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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income tax provisions from continuing operations consisted of the following:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
Income (loss) from continuing operations before provisions for income taxes | $ | (44,811 | ) |  | $ | (14,509 | ) |  | $ | 4,449 |
Provision for income taxes from continuing operations | (480 | ) |  | (25,521 | ) |  | (1,591 | )
Effective tax rate | (1.1 | )% |  | (175.9 | )% |  | 35.8 | %
The 2017 provision for income tax from continuing operations resulted primarily from estimated foreign taxes and foreign withholding tax expense. The 2016 provision for income tax from continuing operations resulted primarily from the application of a full federal valuation allowance against deferred tax assets. The 2015 provision for income tax from continuing operations resulted primarily from the Company’s federal and foreign tax recognized at statutory rates, adjusted for the tax impact of non-deductible permanent items including stock-based compensation expenses and foreign withholding taxes. The 2015 provision for income tax from continuing operations also includes non-cash tax expense based on intercompany profit that resulted from the sale of certain IP rights in 2015, and also includes an increase to the valuation allowance against certain of the Company’s deferred tax assets. In October 2016, the FASB issued ASU 2016-16 “Income Taxes: Topic 740, Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”) which simplifies certain aspects of the income tax accounting for Intra-Entity Transfers of Assets. Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This is an exception to the principle in ASC 740, Income Taxes, that generally requires comprehensive recognition of current and deferred income taxes. ASU 2016-16 allows a reporting entity to recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The standard is effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted only in the first interim period of 2017. The Company elected to early adopt ASU 2016-16 at the beginning of the first quarter of 2017 for the benefit of simplifying its accounting for intra-entity asset transfers. As required by the FASB in adopting the new standard, the company applied the ASU on a modified retrospective basis which resulted in a cumulative-effect adjustment to the accumulated deficit as of January 1, 2017 for the recognition of the income tax consequences of intra-entity transfers that occurred prior to January 1, 2017. As such, previously issued balance sheets have not been retrospectively adjusted. The adoption resulted in the decrease of $7.0 million in the Company’s short-term and long-term prepaid income taxes and a corresponding increase to the accumulated deficit on the Company’s condensed consolidated balance sheet as of January 1, 2017. In March 2016, the FASB issued ASU 2016-09 “Compensation - Stock Compensation: Topic 718” (“ASU 2016-09”) which simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The standard is effective for periods beginning after December 15, 2016, with early adoption permitted. The Company elected to adopt ASU 2016-09 on a prospective basis beginning in the first quarter of 2017. Upon adoption, the “without” basis NOL deferred tax asset was adjusted for historical excess benefits to match the “with” basis NOL deferred tax asset, offset by the full valuation allowance. Subsequent to the adoption, all stock option activities are accounted for discretely in the quarter that occur. As a result of the adoption, the previously unrecognized US excess tax benefits of $3.5 million were recorded as a deferred tax asset which was fully offset by valuation allowance resulting in no impact to retained earnings. Additionally, due to the full valuation allowance on our federal deferred tax assets, no excess benefits have been reported discretely in the current year. As permitted by the ASU, the Company continues to use an estimated forfeiture rate in calculating stock based compensation expense. On July 27, 2015, a U.S. Tax Court opinion (Altera Corporation et. al v. Commissioner) concerning the treatment of stock-based compensation expense in an intercompany cost sharing arrangement was issued. In its opinion, the U.S. Tax Court accepted Altera's position of excluding stock-based compensation from its intercompany cost sharing arrangement. On February 19, 2016, the IRS appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit. Although the IRS has appealed the decision, based on the findings of the US Tax Court, the Company has concluded that it is more likely than not that the decision will be upheld and accordingly has excluded stock-based compensation from intercompany charges during the period. The Company will continue to monitor ongoing developments and potential impacts to its consolidated financial statements. The Company reported pre-tax book income or loss from continuing operations of:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
Domestic | $ | (23,994 | ) |  | $ | (14,656 | ) |  | $ | 21,160 |
Foreign | (20,817 | ) |  | 147 |  |  | (16,711 | )
Total | $ | (44,811 | ) |  | $ | (14,509 | ) |  | $ | 4,449 |
The benefit or (provisions) for income taxes from continuing operations consisted of the following:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
Current: |  |  |  |  |
United States federal | $ | — |  |  | $ | (1,649 | ) |  | $ | (1,426 | )
State and local | (5 | ) |  | 859 |  |  | (12 | )
Foreign | (448 | ) |  | (442 | ) |  | (389 | )
Total current | $ | (453 | ) |  | $ | (1,232 | ) |  | $ | (1,827 | )
Deferred: |  |  |  |  |
United States federal | — |  |  | (24,261 | ) |  | 585 |
State and local | — |  |  | — |  |  | — |
Foreign | (27 | ) |  | (28 | ) |  | (349 | )
Total deferred | (27 | ) |  | (24,289 | ) |  | 236 |
| $ | (480 | ) |  | $ | (25,521 | ) |  | $ | (1,591 | )
In 2017, due to the adoption of ASU 2016-09, the Company's income tax payable was decreased by the tax benefit related to stock options. Prior to the adoption, in 2016 and 2015 the Company’s income tax payable was not decreased by the tax benefit related to stock options. In those years, the Company included only the direct tax effects of employee stock incentive plans in calculating the benefit, which was recorded to additional paid-in capital. Deferred tax assets and liabilities are recognized for the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax losses, and credit carryforwards. Significant components of the net deferred tax assets and liabilities consisted of:
| December 31,
| 2017 |  | 2016
| (In thousands)
Deferred tax assets: |
Net operating loss carryforwards | $ | 13,394 |  |  | $ | 15,337 |
State income taxes | 1 |  |  | 1 |
Deferred revenue | 5,349 |  |  | 458 |
Research and development and other credits | 11,447 |  |  | 11,418 |
Reserves and accruals recognized in different periods | 3,088 |  |  | 5,397 |
Basis difference in investment | 583 |  |  | 969 |
Capitalized R&D expenses | 3,623 |  |  | 4,569 |
Depreciation and amortization | 413 |  |  | 585 |
Deferred rent | 183 |  |  | 306 |
Other | — |  |  | 2 |
Total deferred tax assets | 38,081 |  |  | 39,042 |
Valuation allowance | (37,680 | ) |  | (38,683 | )
Net deferred tax assets | 401 |  |  | 359 |
Foreign credits | (43 | ) |  | (33 | )
Net deferred tax liabilities | (43 | ) |  | (33 | )
Net deferred taxes | $ | 358 |  |  | $ | 326 |
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was passed into law. Among other changes, the new legislation decreases the corporate federal income tax rate from 35% to 21% effective January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law typically are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the federal tax rate change and other tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provision estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. In accordance with SAB 118, the Company recorded a $12.9 million reduction to deferred tax assets and related valuation allowance in connection with the re-measurement of certain deferred tax assets and liabilities, resulting in no impact to its results of operations. The Company estimated that no current tax expense should be recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings, a provisional estimate at December 31, 2017. Additional work is necessary to complete a more detailed analysis of our deferred tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments. For the Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Act, a provisional estimate could not be made as the Company has not yet completed its assessment or elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred. Given the significant complexity of the Act, anticipated guidance from the Internal Revenue Service about implementing the Act, and the potential for additional guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to the Act, the Company’s estimates may be adjusted in future periods. Any subsequent adjustment to estimates will be recorded to current tax expense in the quarter of 2018 when the Company’s analysis is complete and the Company is able to complete its accounting for all aspects of the Tax Act. The Company accounts for deferred taxes under ASC Topic 740, “Income Taxes” (“ASC 740”) which requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the ASC 740 more-likely-than-not realization ("MLTN") threshold criterion. This assessment considers matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The evaluation of the recoverability of the deferred tax assets requires that the Company weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. As of December 31, 2017, based on its assessment of the realizability of its deferred tax assets, the Company continued to maintain a full valuation allowance against all of its federal and state, and certain of its foreign, net deferred tax assets. In the fourth quarter of 2016 the Company established a full valuation allowance against all of its net federal deferred tax assets. In performing its analysis, the Company considered both positive and negative evidence of the realizability of its deferred tax assets, and considered recent results of operations, scheduled reversals of deferred tax liabilities, projected future income, and available tax planning strategies. A significant piece of negative evidence evaluated was the cumulative loss incurred by the Company over the three-year period ended December 31, 2016 (which arose in the Company’s fourth quarter of 2016). When performing the evaluation of the cumulative loss, the Company considered the book loss as reported, as well as permanent differences and one-time gains and losses not indicative of future business activities. The Company determined that the three-year cumulative loss constitutes negative objective evidence, limiting the Company’s ability to consider other evidence, such as the Company’s projections for future growth. As a result, the Company concluded that it would be appropriate to record a non-cash charge of $28.1 million as additional valuation allowance in the fourth quarter of 2016, thereby establishing a full valuation allowance against all of its net federal deferred tax assets. The Company continued to maintain a full valuation allowance on its state and certain of its foreign net deferred tax assets. As of December 31, 2017, the net operating loss carryforwards for federal and state income tax purposes were approximately $51.4 million and $53.2 million, respectively. The federal net operating losses expire between 2019 and 2037 and the state net operating losses begin to expire in 2028. The Company also has net operating loss carryforwards from Ireland of $3.2 million that can be carried forward indefinitely and do not expire. As of December 31, 2017, the Company had federal and state tax credit carryforwards of approximately $10.0 million and $2.1 million, respectively, available to offset future tax liabilities. The federal credit carryforwards will expire between 2018 and 2037 and the California tax credits will carryforward indefinitely. In addition, as of December 31, 2017, the Company has Canadian research and development credit carryforwards of $1.7 million, which will expire at various dates through 2037. These operating losses and credit carryforwards have not been reviewed by the relevant tax authorities and could be subject to adjustment upon examinations. Section 382 of the Internal Revenue Code (“IRC Section 382”) imposes limitations on a corporation’s ability to utilize its net operating losses and credit carryforwards if it experiences an “ownership change” as defined by IRC Section 382. Utilization of a portion of the Company’s federal net operating loss carryforward was limited in accordance with IRC Section 382, due to an ownership change that occurred during 1999. This limitation has fully lapsed as of December 31, 2010. As of December 31, 2017, the Company conducted an IRC Section 382 analysis with respect to its net operating loss and credit carryforwards and determined there was no limitation. There can be no assurance that future issuances of the Company’s securities will not trigger limitations under IRC Section 382 which could limit utilization of these tax attributes. For purposes of the reconciliation between the provision for income taxes at the statutory rate and the effective tax rate, a national U.S. 35% rate is applied as follows:
| 2017 |  | 2016 |  | 2015
Federal statutory tax rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Sale of IP rights to foreign subsidiary | — | % |  | (13.8 | )% |  | 22.5 | %
Benefit from foreign losses | — | % |  | — | % |  | 7.8 | %
Foreign withholding | (0.2 | )% |  | (1.2 | )% |  | 0.5 | %
Stock compensation expense | (2.0 | )% |  | (6.6 | )% |  | 5.8 | %
Meals & entertainment | — | % |  | — | % |  | 0.1 | %
Foreign rate differential | (17.0 | )% |  | (1.2 | )% |  | (24.0 | )%
Prior year true-up items | (0.1 | )% |  | (0.3 | )% |  | 1.7 | %
Tax reserves | (0.1 | )% |  | 1.8 | % |  | 3.9 | %
Loss on foreign share transfer | — | % |  | — | % |  | 5.9 | %
Credits | 0.4 | % |  | 1.6 | % |  | (35.5 | )%
State Refunds | — | % |  | 3.8 | % |  | — | %
Other | — | % |  | (1.6 | )% |  | 3.9 | %
2017 Tax Act impact - federal rate change | (28.7 | )% |  | — | % |  | — | %
Valuation allowance | 11.6 | % |  | (193.4 | )% |  | 8.2 | %
Effective tax rate | (1.1 | )% |  | (175.9 | )% |  | 35.8 | %
Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no provision for federal and state income taxes has been provided thereon. Upon distribution of those earnings, the Company would be subject to withholding taxes payable to various foreign countries. Although the mandatory deemed repatriation tax has removed U.S. federal taxes on distributions to the U.S., the Company continues to evaluate the expected manner of recovery to determine whether or not to continue to assert indefinite reinvestment on a part or all the foreign undistributed earnings. This requires the Company to re-evaluate the existing short and long-term capital allocation its reinvestment policies in light of the 2017 Act and calculate the tax cost that is incremental to the deemed repatriation tax (e.g. foreign withholding, state income taxes) of repatriating cash to the U.S. While the provisional tax expense for the year ended December 31, 2017 is based upon an assumption that foreign undistributed earnings are indefinitely reinvested, the Company’s plan may change upon the completion of the analysis of the impact of the 2017 Act and completion of the calculation of the incremental tax effects on the repatriation of foreign undistributed earnings. In the event the Company determines not to continue to assert the permanent reinvestment of part or all of foreign undistributed earnings, such a determination could result in the accrual and payment of additional foreign, state and local taxes. The Company was unable to determine a reasonable estimate of the tax liability, if any, under the Tax Act for its remaining outside basis difference or evaluate how the Tax Act will affect its existing accounting position to indefinitely reinvest unremitted foreign earnings. The Company will continue to apply its existing accounting under ASC 740 for this matter.” The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
| 2017 |  | 2016 |  | 2015
| (In thousands)
Balance at beginning of year | $ | 6,232 |  |  | $ | 6,285 |  |  | $ | 1,744 |
Gross increases for tax positions of prior years | — |  |  | — |  |  | 141 |
Gross decreases for federal tax rate change for tax positions of prior years | (1,670 | ) |  | (22 | ) |  | (15 | )
Gross increases for tax positions of current year | 110 |  |  | 111 |  |  | 4,415 |
Lapse of statute of limitations | — |  |  | (142 | ) |  | — |
Balance at end of year | $ | 4,672 |  |  | $ | 6,232 |  |  | $ | 6,285 |
The unrecognized tax benefits relate primarily to federal and state research and development credits and intercompany profit on the transfer of certain IP rights to one of the Company’s foreign subsidiaries as part of the Company’s tax reorganization described above. The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2017, the Company accrued interest or penalties related to uncertain tax positions in the amount of $10,000. As of December 31, 2017, the total amount of unrecognized tax benefits that would affect the Company’s effective tax rate, if recognized, is $97,000. Because the Company has net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine the Company’s tax returns for all years from 1998 through the current period.

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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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