13. Income Taxes

The Company’s effective tax rate for the three- and nine-month periods ended September 30, 2017 was 330.9% and (183.8%), respectively, compared to 47.8% and 34.3%, respectively, for the corresponding periods in the prior year.

In the second quarter of 2017, the Company completed a sale of intellectual property to Repligen Sweden AB that allowed for the Company to utilize certain of its U.S. deferred tax assets. Accordingly, the Company reduced its valuation allowance on its U.S. deferred tax assets by approximately $9,200,000 in the second quarter of 2017 and recorded a $5,625,000 tax benefit on the Company’s consolidated statement of operations as a result of the sale of the intellectual property.

In the third quarter of 2017, in conjunction with the Spectrum Acquisition, the Company determined that its U.S. deferred tax assets were more likely than not to be realized after considering deferred tax liabilities related to the acquired intangible assets. Accordingly, the Company reduced its valuation allowance on its U.S. deferred tax assets by approximately $6,611,000 in the third quarter of 2017.

For the three- and nine-month periods ended September 30, 2017, the effective tax rate differed from the U.S. statutory tax rate of 34% primarily due to valuation allowance releases related to the sale of intellectual property, the Spectrum Acquisition and lower statutory tax rates on foreign profits. For the three-month period ended September 30, 2016, the effective tax rate was higher than the U.S. statutory tax rate of 34% primarily due to unbenefited domestic losses, partially offset by lower statutory tax rates in foreign jurisdictions.

At December 31, 2016, the Company had net operating loss carryforwards of approximately $48,550,000 in the U.S., net operating loss carryforwards of approximately €2,287,000 (approximately $2,407,000) in Germany, federal business tax credit carryforwards of $1,745,000 and state business tax credit carryforwards of approximately $442,000 available to reduce future domestic income taxes, if any. The net operating loss and business tax credits carryforwards will continue to expire at various dates through December 2036. The net operating loss and business tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service. While an IRC Section 382 study was completed in the second quarter of 2017, and no current limitations were identified, use of these net operating loss and business tax credit carryforwards may be limited in the future based on certain changes in the ownership interest of significant stockholders.

ASU 2016-09 states that previously unrecognized excess tax benefits related to stock based compensation should be recognized on a modified retrospective basis. As such, the Company increased its U.S. federal and state net operating loss carryovers by approximately $5.3 million as of January 1, 2017 for previously unrecognized stock based compensation excess tax benefits outstanding as of the beginning of the period. Because the Company maintained a full valuation allowance on its U.S. deferred tax assets at that date, the Company recorded a corresponding increase to the valuation allowance as of January 1, 2017, and the impact of adopting ASU 2016-09 on retained earnings is zero.

In the first quarter of 2017, Repligen Germany GmbH was subject to a tax examination for the years 2012 through 2015. The examination was general in nature, covering all aspects of the subsidiary’s operations prior to the Atoll Acquisition on April 1, 2016. There were no material findings as a result of this examination, and the examination was closed by the German tax authorities.

The Company’s tax returns are subject to examination by federal, state and international taxing authorities for the following periods:


Jurisdiction		Fiscal years subject to examination
United States – federal and state		2014-2016
Sweden		2011-2016
Germany		2016
Netherlands		2012-2016