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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of loss from continuing operations before income taxes consisted of the following (in thousands):
| Year ended December 31,
| 2019 |  | 2018 |  | 2017
Income (loss) before income taxes: |  |  |  |  |
United States | $ | (132,887 | ) |  | $ | (52,569 | ) |  | $ | (55,932 | )
Foreign | 9,994 |  |  | (20,841 | ) |  | 2,240 |
| $ | (122,893 | ) |  | $ | (73,410 | ) |  | $ | (53,692 | )
The provision (benefit) for income taxes from continuing operations consisted of the following (in thousands):
| Year ended December 31,
| 2019 |  | 2018 |  | 2017
Provision (benefit) for income taxes: |  |  |  |  |
Current: |  |  |  |  |
Federal | $ | 11 |  |  | $ | 561 |  |  | $ | (200 | )
State | 128 |  |  | 128 |  |  | 115 |
Foreign | 1,744 |  |  | 2,198 |  |  | 1,960 |
Total current | 1,883 |  |  | 2,887 |  |  | 1,875 |
Deferred: |  |  |  |  |
Federal | 9,790 |  |  | (8,481 | ) |  | 49,570 |
State | 1,630 |  |  | (1,414 | ) |  | (4,833 | )
Foreign | 383 |  |  | (1,477 | ) |  | (816 | )
Change in valuation allowance | (6,504 | ) |  | 11,885 |  |  | (64,236 | )
Total deferred | 5,299 |  |  | 513 |  |  | (20,315 | )
Total | $ | 7,182 |  |  | $ | 3,400 |  |  | $ | (18,440 | )
A reconciliation of the Company's effective tax rate for continuing operations to the statutory federal rate is as follows:
| Year ended December 31,
| 2019 |  | 2018 |  | 2017
U.S. statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
State income taxes, net of federal benefit | (0.2 | ) |  | (0.1 | ) |  | 1.2 |
Foreign income taxes | (1.0 | ) |  | (5.7 | ) |  | (0.5 | )
Acquisition costs | (0.5 | ) |  | (0.3 | ) |  | (6.0 | )
Foreign deemed dividends | (0.4 | ) |  | (3.4 | ) |  | (3.8 | )
Stock-based compensation | (0.7 | ) |  | (0.3 | ) |  | 26.8 |
Tax credits | 2.8 |  |  | 0.6 |  |  | (33.3 | )
Uncertain tax positions | (0.2 | ) |  | 1.3 |  |  | (1.2 | )
NOL and credit limitations | — |  |  | — |  |  | (18.9 | )
Valuation allowance | (0.7 | ) |  | (16.1 | ) |  | 29.0 |
Goodwill amortization | 0.4 |  |  | 0.3 |  |  | (1.7 | )
Meals and entertainment | (0.3 | ) |  | (0.4 | ) |  | (0.5 | )
Tax reform | (0.1 | ) |  | — |  |  | 8.8 |
Goodwill impairment | (25.4 | ) |  | — |  |  | — |
Other, net | (0.5 | ) |  | (1.5 | ) |  | (0.6 | )
Effective income tax rate | (5.8 | )% |  | (4.6 | )% |  | 34.3 | %
The following is a summary of the significant components of deferred income tax assets and liabilities (in thousands):
| December 31,
| 2019 |  | 2018
Assets: |  |  |
Net operating loss carryforwards | $ | 61,057 |  |  | $ | 76,278 |
Research and development tax credits | 32,879 |  |  | 28,664 |
Deferred revenue | 7,868 |  |  | 5,755 |
Accrued expenses | 5,687 |  |  | 9,601 |
Inventory | 4,618 |  |  | 4,906 |
Stock-based compensation | 2,880 |  |  | 1,536 |
Fixed assets | 5,461 |  |  | 7,716 |
Other temporary differences | 2,138 |  |  | 1,943 |
| 122,588 |  |  | 136,399 |
Valuation allowance | (94,980 | ) |  | (101,484 | )
Total deferred tax assets | 27,608 |  |  | 34,915 |
Liabilities: |  |  |
Purchased intangible assets | (22,470 | ) |  | (26,014 | )
Unremitted foreign income | (4,827 | ) |  | (4,487 | )
Total deferred tax liabilities | (27,297 | ) |  | (30,501 | )
Total net deferred tax assets | $ | 311 |  |  | $ | 4,414 |
The deferred tax assets and liabilities based on tax jurisdictions are presented in the Company's consolidated balance sheets as follows: |  |  |
Deferred income taxes - noncurrent assets | $ | 4,959 |  |  | $ | 9,152 |
Deferred income taxes - noncurrent liabilities | (4,648 | ) |  | (4,738 | )
| $ | 311 |  |  | $ | 4,414 |
At December 31, 2019, the Company had cumulative federal and state net operating losses ("NOLs") of $224.8 million. The federal NOL carryforwards expire at various dates from 2020 through 2037. The state NOL carryforwards expire at various dates from 2020 through 2038. The Company also has available federal, state and foreign income tax credit carryforwards of $32.9 million that expire at various dates from 2020 through 2038. Under the provisions of the Internal Revenue Code, the net operating losses and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating losses and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as a similar state provision. As a result of the Edgewater Acquisition in 2018, the Company acquired approximately $34 million of net operating loss carryforwards and approximately $6 million of tax credit carryforwards. Edgewater incurred an ownership change as a result of its acquisition by the Company; however, the Company does not expect that any of the net operating losses or tax credits related to Edgewater will expire unused. In connection with the Company's adoption of ASC 606, the Company recorded an adjustment to decrease its deferred tax assets by $2.2 million in 2018. There was no impact to the Company's consolidated financial statements for this adjustment due to the Company's full valuation allowance against these assets. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: reducing the U.S. federal corporate tax rate from 35% to 21%; requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; requiring a current inclusion in U.S. federal taxable income of certain earnings (the Global Intangible Low-taxed Income ("GILTI")) of controlled foreign corporations; eliminating the corporate alternative minimum tax ("AMT") and changing how existing AMT credits can be realized; creating the base erosion anti-abuse tax ("BEAT"); creating a new limitation on deductible interest expense; changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; providing a tax deduction for foreign derived intangible income ("FDII"); and changing rules related to deductibility of compensation for certain officers. The consequences of the Tax Act were reflected in the Company's U.S. tax provision for the year ended December 31, 2018 and the Company has completed its accounting for the effects of the Tax Act within the measurement period. The Company did not have any FDII or GILTI adjustments, but recorded a BEAT tax expense of $0.4 million and recorded an adjustment to the provisional amounts recorded at December 31, 2017 related to the Tax Act that decreased the Company's deferred tax assets by $0.2 million. These adjustments were recorded in the year ended December 31, 2018. When the 2018 Federal tax return was filed, there was no BEAT tax expense. The related true-up was recorded as a provision to return adjustment in the 2019 tax provision. During 2019 and 2018, the Company performed an analysis to determine if, based on all available evidence, it considered it more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period. As a result of the Company's evaluation, the Company concluded that there was insufficient positive evidence to overcome the more objective negative evidence related to its cumulative losses and other factors. Accordingly, the Company has maintained a valuation allowance against its domestic deferred tax asset amounting to $71.4 million at December 31, 2019 and $82.4 million at December 31, 2018. A similar analysis and conclusion were made with regard to the valuation allowance on the deferred tax assets of the Company's Ireland subsidiary, acquired as part of the acquisition of GENBAND, resulting in a valuation allowance of $9.2 million at December 31, 2019 and $9.5 million at December 31, 2018. In analyzing the deferred tax assets related to the Company's Canada subsidiaries at such time, the Company concluded that it was more likely than not that the Canadian federal credits would not be realized in a future period. This resulted in a valuation allowance of $11.0 million. In addition, because of continued losses, a valuation allowance of $2.7 million was established for the Company's Brazil subsidiary. The deferred tax assets recognized with no valuation allowance at December 31, 2019 and 2018 relate to foreign subsidiaries where recoverability is concluded to be more likely than not based on the Company's cost plus compensation policy as well as a state credit in the U.S. A reconciliation of the Company's unrecognized tax benefits is as follows (in thousands):
| 2019 |  | 2018 |  | 2017
Unrecognized tax benefits at January 1 | $ | 3,461 |  |  | $ | 4,528 |  |  | $ | 8,969 |
Increases related to current year tax positions | 292 |  |  | 74 |  |  | 139 |
Increases related to prior period tax positions | — |  |  | 122 |  |  | 430 |
Increases related to business acquisitions | — |  |  | — |  |  | 2,012 |
Decreases related to prior period tax positions | (821 | ) |  | (1,263 | ) |  | (7,022 | )
Settlements | — |  |  | — |  |  | — |
Unrecognized tax benefits at December 31 | $ | 2,932 |  |  | $ | 3,461 |  |  | $ | 4,528 |
The Company recorded liabilities for potential penalties and interest of $0.1 million for the year ended December 31, 2019, $0.1 million for the year ended December 31, 2018 and $0.2 million for the year ended December 31, 2017. The Company had cumulative deferred tax liabilities recorded related to interest and penalties of $0.7 million for the year ended December 31, 2019, $0.6 million for the year ended December 31, 2018 and $0.6 million for the year ended December 31, 2017. Some of the unrecognized tax benefit items are expected to reverse in 2020 due to statute of limitation lapses. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as various state and foreign jurisdictions. Generally, the tax years 2016 through 2019 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company's federal NOLs generated prior to 2016 could be adjusted on examination even though the year in which the loss was generated is otherwise closed by the statute of limitations. As of December 31, 2019, the Company had ongoing income tax audits in certain foreign countries. Management believes that an adequate provision has been recorded for any adjustments that may result from tax examinations. The Anova Acquisition was accounted for as a business combination and the financial results of Anova have been included in the Company's consolidated financial statements for the period subsequent to the Anova Acquisition Date. The transaction is considered an asset acquisition for tax purposes. Accordingly, Ribbon recorded a stepped up basis in the assets. The Edgewater Acquisition was accounted for as a non-taxable business combination. Edgewater had previously been a single corporate filer for U.S. tax purposes. Consequently, U.S. federal and state deferred taxes were recorded as part of the business combination based on the differences between the tax basis of the acquired assets and assumed liabilities and their reported amounts for financial reporting purposes. The Company concluded that there was insufficient positive evidence to overcome the more objective negative evidence related to cumulative losses and other factors. The Company recorded identifiable intangible assets as part of the purchase accounting for the acquisition. For U.S. tax purposes, the future amortization of these intangibles will be non-deductible, thereby creating income. Since the Company files a consolidated U.S. tax return, the benefit from these identifiable intangible assets will be utilizable. The Company is required to determine its ability to use the tax benefit against the valuation allowance previously established. The Company has determined that it is more likely than not that these benefits will be recognized. As a result, the valuation allowance has been reduced for the assumed net deferred tax liabilities, resulting in an income tax benefit of $0.7 million. This benefit was included as a component of the Company's tax provision for the year ended December 31, 2018. In 2019, an adjustment of $0.2 million was recorded, reducing the income tax benefit from the Edgewater Acquisition to $0.5 million. The 2017 acquisition of GENBAND was accounted for as a non-taxable business combination. GENBAND had previously been treated as a partnership for U.S. tax purposes. Consequently, U.S. federal and state deferred taxes were recorded as part of the business combination based on the differences between the tax basis of the acquired assets and assumed liabilities and their reported amounts for financial reporting purposes. The Company concluded that there was insufficient positive evidence to overcome the more objective negative evidence related to cumulated losses and other factors. The Company recorded a valuation allowance against the acquired deferred tax assets. The Company recorded identifiable intangible assets as part of the purchase accounting for the acquisition. For U.S. tax purposes, the future amortization of these intangibles will be non-deductible, thereby creating income. Since the Company files a consolidated U.S. tax return, the benefit from these identifiable intangible assets will be utilizable. The Company is required to determine its ability to use the tax benefit against the valuation allowance previously established. The Company has determined that it is more likely than not that these benefits will be recognized. As a result, the valuation allowance has been reduced for the assumed net deferred tax liabilities, resulting in an income tax benefit of $16.4 million. This benefit was included as a component of the Company's provision for income taxes for the year ended December 31, 2017.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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