |
(18,565 |
) |
Income taxes differs from the amount computed by applying the statutory U.S. Federal income tax rate because of the effect of the following items:
|
|
|
Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Income tax expense at U.S. statutory rate of 34% |
|
$ |
(20,946 |
) |
|
$ |
(7,720 |
) |
|
$ |
(4,003 |
) |
|
State income taxes, net of federal benefit |
|
|
(2,261 |
) |
|
|
(1,186 |
) |
|
|
(353 |
) |
|
Effect of foreign subsidiaries |
|
|
(283 |
) |
|
|
(291 |
) |
|
|
(687 |
) |
|
Tax credits |
|
|
(686 |
) |
|
|
(633 |
) |
|
|
(669 |
) |
|
Other permanent items |
|
|
(2,374 |
) |
|
|
(1,183 |
) |
|
|
(451 |
) |
|
Change in uncertain tax positions |
|
|
— |
|
|
|
124 |
|
|
|
— |
|
|
True-up from prior years |
|
|
— |
|
|
|
(831 |
) |
|
|
— |
|
|
Change in domestic tax rate |
|
|
19,353 |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
330 |
|
|
|
(113 |
) |
|
|
101 |
|
|
Change in valuation allowance |
|
|
6,458 |
|
|
|
12,350 |
|
|
|
7,287 |
|
|
Income tax |
|
$ |
(409 |
) |
|
$ |
517 |
|
|
$ |
1,225 |
|
On December 22, 2017, new federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law. The 2017 Tax Act reduces the federal corporate income tax rate to 21% from 35% effective January 1, 2018. The 2017 Tax Act also changes the taxation of foreign earnings, and companies generally will not be subject to United States federal income taxes upon the receipt of dividends from foreign subsidiaries and will not be permitted foreign tax credits related to such dividends. Additionally, upon enactment, there is a one-time deemed repatriation tax on undistributed foreign earnings and profits (the “transition tax”).
The key impacts of the Tax Act on the Company’s financial statements were the re-measurement of deferred tax balances to the new corporate tax rate and the calculation of any impacts of the transition tax. The re-measurement of the deferred tax balances to the new corporate rate is complete and those amounts are not provisional.
Although the Company has taxable earnings and profits from its foreign subsidiaries, the Company does not expect any cash tax payments for the transition tax. The amount of taxable foreign earnings and profits was significantly less than the Company’s expected tax losses for 2017 therefore the Company will fully utilize these losses to offset the income inclusion regarding the transition tax. The adjustments to deferred tax assets related to the transition tax are provisional amounts estimated based on information available as of December 31, 2017. The Company has not obtained, prepared and analyzed the information necessary to finalize its computations and accounting for its accumulated foreign earnings. These amounts are subject to change as the Company obtains information necessary to complete the calculations. The Company will recognize any changes to the provisional amounts as we refine our estimates.
As part of the Company’s accounting for the acquisitions, a portion of the purchase price was allocated to goodwill. The acquired goodwill is deductible for tax purposes and amortized over fifteen years for income tax purposes. Under GAAP, the acquired goodwill is not amortized in the Company’s financial statements, as such a deferred income tax expense and a deferred tax liability arise as a result of the tax deductibility for this amount for tax purposes but not for financial statement purposes. The resulting deferred tax liability, which is expected to continue to increase over time will remain on the Company’s balance sheet indefinitely unless there is an impairment of the asset. As a result of the Tax Act and the changes it made to net operating loss carry forward rules, the Company is now able to use the above deferred tax liability as a source of future taxable income in evaluating the need for a valuation allowance. This change resulted in a deferred tax benefit of $1,693.
As of December 31, 2017 and 2016, the Company maintained a valuation allowance against all of its net deferred tax assets, excluding goodwill, attributable to operations in the United States as the realization was not considered more likely than not.
The net change in the total valuation allowance for the years ended December 31, 2017, 2016 and 2015 was $6,458 , $12,350 and $7,287, respectively.
On January 1, 2017, the company adopted ASU 2016-09. Prior to adopting the ASU, the Company recognized tax benefits associated with the exercise of SARs and stock options and vesting of RSUs directly to stockholders’ equity only when the tax benefit reduces income tax payable on the basis that a cash tax savings has occurred. As a result of adopting this ASU the Company recognized the benefit of net operating loss carryovers that were created as a result of previous windfall tax deductions. The gross amount of windfall deductions that were previously not recognized was approximately $6,529. Due to a full valuation allowance, the recognition of the benefit for the windfall deductions did not have any impact to the consolidated balance sheet or consolidated statement of operations.
As of December 31, 2017 and 2016, the Company had potentially utilizable federal net operating loss tax carryforwards of $76,062 and $34,380, respectively. As of December 31, 2017 and 2016, the Company had potentially utilizable state net operating loss tax carryforwards of $159,554 and $61,554, respectively. The net operating loss carryforwards expire at various times through 2037. At December 31, 2017 and December 31, 2016, the Company had potentially utilizable foreign net operating loss carryforwards of $14,832 and $6,947, respectively. The foreign net operating loss carryforwards expire on various dates through 2037.
The utilization of the Company’s net operating losses may be subject to a substantial limitation due to the “change of ownership provisions” under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their utilization.
As of December 31, 2017, the Company has not provided deferred income taxes on the undistributed earnings of its foreign subsidiaries. The amount of such earnings was $26,069. These earnings have been permanently reinvested and the Company does not plan to initiate action that would precipitate the payment of income taxes thereon. It is not practicable to estimate the amount of additional tax that might be payable on these undistributed earnings.
The following table is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Balance at January 1, |
|
$ |
856 |
|
|
$ |
775 |
|
|
$ |
775 |
|
|
Additions for tax positions related to prior years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Additions for tax positions |
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
Reductions for tax positions of prior years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Settlements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance at December 31, |
|
$ |
856 |
|
|
$ |
856 |
|
|
$ |
775 |
|
The company accrued interest and penalties related to uncertain tax positions of $43 for the year ended December 31, 2016. No interest and penalties related to unrecognized tax benefits were accrued during the years ended December 31, 2017 and 2015. Interest and penalties are not reflected in the table above and are included in income tax expense.
As of December 31, 2017, $775 of the unrecognized tax benefits have been recorded as a reduction to the Company’s federal and state net operating loss tax carryforwards in deferred tax assets. Due to the existence of the Company’s valuation allowance, these unrecognized tax benefits, if recognized, would not impact the Company’s effective income tax rate. The remaining balance of $81, if recognized, would affect the effective tax rate. The Company is subject to U.S. federal and state examinations by tax authorities from 2014 and 2013, respectively. The Company is also subject to examinations in its material non-U.S. jurisdictions for 2012 and later years. The Company does not expect any significant changes to its unrecognized tax positions during the next twelve months.