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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Taxes |
4. | Income Taxes
Income tax data for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|  | December 31, 2017 |  |  | December 31, 2016 |  |  | December 31, 2015 |
The components of income from operations before income taxes are as follows: |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | (6,709 | ) |  | $ | (4,882 | ) |  | $ | (2,490 | )
Foreign |  |  | 13,957 |  |  |  | 16,574 |  |  |  | 15,913 |
Total |  | $ | 7,248 |  |  | $ | 11,692 |  |  | $ | 13,423 |
The current and deferred components of the provision for income taxes on operations are as follows: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 3,624 |  |  | $ | 4,077 |  |  | $ | 3,745 |
Deferred |  |  | (24,729 | ) |  |  | (4,066 | ) |  |  | 333 |
Total |  | $ | (21,105 | ) |  | $ | 11 |  |  | $ | 4,078 |
The jurisdictional components of the provision for income taxes on operations are as follows: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (24,012 | ) |  | $ | (3,809 | ) |  | $ | 295 |
State |  |  | (438 | ) |  |  | (207 | ) |  |  | 276 |
Foreign |  |  | 3,345 |  |  |  | 4,027 |  |  |  | 3,507 |
Total |  | $ | (21,105 | ) |  | $ | 11 |  |  | $ | 4,078 |
At December 31, 2017, the Company had net operating loss carryforwards of approximately $19,652,000 in the U.S., net operating loss carryforwards of approximately €603,000 (approximately $722,000) in Germany, federal business tax credit carryforwards of $297,000 and state business tax credit carryforwards of approximately $99,000 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 2037. The net operating loss and business tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant stockholders.
|  | December 31, 2017 |  |  | December 31, 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |
Temporary timing differences: |  |  |  |  |  |  |  |
Stock compensation |  | $ | 1,662 |  |  | $ | 1,722 |
Contingent consideration |  |  | 2,196 |  |  |  | 3,333 |
Other |  |  | 1,704 |  |  |  | 1,895 |
Total temporary timing differences |  |  | 5,562 |  |  |  | 6,950 |
Net operating loss carryforwards |  |  | 4,361 |  |  |  | 12,284 |
Tax business credits carryforwards |  |  | 1,265 |  |  |  | 2,036 |
Total deferred tax assets |  |  | 11,188 |  |  |  | 21,270 |
Valuation allowance |  |  | (6 | ) |  |  | (9,979 | )
Net deferred tax assets |  | $ | 11,182 |  |  | $ | 11,291 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Goodwill and intangible assets |  | $ | (33,166 | ) |  | $ | (7,346 | )
Conversion option on convertible notes |  |  | (3,183 | ) |  |  | (6,048 | )
Total deferred tax liabilities |  | $ | (36,349 | ) |  | $ | (13,394 | )
Net deferred tax liabilities |  | $ | (25,167 | ) |  | $ | (2,103 | )
The net change in the total valuation allowance was a decrease of $9,973,000 in the year ended December 31, 2017 and consisted of the following changes. During the first quarter of 2017 the Company adopted ASU 2016-09. 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 $5,100,000 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. During the second quarter of 2017, the Company agreed to sell certain 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. Additionally, 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 $5,872,000. The valuation allowance decreased by $8,535,000 for the year ended December 31, 2016 and increased by $1,216,000 for the year ended December 31, 2015. As of December 31, 2017, the Company believes that realization of its deferred tax assets related to capital loss carryovers is not more likely than not, and the Company continues to maintain its valuation allowance against those U.S. deferred tax assets. The reconciliation of the federal statutory rate to the effective income tax rate for the fiscal years ended December 31, 2017, 2016 and 2015 is as follows (amounts in thousands):
|  | Year Ended |
|  | December 31, 2017 |  |  | December 31, 2016 |  |  | December 31, 2015 |
Income before income taxes |  | $ | 7,248 |  |  |  |  |  |  | $ | 11,692 |  |  |  |  |  |  | $ | 13,423 |  |  |  |  |
Expected tax at statutory rate |  |  | 2,537 |  |  |  | 35.0 | % |  |  | 3,975 |  |  |  | 34.0 | % |  |  | 4,564 |  |  |  | 34.0 | %
Adjustments due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Difference between U.S. and foreign tax |  |  | (1,797 | ) |  |  | (24.8 | %) |  |  | (2,031 | ) |  |  | (17.4 | %) |  |  | (1,910 | ) |  |  | (14.2 | %)
State income and franchise taxes |  |  | (307 | ) |  |  | (4.2 | %) |  |  | (326 | ) |  |  | (2.8 | %) |  |  | 563 |  |  |  | 4.2 | %
Business tax credits |  |  | (7,708 | ) |  |  | (9.8 | %) |  |  | (236 | ) |  |  | (2.0 | %) |  |  | (115 | ) |  |  | (0.9 | %)
Permanent differences: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock compensation |  |  | (946 | ) |  |  | (13.1 | %) |  |  | 31 |  |  |  | 0.3 | % |  |  | 348 |  |  |  | 2.6 | %
Transaction costs |  |  | 1,232 |  |  |  | 17.0 | % |  |  | 156 |  |  |  | 1.3 | % |  |  | — |  |  |  | — |
Other |  |  | 470 |  |  |  | 6.4 | % |  |  | 380 |  |  |  | 3.2 | % |  |  | (230 | ) |  |  | (1.7 | %)
Change in U.S. federal tax rates |  |  | (12,839 | ) |  |  | (177.2 | %) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Transition tax |  |  | 3,266 |  |  |  | 45.1 | % |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in valuation allowance |  |  | (12,164 | ) |  |  | (167.8 | %) |  |  | (1,981 | ) |  |  | (16.9 | %) |  |  | 1,216 |  |  |  | 9.1 | %
Other |  |  | (151 | ) |  |  | (2.1 | %) |  |  | 43 |  |  |  | 0.4 | % |  |  | (358 | ) |  |  | (2.7 | %)
Provision for income taxes |  | $ | (21,105 | ) |  |  | (291.2 | %) |  | $ | 11 |  |  |  | 0.1 | % |  | $ | 4,078 |  |  |  | 30.4 | %
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 |  |  | 2014-2017 |
Sweden |  |  | 2011-2017 |
Germany |  |  | 2016-2017 |
Netherlands |  |  | 2012-2017 |
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
Unrecognized tax benefits at January 1, 2017 |  |  | 1,407 |
Gross increases – tax positions in prior period |  |  | 679 |
Gross increases – tax positions in current period |  |  | 199 |
Gross decreases – release |  |  | (479 | )
Unrecognized tax benefits at December 31, 2017 |  | $ | 1,806 |
Included in the balance of unrecognized tax benefits as of December 31, 2017 are $1,806,000, of tax benefits that, if recognized, would affect the effective tax rate. At December 31, 2017, the Company has not provided for U.S. income taxes or foreign withholding taxes on outside basis differences of foreign subsidiaries of approximately $53,747,000 as it is the Company’s current intention to permanently reinvest these earnings outside the U.S. On December 22, 2017, President Trump signed into law H.R. 1/Public Law No. 115-97, the tax legislation commonly known as the Tax Cuts and Jobs Act (the “Act”). The Act made significant changes to federal tax law, including, but not limited to, a reduction in the federal income tax rate from 35% to 21%, taxation of certain global intangible low-taxed income, allowing for immediate expensing of qualified assets, stricter limits on deductions for interest and certain executive compensation, and a one-time transition tax on previously deferred earnings of certain foreign subsidiaries. Due to the complexities involved in accounting for the enactment of the Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows a registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Under the SAB 118 guidance, we have determined that our accounting for the following items is incomplete where noted, we are able to make reasonable estimates for certain effects of tax reform and therefore have recorded provisional amounts. The Act lowered the Company’s U.S. statutory federal tax rate from 35% to 21% effective January 1, 2018. The Company recorded a tax benefit of $12,812,000 in the year ended December 31, 2017 for the reduction in its US deferred tax assets and liabilities resulting from the rate change. The Act also includes a one-time deemed repatriation transition tax whereby entities that are shareholders of a specified foreign corporation must include in gross income the undistributed and previously untaxed post-1986 earnings and profits of the specified foreign corporation. Our provisional amount recorded at December 31, 2017 increased our tax provision by $3,266,000. This amount may change as we refine our calculations of post-1986 earnings and profits for our foreign subsidiaries, as well as the amounts held in cash. We anticipate that future guidance and interpretations with the respect to the Act will cause us to further adjust the provisional amounts recorded as of December 31, 2017. Any measurement period adjustments will be reported as a component of provision for income taxes in the reporting period the amounts are determined. The final accounting will be completed no later than one year from the enactment of the Act.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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