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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Loss from operations before income taxes consists of the following (in thousands):
| Year ended December 31,
| 2016 |  | 2015 |  | 2014
United States | $ | (53,833 | ) |  | $ | (16,826 | ) |  | $ | (15,515 | )
International | (26,597 | ) |  | 758 |  |  | (6,280 | )
Loss before income taxes | $ | (80,430 | ) |  | $ | (16,068 | ) |  | $ | (21,795 | )
The components of the provision for (benefit from) income taxes consist of the following (in thousands):
| Year ended December 31,
| 2016 |  | 2015 |  | 2014
Current: |  |  |  |  |
Federal | $ | (950 | ) |  | $ | (1,981 | ) |  | $ | (11,525 | )
State | 181 |  |  | 120 |  |  | 8 |
International | 2,738 |  |  | 1,966 |  |  | 1,619 |
Deferred: |  |  |  |  |
Federal | (713 | ) |  | — |  |  | 25,722 |
State | — |  |  | — |  |  | 8,249 |
International | (9,372 | ) |  | (512 | ) |  | 380 |
Total provision for (benefit from) income taxes | $ | (8,116 | ) |  | $ | (407 | ) |  | $ | 24,453 |
The differences between the provision for (benefit from) income taxes computed at the U.S. federal statutory rate at 35% and the Company’s actual provision for (benefit from) income taxes are as follows (in thousands):
| Year ended December 31,
| 2016 |  | 2015 |  | 2014
Benefit from for income taxes at U.S. Federal statutory rate | $ | (28,150 | ) |  | $ | (5,624 | ) |  | $ | (7,628 | )
State taxes | 150 |  |  | 120 |  |  | 5,368 |
Differential in rates on foreign earnings | 11,741 |  |  | 1,584 |  |  | 4,311 |
Non-deductible amortization expense | 617 |  |  | 947 |  |  | 3,138 |
Change in valuation allowance | 4,465 |  |  | 2,230 |  |  | 26,053 |
Change in liabilities for uncertain tax positions | (960 | ) |  | (1,083 | ) |  | (8,126 | )
Non-deductible stock-based compensation | 1,480 |  |  | 1,398 |  |  | 1,665 |
Research and development tax credits | (129 | ) |  | (178 | ) |  | (841 | )
Non-deductible meals and entertainment | 441 |  |  | 395 |  |  | 361 |
Non-deductible acquisition cost | — |  |  | 457 |  |  | — |
Adjustments related to tax positions taken during prior years | (163 | ) |  | (781 | ) |  | — |
Adjustments made under intercompany transactions | 1,779 |  |  | — |  |  | — |
Withholding tax | 457 |  |  | — |  |  | — |
Other | 156 |  |  | 128 |  |  | 152 |
Total provision for (benefit from) income taxes | $ | (8,116 | ) |  | $ | (407 | ) |  | $ | 24,453 |
The Company operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by changes in or interpretations of tax laws and tax agreements in any given jurisdiction, utilization of net operating loss and tax credit carry forwards, changes in geographical mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred tax assets. The Company’s effective tax rate varies from year to year primarily due to the absence of several onetime, discrete items that benefited or decremented the tax rates in the previous years. In 2016, the Company had worldwide consolidated loss before tax of $80.4 million and tax benefit of $8.1 million, with an effective income tax rate of 10%. The Company’s 2016 effective income tax rate differed from the U.S. federal statutory rate of 35% primarily due to the Company’s geographical income mix and its tax valuation allowance, favorable tax rates associated with certain earnings from operations in lower-tax jurisdictions, favorable resolutions of uncertain tax positions, and the tax benefit from the realization of certain deferred tax assets as a result of the TVN acquisition, partially offset by the increase in the valuation allowance against U.S. federal, California and other state deferred tax assets, detriment from non-deductible stock-based compensation, non-deductible amortization of foreign intangibles, and the net of various discrete tax adjustments. In 2015, the Company had worldwide consolidated loss before tax of $16.1 million and tax benefit of $0.4 million, with an effective income tax rate of 3%. The Company’s 2015 effective income tax rate differed from the U.S. federal statutory rate of 35% primarily due to a difference in foreign tax rates and the Company’s U.S. losses generated for the year received no tax benefit as a result of a full valuation allowance against all of its U.S. deferred tax assets, as well as adjustments relating to its 2014 U.S. federal tax return filed in September 2015 and the reversal of uncertain tax positions resulting from the expiration of the statutes of limitations. In addition, the impairment of the VJU investment (see Note 5, “Investments in Other Equity Securities”) received no tax benefit. In 2014, as a result of cumulated losses in the recent years and the analysis of all available positive and negative evidence, the Company recorded a full valuation allowance against the beginning of year U.S. net deferred tax assets of $34.0 million. In addition, in 2014, the Company carried back its 2013 federal net operating loss to 2011 resulting in a tax refund. Certain federal R&D credits were also freed up as a result and utilized to offset income tax reserves as a result of the adoption of the ASU 2013-11. These two events reduced the valuation allowance by approximately $5.0 million and led to the net change of valuation allowance of $29.0 million. This unfavorable net impact was offset partially by a tax benefit of $9.0 million associated with the release of tax reserves including accrued interest and penalties, for our 2010 tax year in the United States, as a result of the expiration of the applicable statute of limitations for that year. The components of net deferred tax assets included in the Consolidated Balance Sheets are as follows (in thousands):
| December 31,
| 2016 |  | 2015
Deferred tax assets: |  |  |
Reserves and accruals | $ | 25,527 |  |  | $ | 16,413 |
Net operating loss carryovers | 33,321 |  |  | 27,023 |
Research and development credit carryovers | 28,759 |  |  | 27,595 |
Deferred stock-based compensation | 4,292 |  |  | 5,834 |
Depreciation and amortization | 554 |  |  | — |
Other tax credits | 2,738 |  |  | 2,738 |
Gross deferred tax assets | 95,191 |  |  | 79,603 |
Valuation allowance | (74,480 | ) |  | (64,545 | )
Gross deferred tax assets after valuation allowance | 20,711 |  |  | 15,058 |
Deferred tax liabilities: |  |  |
Depreciation and amortization | — |  |  | (1,189 | )
Intangibles | (1,417 | ) |  | (899 | )
Convertible notes | (8,603 | ) |  | (10,233 | )
Other | (510 | ) |  | (510 | )
Gross deferred tax liabilities | (10,530 | ) |  | (12,831 | )
Net deferred tax assets | $ | 10,181 |  |  | $ | 2,227 |
The following table summarizes the activities related to the Company’s valuation allowance (in thousands):
| Year ended December 31,
| 2016 |  | 2015 |  | 2014
Balance at beginning of period | $ | 64,545 |  |  | $ | 75,199 |  |  | $ | 38,644 |
Additions | 18,291 |  |  | 3,068 |  |  | 39,556 |
Deductions | (8,356 | ) |  | (13,722 | ) |  | (3,001 | )
Balance at end of period | $ | 74,480 |  |  | $ | 64,545 |  |  | $ | 75,199 |
Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction by jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. In 2016, the Company continued to record a valuation allowance against all of its United States deferred tax assets as well as its net operating losses generated in 2016 due to significant cumulative losses in the United States, resulting in a net increase in valuation allowance of $18.3 million. This increase in valuation allowance is offset partially by the release of $8.4 million of valuation allowance associated with the TVN French Subsidiary. Due to a change in its business model, as of December 31, 2016, the TVN French Subsidiary is forecasted to generate pretax income in future periods. After considering all the positive and negative evidence, the Company determined that the valuation allowance for the TVN French Subsidiary should be released as of December 31, 2016 based on its projected income. As of December 31, 2016, the Company had a valuation allowance of $74.5 million against all of its U.S. federal, California and other state net deferred tax assets, including net operating loss carryforwards and R&D tax credit carryforwards, and against majority of its foreign deferred tax assets. In November 2015, the FASB issued an accounting standard update that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as non-current on the balance sheet. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2017 and early adoption is permitted. The Company early-adopted this accounting standard update as of the end of its fiscal 2015 on a prospective basis, resulting in $15.9 million of net deferred tax assets, along with its related valuation allowance, being classified from current assets to non-current assets on the Consolidated Balance Sheet as of December 31, 2015. Other than this reclassification, the adoption of this accounting standard update did not have an impact on the Company’s consolidated financial statements. As of December 31, 2016, the Company had $103.7 million, $23.1 million, $31.3 million and $23.1 million of foreign, U.S. federal, U.S. California state, and U.S. other states net operating loss carryforwards (“NOL”), respectively. There is no expiration to the utilization of the foreign NOL, while the U.S. federal and California NOL will begin to expire at various dates beginning in 2017 through 2036, if not utilized. As of December 31, 2016, the U.S. federal and California NOL included approximately $1.4 million and $5.9 million relating to stock options tax deductions. These amounts are not included in the Company’s gross or net deferred tax assets pursuant to applicable accounting guidance and, if and when realized, through a reduction in income tax payable will be accounted for as a credit to additional paid-in capital. As of December 31, 2016, the Company had U.S. federal and California state tax credit carryforwards of approximately $10.0 million and $32.6 million, respectively. If not utilized, the U.S. federal tax credit carryforwards will begin to expire in 2031, while the California tax credit forward will not expire. In addition, as of December 31, 2016, the Company had U.S. federal alternative minimum tax (“AMT”) credit carryforward of approximately $2.7 million, which will not expire. The Company has not provided U.S. federal and California state income taxes, as well as foreign withholding taxes, on approximately $7.0 million of cumulative undistributed earnings for certain non-U.S. subsidiaries, because such earnings are intended to be indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability for temporary differences related to investment in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable. The Company applies the provisions of the applicable accounting guidance regarding accounting for uncertainty in income taxes, which requires application of a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits the recognition of a tax benefit measured at the largest amount of such tax benefit that, in our judgment, is more than fifty percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period in which such determination is made. The Company will continue to review its tax positions and provide for, or reverse, unrecognized tax benefits as issues arise. As of December 31, 2016, the Company had $19.2 million that would favorably impact the effective tax rate in future periods if recognized. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in millions):
| Year ended December 31,
| 2016 |  | 2015 |  | 2014
Balance at beginning of period | $ | 15.6 |  |  | $ | 15.7 |  |  | $ | 24.2 |
Increase in balance related to tax positions taken during current year | 4.6 |  |  | 0.7 |  |  | 1.0 |
Decrease in balance as a result of a lapse of the applicable statues of limitations | (1.0 | ) |  | (0.9 | ) |  | (9.5 | )
Increase in balance related to tax positions taken during prior years | — |  |  | 0.3 |  |  | — |
Decrease in balance related to tax positions taken during prior years | — |  |  | (0.2 | ) |  | — |
Balance at end of period | $ | 19.2 |  |  | $ | 15.6 |  |  | $ | 15.7 |
The Company recognizes interest and penalties related to unrecognized tax positions in income tax expenses on the Consolidated Statements of Operations. The net interest and penalties reduction recorded for the years ended December 31, 2016, 2015 and 2014 related to unrecognized tax benefits was ($35,000), ($31,000), and ($1.0) million, respectively. The net reduction in interest and penalties in 2016, 2015 and 2014 was attributable to the reversal of accrued interest and penalties of $0.2 million, $0.2 million, and $1.8 million, respectively, due to decreases in unrecognized tax benefits resulting from the expiration of the statutes of limitations on the Company’s U.S. corporate tax returns for 2008 through 2012 tax years. The Company had approximately $0.5 million of accrued interest and penalties related to uncertain tax positions as of December 31, 2016 and December 31, 2015. The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations during which such tax returns may be audited and adjusted by the relevant tax authorities. The U.S. Internal Revenue Service has concluded its audit for the 2012 tax year. As a result, the Company released $1.1 million of related tax reserves, including accrued interests and penalties. Additionally, the Company released $9.0 million and $0.5 million of related tax reserves, including accrued interests and penalties, for the 2010 and 2011 tax years in 2014 and 2015, respectively, as a result of the expiration of the statute of limitations. The 2013 through 2015 tax years generally remain subject to examination by U.S. federal and most state tax authorities. In significant foreign jurisdictions, the 2007 through 2015 tax years generally remain subject to examination by their respective tax authorities. In the quarter ended September 30, 2016, the U.S. Internal Revenue Service concluded its examination of the Company’s income tax return for the tax year 2012, which commenced in August 2015. In addition, a subsidiary of the Company is under audit for the 2012 and 2013 tax years, which commenced in the first quarter of 2015, by the Israel tax authority. If, upon the conclusion of these audits, the ultimate determination of taxes owed in the United States or Israel is for an amount in excess of the tax provision the Company has recorded in the applicable period, the Company’s overall tax expense, effective tax rate, operating results and cash flow could be materially and adversely impacted in the period of adjustment. On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner, 145 T.C. No.3 (2015) related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was entered by the U.S. Tax Court on December 1, 2015. On February 19, 2016, the U.S. Internal Revenue Service filed a notice of appeal in Altera Corp. v. Commissioner, 145 T.C. No. 3 (2015), to the Ninth Circuit Court of Appeal. The Ninth Circuit will decide whether a regulation that mandates that stock-based compensation costs related to the intangible development activity of a qualified cost sharing arrangement (a “QCSA”) must be included in the joint cost pool of the QCSA (the “all costs rule”) is consistent with the arm’s length standard as set forth in Section 482 of the Internal Revenue Code. The Company concluded that no adjustment to the consolidated financial statements as of December 31, 2016 is appropriate at this time due to the uncertainties with respect to the ultimate resolution of this case. The Company’s operations in Switzerland are subject to a reduced tax rate under the Switzerland tax holiday which requires various thresholds of investment and employment in Switzerland. The Company has met these various thresholds and the Switzerland tax holiday is effective through the end of 2018. The income tax benefits attributable to the Switzerland holiday were estimated to be approximately $0.7 million for each of the fiscal years 2016, 2015 and 2014, respectively, increasing diluted earnings per share by approximately $0.008 for each of the fiscal years 2016, 2015 and 2014, respectively.

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