13. Income Taxes
The amount of loss before taxes is (in thousands):
|
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. loss before taxes |
|
$ |
(94,734 |
) |
|
$ |
(118,743 |
) |
|
$ |
(235,750 |
) |
|
Foreign loss before taxes |
|
|
(2,182 |
) |
|
|
(2,638 |
) |
|
|
(1,427 |
) |
|
Loss before income taxes |
|
$ |
(96,916 |
) |
|
$ |
(121,381 |
) |
|
$ |
(237,177 |
) |
Income tax (benefit) expense for the years ended December 31, 2017, 2016 and 2015 consists of the following (in thousands):
|
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
State |
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total Current |
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
(497 |
) |
|
|
(575 |
) |
|
|
(302 |
) |
|
Total Deferred |
|
|
(497 |
) |
|
|
(575 |
) |
|
|
(302 |
) |
|
Income tax (benefit) expense |
|
$ |
(493 |
) |
|
$ |
(572 |
) |
|
$ |
(301 |
) |
The components that comprise the Company’s net deferred tax assets at December 31, 2017 and 2016 consist of the following (in thousands):
|
|
|
As of December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Stock compensation |
|
$ |
73,336 |
|
|
$ |
87,239 |
|
|
Net operating loss carryforwards |
|
|
42,784 |
|
|
|
37,507 |
|
|
Leases and other accrued liabilities |
|
|
1,868 |
|
|
|
2,096 |
|
|
Tax credits |
|
|
845 |
|
|
|
— |
|
|
Accrued compensation |
|
|
682 |
|
|
|
808 |
|
|
Total deferred tax assets |
|
|
119,515 |
|
|
|
127,650 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Foreign intangibles |
|
|
(499 |
) |
|
|
(996 |
) |
|
Depreciation and amortization |
|
|
(494 |
) |
|
|
(309 |
) |
|
Total deferred tax liabilities |
|
|
(993 |
) |
|
|
(1,305 |
) |
|
Net deferred tax assets |
|
|
118,522 |
|
|
|
126,345 |
|
|
Valuation allowance |
|
|
(119,020 |
) |
|
|
(127,341 |
) |
|
Net deferred tax liability |
|
$ |
(498 |
) |
|
$ |
(996 |
) |
A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:
|
|
|
For the Year Ended December 31, |
|
|
||||||||||
|
|
|
2017 |
|
|
|
2016 |
|
|
2015 |
|
|
|||
|
Tax computed at federal statutory rate |
|
|
34.0 |
|
% |
|
|
34.0 |
|
% |
|
34.0 |
|
% |
|
Section 382/383 NOL |
|
|
— |
|
|
|
|
8.6 |
|
|
|
(3.5 |
) |
|
|
State income taxes, net of federal tax benefit |
|
|
5.3 |
|
|
|
|
3.6 |
|
|
|
2.6 |
|
|
|
Tax rate adjustment |
|
|
4.8 |
|
|
|
|
1.5 |
|
|
|
— |
|
|
|
Tax Cuts and Jobs Act |
|
|
(53.4 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
Research and development credits |
|
|
0.6 |
|
|
|
|
1.3 |
|
|
|
0.1 |
|
|
|
Stock-based compensation |
|
|
(0.3 |
) |
|
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
Other |
|
|
0.8 |
|
|
|
|
(0.5 |
) |
|
|
(3.8 |
) |
|
|
Valuation allowance |
|
|
8.7 |
|
|
|
|
(47.7 |
) |
|
|
(28.9 |
) |
|
|
Effective income tax rate |
|
|
0.5 |
|
% |
|
|
0.5 |
|
% |
|
0.1 |
|
% |
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (Act of 2017). The Act amends the Internal Revenue Code (IRC) to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act of 2017 reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction is effective on January 1, 2018. As a result of the rate reduction, the Company has reduced the deferred tax asset balance as of December 31, 2017 by $51.7 million. Due to the Company’s full valuation allowance position, the Company has also reduced the valuation allowance by the same amount. Due to uncertainties which currently exist in the interpretation of the provisions of the Act of 2017 regarding IRC Section 162(m), the Company has not completed its evaluation of the potential impacts of IRC Section 162(m) as amended by the Act of 2017 on its financial statements. Current provisional amounts are recorded in a manner consistent with interpreting the 2017 Act as not materially impacting the IRC 162(m) evaluation.
On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act of 2017. In accordance with SAB 118, the Company has determined that there is no deferred tax benefit or expense with respect to the re-measurement of certain deferred tax assets and liabilities due to the full valuation allowance against net deferred tax assets. Additional analysis of the law and the impact to the Company will be performed and any impact will be recorded in the respective quarter in 2018.
Pursuant of IRC Sections 382 and 383, annual use of the Company's net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period . The Company completed an IRC Section 382/383 analysis through 2017 regarding the limitation of net operating loss and research and development credit carryforwards. The Company has derecognized the deferred tax assets for net operating losses and federal and state research and development credits of $0.8 million from its deferred tax asset schedule as of December 31, 2017. The Company had previously derecognized $1.2 million deferred tax assets for net operating losses and federal and state research and development credits as of December 31, 2016. There is no impact to tax expense for the derecognition of the net operating losses and federal and state research and development credits due to the valuation allowance recorded against the deferred tax assets. Additionally, the Company has not recognized the deferred tax asset for research and development credits carryforwards as of December 31, 2017 because the Company is a part of a controlled group of affiliated companies with common ownership and cannot complete its calculation of the credit until the time that all members of the controlled group complete their analysis and calculation of qualified research expenditures. The Company does not expect that the unrecognized tax benefits will change within 12 months of this reporting date. Due to the existence of the valuation allowance, future changes in the Company's unrecognized tax benefits will not impact the Company's effective tax rate.
In assessing the realization 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 upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical operating results and the uncertainty of the economic conditions, the Company has recorded a full valuation allowance of $119.0 million at December 31, 2017. The change in the valuation allowance for the year end December 31, 2017 was a decrease of $8.3 million. The portion of the valuation allowance for deferred tax assets for which subsequently recognized tax benefits will be credited directly to contributed capital is $0.2 million.
The Company has not incurred any material interest or penalties as of the current reporting date with respect to income tax matters. The Company does not expect that there will be unrecognized tax benefits of a significant nature that will increase or decrease within 12 months of the reporting date. The Company is subject to U.S. federal income tax, as well as income tax in California and other states. The federal returns for tax years 2014 through 2017 remain open to examination; the California returns remain subject to examination for tax years 2013 through 2017. Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the Internal Revenue Service or other respective tax authority. All other state jurisdictions remain open to examination.
At December 31, 2017, the Company has federal net operating losses (NOLs) of approximately $165.9 million, state NOLs of $136.2 million, and foreign NOLs of $0.2 million. The federal NOL carryforwards begin to expire in 2024, the state NOL carryforwards begin to expire in 2030 and the foreign NOL carryforwards begin to expire in 2022. At December 31, 2017, the Company also had federal research tax credit carryforwards of approximately $3.2 million and California research tax credits of $1.9 million. The federal research tax credit carryforwards begin to expire in 2034 and the state research tax credit carryforwards begin to expire in 2029.
The following table summarizes the changes to the amount of unrecognized tax benefits (in thousands):
|
Unrecognized tax benefits at December 31, 2015 |
|
$ |
1,203 |
|
|
Decrease for prior year tax positions |
|
|
(1,203 |
) |
|
Increase for prior year tax positions |
|
|
2,578 |
|
|
Increase for current year tax positions |
|
|
2,056 |
|
|
Unrecognized tax benefits at December 31, 2016 |
|
|
4,634 |
|
|
Decrease for prior year tax positions |
|
|
(812 |
) |
|
Increase for current year tax positions |
|
|
2,755 |
|
|
Unrecognized tax benefits at December 31, 2017 |
|
$ |
6,577 |
|
Included in the balance of unrecognized tax benefits at December 31, 2017, is $6.0 million that, if recognized, would not impact the Company’s income tax benefit or effective tax rate as long as the deferred tax asset remains subject to a full valuation allowance. The Company does not expect any significant increases or decreases to our unrecognized tax benefits within the next 12 months.