Note 5 - Income Taxes

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

5.

INCOME TAXES

  

Income tax benefit decreased by

$0.9

million for the

nine

months ended

September 30, 2018

to

$1.3

 million compared to

$2.2

million for the

nine

months ended

September 30, 2017.

The Company’s effective tax rate was

2.27%

and

236.7%

for the

nine

months ended

September 30, 2018

and

2017,

respectively. The Company’s effective tax rate decreased in the

nine

months ended

September 30, 2018,

as compared to the same period in

2017,

primarily due to lower excess tax benefits related to employee stock compensation and the impact of the recently enacted TCJA, such as a decrease in the maximum federal tax rate from

35%

to

21%.

The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of

September 30, 2018,

was

$12.9

 million, of which

$7.6

 million, if recognized, would affect the Company’s effective tax rate. The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of

December 31, 2017,

was

$12.9

million, of which

$7.7

million, if recognized, would affect the Company's effective tax rate. As of

September 30, 2018,

the Company has recorded unrecognized tax benefits of 

$2.9

million, including interest and penalties, as long-term taxes payable in its condensed consolidated balance sheet. The remaining

$10.7

million has been recorded net of our deferred tax assets, of which

$5.3

 million is subject to a full valuation allowance. 

The valuation allowance was approximately

$9.4

million and

$9.1

million as of

September 30, 2018,

and

December 31, 2017,

respectively, which was related to California R&D tax credits and California net operating losses related to the Company's acquisition of Syntricity, Inc. that it currently does

not

believe they are more likely than

not

to be ultimately realized.

The Company is required to assess whether it is more-likely-than-

not

that deferred tax assets will be recovered from future taxable income and if the Company believes that they are

not

likely to be realizable before the expiration dates applicable to such assets then, to the extent the Company believes that recovery is

not

likely, establish a valuation allowance. Changes in the net deferred tax assets, less offsetting valuation allowance, in a financial reporting period are recorded through the income tax provision and could have a material impact to the condensed consolidated statements of operations.

In

December 2017,

the SEC issued Staff Accounting Bulletin

No.

118,

Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB

118

), which allows companies to record provisional amounts during a measurement period

not

to extend more than

one

year beyond the TCJA enactment date. Since the TCJA was passed late in the

fourth

quarter of

2017,

and ongoing guidance and accounting interpretation are expected during the year, we consider the accounting for deferred tax remeasurements, the impact of the transition of U.S. international taxation from a worldwide tax system to a territorial system and other provisions to be incomplete. There have been

no

material changes to the provisional adjustments disclosed in our

2017

Form

10

-K. The Company is continuing to evaluate the estimates used to record and disclose the effects of the TCJA.

Effective

January 1, 2018,

the TCJA created a new requirement to include in U.S. income global intangible low-taxed income (“GILTI”) earned by controlled foreign corporations (“CFCs”). The GILTI must be included currently in the gross income of the CFCs’ U.S. shareholder. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (

1

) treating taxes due on future U.S. inclusions related to GILTI as a current-period expense when incurred (the “period cost method”) or (

2

) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). During the

first

quarter of

2018,

the Company selected the period cost method in recording the tax effects of GILTI in its financial statements.

The Company conducts business globally and, as a result, files numerous consolidated and separate income tax returns in the U.S. including federal and various states, and foreign jurisdictions. Because the Company used some of the tax attributes carried forward from previous years to tax years that are still open, statutes of limitation remain open for all tax years to the extent of the attributes carried forward into tax year

2002

for federal and California tax purposes. The Company is

not

subject to income tax examinations in any of its major foreign subsidiaries’ jurisdictions.