Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.3.1.900
Income Taxes
12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Our loss before provision for income taxes was as follows (in thousands): 
 
Years Ended December 31,
 
2015
 
2014
 
2013
United States
$
(7,641
)
 
$
(20,980
)
 
$
(41,696
)
Foreign
(278
)
 
1,653

 
306

Loss before provision for income taxes
$
(7,919
)
 
$
(19,327
)
 
$
(41,390
)

The tax provision for the years ended December 31, 2015, 2014 and 2013 consists primarily of taxes attributable to foreign operations and the tax effect of unrealized gains on our available for sale securities. The components of the provision for income taxes are as follows (in thousands): 
 
Years Ended December 31,
 
2015
 
2014
 
2013
Current provision (benefit):
 
 
 
 
 
Federal
$

 
$

 
$

State
5

 
5

 
5

Foreign
(13
)
 
(371
)
 
(45
)
Total current provision (benefit)
(8
)
 
(366
)
 
(40
)
Deferred provision (benefit):
 
 
 
 
 
Federal
(293
)
 

 
(59
)
State
(21
)
 

 
(7
)
Foreign
(16
)
 
110

 
19

Total deferred provision (benefit)
(330
)
 
110

 
(47
)
Total provision for income taxes
$
(338
)
 
$
(256
)
 
$
(87
)

Reconciliation of the provision for income taxes calculated at the statutory rate to our provision for (benefit from) income taxes is as follows (in thousands): 
 
Years Ended December 31,
 
2015
 
2014
 
2013
Tax benefit at federal statutory rate
$
(2,693
)
 
$
(6,571
)
 
$
(14,073
)
State taxes
1,126

 
249

 
(1,948
)
Research and development credits
(85
)
 
(57
)
 
(195
)
Foreign operations taxed at different rates
31

 
447

 
(108
)
Stock-based compensation
77

 
(2
)
 
117

Other nondeductible items
(43
)
 
(364
)
 
(1,272
)
Change in valuation allowance
1,249

 
6,042

 
17,392

Provision for income taxes
$
(338
)
 
$
(256
)
 
$
(87
)

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
Significant components of our deferred tax assets and liabilities are as follows (in thousands): 
 
December 31,
 
2015
 
2014
Deferred tax assets:
 
 
 
Net operating losses
$
70,005

 
$
70,666

Federal and state credits
4,671

 
4,421

Deferred revenues
3,357

 
2,697

Stock-based compensation
3,460

 
2,988

Reserves and accruals
2,713

 
2,701

Depreciation
2,377

 
2,295

Intangible assets
5,127

 
4,639

Capital losses
933

 
933

Unrealized gain/loss
126

 
148

Other assets
98

 
101

Total deferred tax assets:
92,867

 
91,589

Deferred tax liabilities:
 
 
 
Other
(199
)
 
(186
)
Total deferred tax liabilities:
(199
)
 
(186
)
Valuation allowance
(92,762
)
 
(91,513
)
Net deferred tax liabilities
$
(94
)
 
$
(110
)

ASC Topic 740 requires that the tax benefit of NOL, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, therefore, has provided a valuation allowance against our deferred tax assets. Accordingly, the net deferred tax assets in all the Company’s jurisdictions have been fully reserved by a valuation allowance. The net valuation allowance increased by $1.2 million, $5.2 million and $14.6 million during the years ended December 31, 2015, 2014 and 2013, respectively. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.
The following table sets forth the Company’s federal, state and foreign NOL carryforwards and federal research and development tax credits as of December 31, 2015 (in thousands): 
 
December 31, 2015
 
Amount
 
Expiration
Years
Net operating losses, federal
$
201,670

 
 2022-2035
Net operating losses, state
127,025

 
 2016-2035
Tax credits, federal
5,421

 
 2022-2035
Tax credits, state
6,492

 
 Do not expire
Net operating losses, foreign
3,259

 
 Various
Tax credits, foreign
10

 
 Various

Utilization of the net operating loss carryforwards and credits may be subject to an annual limitation due to the ownership change limitations defined by Section 382 of the Internal Revenue Code and similar state provisions. Accordingly, our ability to utilize NOLs and tax credit carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized. We have not completed a detailed Section 382 study at this time to determine what impact, if any, that ownership changes may have on our NOLs and tax credit carryforwards. In each period since its inception, we have recorded a valuation allowance for the full amount of our deferred tax assets. As a result, we have not recognized income tax benefit for our NOLs and tax credit carryforwards.
Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from available-for-sale securities recorded as a component of other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. As a result, for the year ended December 31, 2015, we recorded a tax expense of $0.3 million in other comprehensive income related to the unrealized gain on available-for-sale securities, and recorded a corresponding tax benefit of $0.3 million in continuing operations.
In 2014, we determined that the undistributed earnings of our India subsidiary will be repatriated to the United States, and accordingly, we have provided a deferred tax liability totaling $0.2 million as of December 31, 2015. We have not provided for U.S. federal and state income taxes on all of the remaining non-U.S. subsidiaries’ undistributed earnings as of December 31, 2015 because such earnings are intended to be indefinitely reinvested. As of December 31, 2015, there were no cumulative un-remitted foreign earnings that are considered to be permanently invested outside the United States as the remaining foreign jurisdictions are in a cumulative loss position.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): 
 
December 31,
 
2015
 
2014
 
2013
Balance at beginning of year
$
7,838

 
$
8,306

 
$
7,429

Additions based on tax positions related to current year
368

 
346

 
1,116

Additions to tax provision of prior years

 

 
6

Reductions to tax provision of prior years
(54
)
 
(814
)
 
(87
)
Lapse of the applicable statute of limitations

 

 
(158
)
Balance at end of year
$
8,152

 
$
7,838

 
$
8,306


We recognize interest and penalties as a component of our income tax expense. Total interest and penalties recognized in the consolidated statement of operations was $24,000, $(47,000) and $29,000, respectively, in 2015, 2014 and 2013. Total penalties and interest recognized in the balance sheet was $257,000 and $232,000, respectively, in 2015 and 2014. The total unrecognized tax benefits that, if recognized currently, would impact the Company’s effective tax rate were $0.4 million and $0.5 million as of December 31, 2015 and 2014, respectively. We do not expect any material changes to our uncertain tax positions within the next 12 months. We are not subject to examination by United States federal or state tax authorities for years prior to 2002 and foreign tax authorities for years prior to 2009.