Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.3.a.u2
Income Taxes
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The domestic and international components of loss before income taxes are presented as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(in thousands)
Domestic
$
(61,893
)
 
$
16,405

 
$
42,580

Foreign
29,409

 
(49,257
)
 
(76,578
)
Loss before income taxes
$
(32,484
)
 
$
(32,852
)
 
$
(33,998
)

The income tax provision (benefit) consists of the following:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(in thousands)
Current:
 
 
 
 
 
Federal
$
1,604

 
$
3,292

 
$
13,470

State
16

 
37

 
26

Foreign
1,560

 
1,640

 
1,784

Total current
3,180

 
4,969

 
15,280

Deferred:
 
 
 
 
 
Federal
(13,793
)
 
788

 
19,451

State
(1,829
)
 
(2,799
)
 
(4,668
)
Foreign
1,095

 
(3,884
)
 
(3,697
)
Change in valuation allowance
(1,239
)
 
(5,727
)
 
(51,177
)
Total deferred
(15,766
)
 
(11,622
)
 
(40,091
)
Total income tax benefit
$
(12,586
)
 
$
(6,653
)
 
$
(24,811
)

The actual income tax provision (benefit) differs from the amount computed using the federal statutory rate as follows:
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
(in thousands)
Provision (benefit) at statutory rate
$
(6,821
)
 
$
(6,814
)
 
$
(11,899
)
State income taxes (net of federal benefit)
11

 
20

 
17

Research and development credits
(7,815
)
 
(8,849
)
 
(8,153
)
Foreign rate differential
(4,489
)
 
8,640

 
23,666

Stock compensation
(2,750
)
 
74

 
(5,713
)
Foreign income inclusion
3,936

 
1,103

 
—

Transaction costs
—

 
—

 
553

Provision to return
1,887

 
(27
)
 
(917
)
Uncertain tax positions
1,244

 
1,463

 
1,993

Foreign tax credits
—

 
—

 
(5
)
Permanent and other
716

 
1,319

 
1,730

Foreign unremitted earnings
(103
)
 
1,960

 
(1,368
)
Tax Act
—

 
185

 
25,205

Other tax rate changes
—

 
—

 
1,257

Attribute expirations
2,837

 
—

 
—

Valuation allowance
(1,239
)
 
(5,727
)
 
(51,177
)
Total income tax benefit
$
(12,586
)
 
$
(6,653
)
 
$
(24,811
)

The components of the deferred income tax assets are as follows:
 
December 31,
 
2019
 
2018
 
(in thousands)
Deferred tax assets:
 
 
 
Net operating loss carryforwards
$
65,477

 
$
64,887

Research and development credits
80,404

 
75,032

Accrued expenses and other
7,768

 
7,965

Lease obligation
2,047

 
—

Accrued compensation
1,441

 
2,504

Stock-based compensation
3,460

 
2,550

 
160,597

 
152,938

Less valuation allowance
(77,957
)
 
(79,196
)
 
82,640

 
73,742

Deferred tax liabilities:
 
 
 
Fixed assets
(246
)
 
(1,391
)
Leased right-of-use assets
(1,483
)
 
—

Intangible assets
(13,627
)
 
(20,833
)
Net deferred tax assets
$
67,284

 
$
51,518


At December 31, 2019, the Company had federal, state and foreign tax net operating loss carryforwards of approximately $269.3 million, $86.4 million and $11.7 million, respectively. The federal, state and foreign tax loss carryforwards will begin to expire in 2020, 2020 and 2026 respectively, unless previously utilized.
At December 31, 2019, the Company had federal, state and foreign tax credit carryforwards of approximately $41.8 million, $86.3 million and $5.7 million, respectively. The federal and foreign tax credit carryforwards will begin to expire in 2023 and 2024 respectively, unless previously utilized. The state tax credit carryforwards do not expire. The Company also has foreign incentive deductions of approximately $24.5 million that do not expire.
In addition, the Company has $0.3 million of federal alternative minimum tax credit carryforwards that will be refundable in future years, due to the Tax Cuts and Jobs Act described below.
The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the temporary differences reverse. The Company records a valuation allowance to reduce its deferred taxes to the amount it believes is more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. Based upon the Company's review of all positive and negative evidence, the Company released $51.2 million in valuation allowance against certain of its deferred tax assets in 2017. In 2018, the Company released an additional $11.3 million of its valuation allowance as a result of completing its analysis of the effects of the Tax Act. The Company continues to maintain a valuation allowance on its state deferred taxes, certain of its federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes. The Company does not incur expense or benefit in certain tax-free jurisdictions in which it operates.
The income tax benefit for the year ended December 31, 2019 primarily related to the mix of pre-tax income among jurisdictions, discrete tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.
The income tax benefit for the year ended December 31, 2018 primarily related to a partial release of the Company's valuation allowance and the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of uncertain tax positions under ASC 740-10.
The income tax benefit for the year ended December 31, 2017 primarily related to the release of the federal valuation allowance in 2017 and the effects of the Tax Act.
Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first financial reporting period in which that threshold is no longer met. The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of operations as income tax expense. At December 31, 2019, the Company’s unrecognized tax benefits totaled $62.0 million, $52.7 million of which, if recognized at a time when the valuation allowance no longer exists, would affect the effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. At December 31, 2019 and 2018, the Company had accrued interest and penalties of approximately $0.9 million and $1.1 million, respectively. The total amounts of interest and penalties recognized for the years ended December 31, 2019, 2018 and 2017 were not material.
The following table summarizes the changes to the unrecognized tax benefits during 2019, 2018 and 2017:
 
(in thousands)
Balance as of December 31, 2016
$
23,417

Additions based on tax positions related to the current year
3,037

Additions related to acquisitions
37,090

Decreases based on tax positions of prior year
(458
)
Balance as of December 31, 2017
$
63,086

Additions based on tax positions related to the current year
3,080

Decreases based on tax positions of prior year
(4,696
)
Balance as of December 31, 2018
$
61,470

Additions based on tax positions related to the current year
1,678

Decreases based on tax positions of prior year
(1,121
)
Balance as of December 31, 2019
$
62,027


The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At December 31, 2019, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2016, 2015 and 2014, respectively.
In April 2017, the Company’s subsidiary in Singapore began operating under certain tax incentives in Singapore, which are generally effective through March 2022, and are conditional upon meeting certain employment and investment thresholds in Singapore. Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period. Primarily because of the Company’s Singapore net operating losses and a full valuation allowance in Singapore, the incentives did not have a material impact on the Company’s income tax expense in 2017, 2018, or 2019.