. Income Taxes

Income (loss) from continuing operations before income taxes consists of the following:

	Year Ended December 31,
	201 8			201 7			201 6
United States	$	(71,978	)	$	(77,649	)	$	(15,202	)
Foreign		(31,984	)		(18,431	)		26,658
Total	$	(103,962	)	$	(96,080	)	$	11,456

Income tax provision consisted of the following:

	Year Ended December 31,
	201 8			2017			2016
Current:
U.S. Federal	$	—		$	96		$	938
U.S. State		42			51			(22	)
Foreign		375			1,105			35
		417			1,252			951
Deferred:
U.S. Federal		(6,734	)		(11,312	)		(16,755	)
U.S. State		—			(613	)		—
Foreign		(1,894	)		(10,503	)		747
		(8,628	)		(22,428	)		(16,008	)
Total	$	(8,211	)	$	(21,176	)		(15,057	)

Income tax provision differed from the amounts computed by applying the U.S. federal income tax rate of

21%

2018

and

34%

2017

and

2016

to income (loss) before income taxes as a result of the following:

	Year Ended December 31,
	201 8			2017			2016
Expenses (benefit) at statutory rate	$	(21,832	)	$	(32,562	)	$	3,895
State income taxes		594			(585	)		222
Research and development credits		(13,283	)		(12,983	)		(8,566	)
Change in valuation allowance		13,757			40,028			9,768
Impact of foreign operations		5,925			(1,951	)		(13,570	)
Unrecognized tax benefits		5,340			3,596			3,151
Stock-based compensation		(381	)		(10,248	)		(9,925	)
Prior year return to provision adjustment		1,422			1,105			(524	)
Effect of U. S. tax law change		—			(4,602	)		—
Impairment of intangibles		—			(2,328	)		—
Other		247			(646	)		492
	$	(8,211	)	$	(21,176	)	$	(15,057	)

Significant components of the Company’s net deferred taxes consist of the following:

	December 31,
	201 8			201 7
Deferred tax assets
Net operating loss carry forwards	$	39,888		$	34,366
Research and development credits		69,320			62,118
Stock-based compensation		9,055			6,021
Accrued expenses and allowances		2,334			2,004
Amortization and depreciation		1,408			4,910
Other temporary differences		6,411			4,018
Foreign tax credit		2,338			2,557
Valuation allowance		(92,315	)		(78,538	)
Total deferred tax assets		38,439			37,456
Deferred tax liabilities
Acquired intangible assets		(22,593	)		(26,602	)
Acquired tangible assets		—			(255	)
Convertible debt		(11,596	)		(15,213	)
Other deferred tax liabilities		(603	)		(68	)
Total deferred tax liabilities		(34,792	)		(42,138	)
Deferred tax assets ( liabilities ) , net	$	3,647		$	(4,682	)

December 22, 2017,

the Tax Reform Act was signed into law. The Tax Reform Act contains significant changes to U.S. federal corporate income taxation, including a reduction of the corporate tax rate from

35%

21%

effective

January 1, 2018,

one

-time transition tax on deemed mandatory repatriation of accumulated earnings and profits of foreign subsidiaries in conjunction with the elimination of U.S. tax on dividend distributions from foreign subsidiaries, and a temporary

100%

first

-year depreciation deduction for certain capital investments. In

2017,

the Company recorded provisional amounts based on reasonable estimates for certain enactment-date effects of the Tax Reform Act in accordance with the guidance in SAB

118.

2017,

the Company recorded a net tax benefit related to the enactment-date effects of the Tax Reform Act that included the remeasurement of the federal deferred tax assets and liabilities, the tax effect of the

one

-time mandatory repatriation income, and related valuation allowance adjustments.

During

2018,

the Company finalized the calculation of the deemed mandatory repatriation income upon filing its

2017

U.S. income tax return. The change in the mandatory repatriation income was fully absorbed by the U.S. net operating loss, which is subject to valuation allowance, and resulted in

current tax liability. These measurement period adjustments had

net tax effect after the offsetting change to valuation allowance.

The Tax Reform Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. In

January 2018,

the FASB released guidance on the accounting for tax on the GILTI inclusion. Entities can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or account for GILTI as a period cost in the year the tax is incurred. The Company has elected to account for GILTI as a period cost in the year the tax is incurred. For the year ended

December 31, 2018,

the Company computed

GILTI inclusion as a result of current year aggregate loss of the Company’s foreign subsidiaries.

Valuation Allowance

The Company records a valuation allowance to reduce deferred tax assets to the amount that the Company believes is more likely than

not

to be realized. The determination of recording or releasing tax valuation allowances is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate sufficient future taxable income against which benefits of the deferred tax assets

may

not

be realized. This assessment requires management to exercise significant judgment and make estimates with respect to the Company’s ability to generate revenue, gross profits, operating income and taxable income in future periods. Amongst other factors, management must make assumptions regarding overall current and projected business and semiconductor industry conditions, operating efficiencies, the Company’s ability to timely develop, introduce and consistently manufacture new products to customers’ specifications, acceptance of new products, customer concentrations, technological change and the competitive environment which

may

impact the Company’s ability to generate taxable income and, in turn, realize the value of the deferred tax assets. The Company early adopted the guidance on accounting for share-based payments to employees at the beginning of

2016.

December 31, 2016,

a full valuation allowance was recorded on the deferred tax assets of U.S. and certain foreign subsidiaries. At

December 31, 2017

and

2018,

the Company has a full valuation allowance recorded against the deferred tax assets of Canada, United Kingdom, and the U.S., with the exception of the federal refundable AMT credit. The Company has a partial valuation allowance against the deferred tax assets of Taiwan.

The valuation allowance increased

$13,777,

$39,907,

and

$5,064

in the years ended

December 31, 2018,

2017

and

2016,

respectively.

The net increase of

$13,777

in the valuation allowance for the year ended

December 31, 2018

is comprised of

$20

increase charged to other comprehensive income and

$13,757

charged to income tax provision. The net increase of

$39,907

in the valuation allowance for the year ended

December 31, 2017

is comprised of

$134

increase charged to other comprehensive income,

$158

decrease charged to goodwill, and

$39,931

increase charged to income tax provision. The valuation allowance charged to income tax provision included an income tax benefit from the partial release of the federal and state valuation allowance. The net increase of

$5,064

in the valuation allowance for the year ended

December 31, 2016

is comprised of

$16,044

decrease charged to additional paid-in capital, offset by

$305

increase charged to other comprehensive income,

$3,088

increase charged to goodwill,

$7,068

increase charged to retained earnings, and

$10,647

increase charged to income tax provision.

General Income Tax Disclosures

The Company has net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately

$219,900

and

$96,572,

respectively at

December

31,

2018,

that will begin to expire in

2022

for federal income tax purposes and in

2026

for state income tax purposes. The Company’s federal NOL carryforward of

$18,559

that was generated in

2018

does

not

expire. At

December 31, 2018,

the Company has NOL carryforwards of

$2,848

for its Taiwan subsidiary which begin to expire in

2020,

and NOL carryforwards of

$7,631

for the United Kingdom subsidiary, which do

not

expire. A full valuation allowance has been provided on U.S. NOL and United Kingdom NOL, and a partial valuation allowance has been provided on Taiwan NOL.

December

31,

2018,

the Company has federal and state research and development (“R&D”) tax credit carryforwards of

$47,227

and

$49,179,

respectively. The federal tax credits will begin to expire in

2024.

Some state tax credits will begin to expire in

2021

and some do

not

expire. At

December 31, 2018,

the Company has Canadian tax credits and research expenditure claim carryforwards for its Canadian subsidiary of

$6,494

and

$3,396,

respectively. The tax credits will begin to expire in

2027,

and the research expenditure claim carryforwards do

not

expire. A full valuation allowance has been provided on R&D tax credit and research expenditure claim carryforwards.

Pursuant to Internal Revenue Code sections

382

and

383,

use of the Company’s NOL and R&D credits generated prior to

June 2004

are subject to an annual limitation due to a cumulative ownership percentage change that occurred in that period. The Company has had

two

changes in ownership,

one

December 2000

and the

second

June 2004,

that resulted in an annual limitation on NOL and R&D credit utilization. The NOL and R&D credit carryover of Cortina, are also subject to annual limitation under Internal Revenue Code sections

382

and

383.

The acquisition of Cortina caused an ownership change that resulted in an annual limitation, as well as Cortina’s legacy annual limitation amount from ownership changes prior to acquisition. The NOL and R&D credit carryforward which will expire unused due to annual limitation is

not

recognized for financial statement purposes and is

not

reflected in the above carryover amounts.

The Company’s NOL carryforwards include Cortina’s federal and state pre-acquisition NOL of

$49,152

and

$3,919,

respectively. These NOL carryforwards will begin to expire in

2024

for federal and

2026

for state. The Company’s NOL carryforwards also include ClariPhy’s federal and state pre-acquisition NOL of

$46,601

and

$68,177,

respectively. These NOL carryforwards will begin to expire in

2032

for federal and

2028

for state. The Company’s R&D credit carryforwards included Cortina’s federal and state pre-acquisition credits of

$6,033

and

$7,912,

respectively. The federal R&D credit carryforward will begin to expire in

2027.

While some state tax credits will begin to expire in

2021,

most do

not

expire. The utilization of Cortina and ClariPhy’s pre-acquisition tax attributes is subject to certain annual limitations under Internal Revenue Code sections

382

and

383.

benefit for Cortina’s tax attributes was recorded upon the close of the acquisition, as the benefit from these tax attributes did

not

meet the "more-likely-than-

not"

standard.

The Company operates under tax holiday in Singapore. The Singapore tax holiday allows for a reduced income tax rate of

effective through

April 2020,

and the Company is currently pursuing a renewal of the reduced tax rate to apply subsequent to the current holiday period. The Singapore statutory rate is

17%.

The tax holiday is conditional upon meeting certain employment, activities and investment thresholds. As of

December 31, 2018,

the Company believes it has met all of the required thresholds. The Company qualified for a tax incentive program in Argentina that reduced the income tax rate to

12%,

starting

January 1, 2018

through

December 31, 2019,

with a return to the full statutory rate of

25%

for periods thereafter. As a result of these reduced tax rates, foreign tax expense increased (decreased) by (

$2,093

) and

$7,412

for the years ended

December 31, 2018

and

2017,

respectively. The effect of the tax holidays on diluted earnings per share was (

$0.05

) and

$0.18

for the years ended

December 31, 2018

and

2017,

respectively.

The following table summarizes the changes in gross unrecognized tax benefits:

	Year Ended December 31,
	201 8			2017			2016
Balance as of January 1	$	47,606		$	56,503		$	46,453
Increases based on tax positions related to the current year		5,747			4,656			5,450
Increases (decreases) based on tax positions of prior year		708			(13,452	)		(1,766	)
Gross increases for acquired unrecognized tax benefits		—			—			6,585
Statute of limitation expirations		(118	)		(101	)		(219	)
Balance as of December 31	$	53,943		$	47,606		$	56,503

As of

December

31,

2018,

the Company had approximately

$2,857

of unrecognized tax benefits that if recognized would affect the effective income tax rate. The Company believes that before the end of next year, it is reasonably possible that the gross unrecognized tax benefit

may

decrease by approximately

$51

due to statute of limitation expiration in foreign jurisdictions.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company recorded

$17

and

$16

in interest in the years ended

December 31, 2018

and

2017,

respectively. The Company had

$65,

$113,

and

$222

of interest and penalties accrued as of

December 31, 2018,

2017

and

2016,

respectively.

The Company files income tax returns in the U.S. federal jurisdiction, various states and certain foreign jurisdictions. The Company is

longer subject to U.S. federal income tax examinations for tax years ended on or before

December

31,

2011

or to California state income tax examinations for tax years ended on or before

December

31,

2010.

However, to the extent allowed by law, the tax authorities

may

have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward.

The Company does

not

provide for U.S. income taxes on undistributed earnings of its controlled foreign corporations as the Company intends to reinvest these earnings indefinitely outside the United States. At

December 31, 2018,

foreign subsidiaries had cumulative undistributed earnings of

$38,470

that, if repatriated, is expected to result in immaterial U.S. taxes.

The Company is currently under examination by the Inland Revenue Authority of Singapore (“IRAS”) for the years

2010,

2011

and

2012.

The IRAS made an adjustment to the timing of deducting certain intercompany payments, the effect of which has been reflected in the provision and did

not

result in a material impact to the consolidated financial statements. As of the report date, the examination is ongoing.

The Company adopted ASU

2016

16,

Intra-Entity Transfers of Assets Other Than Inventory, at the beginning of

2017.

As a result of the adoption, the Company reclassified the unamortized deferred tax charge balance to retained earnings. At the same time, the Company recorded a deferred tax asset on the difference between the tax basis and financial reporting carrying value in the consolidated financial statements related to the intercompany transfer of an asset in prior years. The effect of the adoption resulted in a charge of

$1,217

on the beginning balance of retained earnings.