INCOME TAXES (Notes)

12 Months Ended

Dec. 31, 2020

On December 22, 2017, the tax act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, commonly known as the Tax Cuts and Jobs Act (the “TCJA”), was signed into law. The TCJA changed many aspects of U.S. corporate income taxation and included reduction of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system and imposition of a tax on deemed repatriated earnings of foreign subsidiaries.

As part of U.S. international tax reform, the TCJA imposes a transition tax on certain accumulated foreign earnings aggregated across all non-U.S. subsidiaries, net of foreign deficits. We were in an aggregate net foreign deficit position for U.S. tax purposes, and therefore not liable for the transition tax. Additionally, TCJA repealed the alternative minimum tax (“AMT”) and made existing AMT credit carryovers refundable. Accordingly, at December 31, 2017, we recorded a deferred tax benefit and income tax receivable for our existing AMT credit in the amount of $0.8 million.

The global intangible low-taxed income (“GILTI”) provisions of the TCJA impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Under U.S. GAAP, we can make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into the measurement of our deferred taxes (the “deferred method”). During the year ended December 31, 2018 we made a policy election to record tax effects of GILTI as an expense under the period cost method.

The CARES Act includes several income tax provisions such as net operating loss (“NOL”) carryback and carryforward benefits and other tax deduction benefits. As noted previously, the U.S. deferred tax asset has a full valuation; accordingly, these NOL and other benefit provisions had no impact on our financial statements for the period ended December 31, 2020. The CARES Act accelerates the alternative minimum tax (“AMT”) credit refund originally enacted by the TCJA. As of December 31, 2020, we have received the cash from the Internal Revenue Service associated with this refund receivable which had been recorded as a long-term asset at December 31, 2019.

Income (loss) before income taxes and the components of the income tax provision (benefit) consisted of the following for the years ended December 31, 2020, 2019, and 2018 (in thousands):


	Year Ended December 31,
	2020		2019		2018
Income (loss) from operations before income taxes:
United States	$	9,182	$	4,311	$	(1,940)
Foreign	3,252		(1,786)		(7,463)
Total income (loss) from operations before income taxes	$	12,434	$	2,525	$	(9,403)
Provision for (Benefit from) income taxes:
Current tax expense (benefit):
Federal	$	—	$	(4)	$	(1)
State	133		58		59
Foreign benefit of net operating losses	(883)		(462)		(206)
Other foreign	1,295		1,632		1,372
Total current tax expense	545		1,224		1,224
Deferred tax (benefit) expense:

Federal	—		—		—
Other foreign	827		(6,300)		47
Total deferred tax (benefit) expense	827		(6,300)		47
Total provision for (benefit from) income taxes	$	1,372	$	(5,076)	$	1,271

Net deferred tax assets (liabilities) consisted of the following at December 31, 2020 and 2019 (in thousands):


	December 31,
	2020		2019
Deferred tax assets:
Tax credit and net operating loss carryforwards	$	254,745	$	267,049
Allowances for bad debts	47		69
Difference in accounting for:
Revenues	6,659		2,651
Costs and expenses	23,217		19,400
Inventories	1,466		2,282
Acquired intangible assets	62		187

Long-term lease liabilities	7,432		7,605
Gross deferred tax assets	293,628		299,243
Valuation allowance	(278,785)		(281,568)
Deferred tax assets after valuation allowance	14,843		17,675
Deferred tax liabilities:
Difference in accounting for:
Revenues	—		(1,052)
Costs and expenses	(626)		(1,527)
Inventories	(92)		—
Basis difference convertible notes	—		(326)
Right of use asset	(7,324)		(7,291)
Gross deferred tax liabilities	(8,042)		(10,196)
Net deferred tax assets	$	6,801	$	7,479
Recorded as:

Deferred tax assets, net	6,801		7,479

Deferred tax liabilities, net	—		—
Net deferred tax assets	$	6,801	$	7,479

Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The ultimate realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions. During the year ended December 31, 2019 we determined that our Irish subsidiary has reached a level of sustained profitability sufficient enough to release a significant portion of the valuation allowance on its net operating loss carryforward. Accordingly, we reversed a $6.0 million valuation allowance against the Irish subsidiary’s net operating loss carryforward deferred tax asset. Additionally, during the year ended December 31, 2019 we completed a legal entity reorganization that reduced the number of our German subsidiaries. This reorganization allowed us to reverse a valuation allowance on the net operating loss carryforward deferred tax asset of one of the surviving German entities resulting in an increase to the deferred tax asset, net of a provision for related uncertain tax position, of $1.5 million. Management believes the remaining deferred tax assets, based largely on the history of U.S. tax losses, warrant a valuation allowance based on the weight of available negative evidence.

For U.S. federal and state income tax purposes at December 31, 2020, we had tax credit carryforwards of $48.6 million, which will expire between 2021 and 2040, and net operating loss carryforwards of $719.9 million, the majority of which will expire between 2021 and 2037.

The federal net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the Internal Revenue Code. We completed an assessment at December 31, 2020 regarding whether there may have been a

Section 382 ownership change and concluded that it is more likely than not that none of our net operating loss and tax credit amounts are subject to any Section 382 limitation.

Additionally, we have foreign net operating loss carryforwards of $107.0 million and capital loss carryforwards of $1.6 million, each with an indefinite carryforward period and tax credit carryforwards of $6.2 million that begin to expire in 2030. We have determined there is uncertainty regarding the realization of a portion of these assets and have recorded a valuation allowance against $63.8 million of net operating losses, $1.6 million of capital losses and $6.2 million of tax credits at December 31, 2020.

Our assessment of the valuation allowance on the U.S. and foreign deferred tax assets could change in the future based on our levels of pre-tax income and other tax related adjustments. Reversal of the valuation allowance in whole or in part would result in a non-cash reduction in income tax expense during the period of reversal.

The following table sets forth a reconciliation of our income tax provision (benefit) to the statutory U.S. federal tax amount for the years ended December 31, 2020, 2019, and 2018:


	Year Ended December 31,
	2020		2019		2018
Statutory tax	$	2,611	$	530	$	(1,975)
Tax credits utilized and expired	1,356		815		1,277
Foreign operations	981		921		1,854
Change in uncertain tax positions	(474)		11,185		58
Non-deductible expenses and other	425		2,474		301


Change in valuation allowance	(3,527)		(21,001)		(244)
Provision for (benefit from) income taxes	$	1,372	$	(5,076)	$	1,271

The increase in our statutory tax is driven by the increase in our income from operations before taxes. The change in our tax credits is driven by expiring U.S. research and development tax credits exceeding current year tax credits generated. Changes in the jurisdictional mix of our foreign profitability drives the change in the taxes on foreign operations. The changes in our uncertain tax positions relates to the 2020 settlement of an audit issue in our Israel subsidiary and in 2019 to our German net operating loss carryforward. As noted above, the deferred tax asset recorded for the German net operating loss carryforward is recorded net of this uncertain tax position. The changes in our non-deductible expenses was primarily driven by compensation deduction limitations under Internal Revenue Code section 162(m) in both 2020 and 2019. The 2020 decrease in our valuation allowance was primarily driven by the decrease of U.S. deferred tax assets and in 2019 by reversal of valuation allowances on our foreign net operating loss carryforwards. In 2019, we have determined that our Irish subsidiary has reached a level of sustained profitability sufficient enough to release a significant portion of the valuation allowance on its net operating loss carryforward. Accordingly, we recorded a $6.0 million benefit related to a valuation allowance against the Irish subsidiary net operating loss carryforward deferred tax asset. Additionally, the reorganization of our German subsidiaries allowed us to reverse a valuation allowance on the net operating loss carryforward deferred tax asset of one of the surviving German entities. We recorded a gross benefit of $12.6 million for this release and correspondingly recorded an $11.1 million charge for a related uncertain tax position resulting in a net benefit of $1.5 million.

As a result of TCJA and the current U.S. taxation of deemed repatriated earnings, the additional taxes that might be payable upon repatriation of foreign earnings are not significant. However, we do not have any current plans to repatriate these earnings because the underlying cash will be used to fund the ongoing operations of the foreign subsidiaries.

A tax position must be more likely than not to be sustained before being recognized in the financial statements. It also requires the accrual of interest and penalties as applicable on unrecognized tax positions. At December 31, 2018 and 2019, our unrecognized tax benefits and related accrued interest and penalties related to an audit issue at our subsidiary in Israel in the amount of $1.8 million, of which $1.8 million would affect our income tax provision and effective tax rate if recognized. Additionally, during 2019 we had an increase in our unrecognized tax positions of $11.1 million related to our German subsidiary net operating loss carryforward; this increase relates to the German subsidiary’s legal entity reorganization mentioned above. During 2020, we reversed the accrual for the unrecognized tax position related to the audit issue at our subsidiary in Israel due to the settlement of the issue. The total decreases to the value of our unrecognized tax benefits during 2020, including the impacts of any foreign

currency revaluations, were $(0.8) million. The balance of the unrecognized benefit at December 31,2020 relates only to the unrecognized tax position related to our German subsidiary net operating loss carryforward.

The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2020, 2019, and 2018 (in thousands):


Unrecognized tax benefits at January 1, 2018	$	1,841
Decreases for tax positions taken during a prior period	(78)
Unrecognized tax benefits at December 31, 2018	1,763
Increases for tax positions taken during a prior period	11,248
Unrecognized tax benefits at December 31, 2019	13,011
Decreases for tax positions taken during a prior period	(818)
Unrecognized tax benefits at December 31, 2020	$	12,193

We recognize interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax positions at December 31, 2020 and 2019 were $0 million and $0.4 million, respectively.

The tax years 2010 and forward remain open to examination by taxing authorities in the jurisdictions in which we operate. The most significant operating jurisdictions include: the United States, Ireland, the Netherlands, Germany, Israel, Japan, and the United Kingdom.