Alkermes plc. - 10-K filing on 2020-02-13

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Schedule of (Benefit) Provision for Income Taxes

The Company’s (benefit) provision for income taxes is comprised of the following:

	Year Ended December 31,
(In thousands)	2019			2018			2017
Current income tax (benefit) provision:
U.S. federal	$	(471	)	$	(53	)	$	6,964
U.S. state		354			1,774			350
Rest of world		—			—			123
Deferred income tax (benefit) provision:
U.S. federal		(1,503	)		10,624			8,188
U.S. state		881			62			(933	)
Ireland		303			(63	)		(21	)
Total tax (benefit) provision	$	(436	)	$	12,344		$	14,671

Schedule of (Loss) Income Before Provision for Income Taxes by Geographical Area

The distribution of the Company’s loss before the (benefit) provision for income taxes by geographical area consisted of the following:

	Year Ended December 31,
(In thousands)	2019			2018			2017
Ireland	$	(141,869	)	$	(180,195	)	$	(172,363	)
U.S.		(55,102	)		53,287			2,414
Rest of world		(85	)		(59	)		26,675
Loss before (benefit) provision for income taxes	$	(197,056	)	$	(126,967	)	$	(143,274	)

Schedule of Components of Net Deferred Tax Assets (Liabilities)

The components of the Company’s net deferred tax assets (liabilities) were as follows:

	December 31,			December 31,
(In thousands)	2019			2018
Deferred tax assets:
NOL carryforwards	$	227,872		$	198,633
Tax credits		57,385			52,395
Share-based compensation		45,214			44,873
Accrued expenses and reserves		20,337			15,892
Other		8,756			8,669
Less: valuation allowance		(242,059	)		(219,093	)
Total deferred tax assets		117,505			101,369
Deferred tax liabilities:
Intangible assets		—			—
Property, plant and equipment		(19,926	)		(14,533	)
Other		(1,590	)		(1,274	)
Total deferred tax liabilities		(21,516	)		(15,807	)
Net deferred tax assets	$	95,989		$	85,562

Schedule of Activity in Valuation Allowance Associated with Deferred taxes

The activity in the valuation allowance associated with deferred taxes consisted of the following:

(In thousands)	Balance at Beginning of Period			Additions ⁽¹⁾			Balance at End of Period
Deferred tax asset valuation allowance for the year ended December 31, 2017	$	(141,859	)	$	(30,938	)	$	(172,797	)
Deferred tax asset valuation allowance for the year ended December 31, 2018	$	(172,797	)	$	(46,296	)	$	(219,093	)
Deferred tax asset valuation allowance for the year ended December 31, 2019	$	(219,093	)	$	(22,966	)	$	(242,059	)

(1)	The additions in each of the periods presented relate primarily to Irish NOLs. Additionally, in 2019 the Company’s valuation allowance was increased by $3.0 million as a result of the attributes acquired as part of the acquisition of Rodin.

Schedule of Reconciliation of Federal Statutory Tax Rate to its Effective Tax Rate

A reconciliation of the Company’s statutory tax rate to its effective tax rate is as follows:

	Year Ended December 31,
(In thousands, except percentage amounts)	2019				2018				2017
Statutory tax rate		12.5		%		12.5		%		12.5		%

Income tax provision at statutory rate	$	(24,632	)		$	(15,871	)		$	(17,909	)

Change in valuation allowance		19,882				28,371				26,771
In-process R&D⁽¹⁾		10,824				—				—
Share-based compensation		6,287				1,163				(1,205	)
Foreign rate differential⁽²⁾		5,390				5,405				(682	)
U.S. state income taxes, net of U.S. federal benefit		1,051				1,732				(558	)
Foreign derived intangible income		(3,450	)			—				—
Intercompany amounts⁽³⁾		(1,125	)			(751	)			(5,041	)
R&D credit		(8,846	)			(7,698	)			(9,326	)
Federal tax law change⁽⁴⁾		(8,111	)			—				21,453
Irish rate differential⁽⁵⁾		(146	)			(2,350	)			(2,675	)
Impairment on equity method investment		—				—				1,662
Other permanent items⁽⁶⁾		2,440				2,343				2,181
Income tax (benefit) provision	$	(436	)		$	12,344			$	14,671

Effective tax rate		0.2		%		(9.7	)	%		(10.2	)	%

(1)	Represents the tax effect of the research and development expense recorded on the acquisition of Rodin.

(2)	Represents income or losses of non-Irish subsidiaries, including U.S. subsidiaries, subject to tax at a rate other than the Irish statutory rate.

(3)	Intercompany amounts include cross-territory eliminations, the pre-tax effect of which has been eliminated in arriving at the Company's consolidated loss before taxes.

(4)

During the year ended December 31, 2019, federal tax law change represents federal income tax benefit related to the foreign derived intangible income deductions for 2018 following the publications by the IRS and the Department of Treasury of proposed regulations in March 2019. During the year ended December 31, 2017, federal tax law change resulted in a $21.5 million deferred tax expense related to the reduction in the U.S. federal tax rate from 35% to 21%.

(5)	Represents income or losses of Irish companies subject to tax at a rate other than the Irish statutory rate.

(6)	Other permanent items include, but are not limited to, non-deductible meals and entertainment expenses, non-deductible lobbying expenses, the impact of the tax treatment of the FDA branded prescription drug fee and non-deductible compensation of senior officers of the Company.

Schedule of Reconciliation of Beginning and Ending Amount of Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Unrecognized
(In thousands)	Tax Benefits
Balance, December 31, 2016	$	4,688
Reductions based on tax positions related to prior periods		(47	)
Additions based on tax positions related to the current period		877
Balance, December 31, 2017	$	5,518
Additions based on tax positions related to prior periods		4
Additions based on tax positions related to the current period		559
Balance, December 31, 2018	$	6,081
Additions based on tax positions related to prior periods		38
Additions based on tax positions related to the current period		738
Balance, December 31, 2019	$	6,857