Anuvu Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2015

United States and foreign income (loss) from continuing operations before income taxes was as follows (in thousands):



	December 31,			December 31,			December 31,
	2015			2014			2013
United States	$	(9,949	)	$	(51,809	)	$	(99,503	)
Foreign	9,444			5,189			(13,399		)
Pretax loss from operations	$	(505	)	$	(46,620	)	$	(112,902	)

The income tax provision based on the income (loss) from continuing operations was as follows (in thousands):



	December 31,			December 31,			December 31,
	2015			2014			2013
Current:
Federal	$	932		$	2,724		$	1,878
State	355			114			7
Foreign	6,786			12,804			4,858
	$	8,073		$	15,642		$	6,743
Deferred:
Federal	$	(2,691	)	$	(451	)	$	(2,742	)
State	—			37			3
Foreign	(3,761		)	(4,654		)	(2,165		)
	(6,452		)	(5,068		)	(4,904		)
Total provision	$	1,621		$	10,574		$	1,839

Income taxes differ from the amounts computed by applying the federal income tax rate 35%. A reconciliation of this difference is as follows (in thousands):



	December 31,			December 31,			December 31,
	2015			2014			2013
Income tax benefit at Federal statutory rate	$	(177	)	$	(16,317	)	$	(39,512	)
State income tax, net of federal benefit	418			4			(384		)
Permanent items	5,276			3,221			25,374
Stock compensation	375			1,575			(82		)
Tax credits	(586		)	(626		)	(3,093		)
Other	746			(1,376		)	1,463
Uncertain tax positions	708			2,597			95
Withholding taxes	3,431			3,386			2,831
Rate differential	(3,200		)	(2,050		)	5,783
Rate adjustment	(1,371		)	—			60
Change in valuation allowance	(3,999		)	20,160			9,304
	$	1,621		$	10,574		$	1,839

The differences in the effective tax rates were primarily due to foreign income taxes resulting from the Company’s foreign subsidiaries’ contribution to pretax income, changes in the ratio of permanent differences to income before income taxes and withholding taxes. The 2015 rate includes a nonrecurring benefit for the release of valuation allowances previously provided against certain US deferred tax asset resulting from the Company’s restructuring undertaken during the year.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred taxes were as follows (in thousands):



	December 31,			December 31,
	2015			2014
Deferred tax assets:
Intangible assets	$	7,624		$	11,031
Allowances and reserves	2,925			2,843
Accrued expenses	8,398			4,134
Inventory	567			567
Investments in affiliates	443			—
Stock compensation	4,527			2,611
Other	2,589			—
Tax credits	4,714			5,358
Net operating losses	38,923			55,944
Total gross deferred tax asset	70,710			82,488
Less valuation allowance	(53,199		)	(73,659		)
Net deferred tax assets	$	17,511		$	8,829

Deferred tax liabilities:
Fixed assets	$	(2,756	)	$	(1,185	)
Intangible assets	(28,240		)	(24,847		)
Investments in affiliates	—			(47		)
Other	(8,136		)	(1,095		)
Total deferred tax liabilities:	(39,132		)	(27,174		)
Net deferred tax liabilities	$	(21,621	)	$	(18,345	)



	December 31,			December 31,
Presented on the balance sheet as follows (in thousands):	2015			2014
Deferred tax assets:
Net current deferred assets	$	—		$	4,719
Net noncurrent deferred assets	703			346
Total deferred tax assets	$	703		$	5,065

Deferred tax liabilities:
Net current deferred tax liabilities	$	—		$	(80	)
Net noncurrent deferred tax liabilities	(22,324		)	(23,330		)
Total deferred tax liabilities	$	(22,324	)	$	(23,410	)

The Company has excluded excess windfall tax benefits resulting from stock option exercises as components of the Company’s gross deferred tax assets and corresponding valuation allowance disclosures, as tax attributes related to such windfall tax benefits should not be recognized until they result in a reduction of taxes payable. The tax effected amount of gross unrealized net operating loss carryforwards, and their corresponding valuation allowances resulting from stock option exercises was $1.7 million at December 31, 2015; the corresponding gross amount is $4.8 million. When realized, excess windfall tax benefits are credited to additional paid-in capital.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. As of December 31, 2015, the Company’s tax years for 2011 through 2014 are subject to examination by the tax authorities. With certain exceptions, as of December 31, 2015, the Company’s tax returns for certain past years are still subject to examination by taxing authorities and the use of NOL carryforwards in future periods could trigger a review of attributes and other tax matters in years that are not otherwise subject to examination..

The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.

As of December 31, 2015, the Company has recorded a valuation allowance of $49.5 million and $3.7 million against its domestic and certain foreign deferred tax assets, respectively, due to the uncertainties over its ability to realize future taxable income in those jurisdictions. As of December 31, 2014, the valuation allowance on domestic and foreign deferred tax assets were $70.9 million and $2.8 million, respectively.

As of December 31, 2015 and December 31, 2014, the Company had federal net operating loss carry-forwards ("NOLs") of $91.9 million and $128.4 million, respectively. In addition, the Company had State net operating loss carry-forwards of $40.5 million and $64.8 million, respectively. The Company’s federal and State net operating losses will begin to expire during the fiscal years ending in December 31, 2026 and 2017, respectively. These NOLs may be used to offset future taxable income, to the extent the Company generates any taxable income, and thereby reduce or eliminate future federal income taxes otherwise payable.

The Internal Revenue Code of 1986, as amended, imposes substantial restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 (“IRC Section 382”). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Due to the effects of historical equity issuances, the Company has determined that the future utilization of a portion of its net operating losses is limited annually pursuant to IRC Section 382. The Company has determined that none of its net operating losses will expire because of the annual limitation.

As of December 31, 2015 U.S. taxes were not provided for on the cumulative earnings of the Company’s foreign subsidiaries as the Company has invested or expects to invest the undistributed earnings indefinitely. If in the future these earnings are repatriated to the United States, or if the Company determines that the earnings will be remitted in the foreseeable future, additional tax provisions may be required. It is not practicable to calculate the deferred taxes associated with these earnings because of the variability of multiple factors that would need to be assessed at the time of any assumed repatriation; however, foreign tax credits may be available to reduce federal income taxes in the event of distribution.

As of December 31, 2015 and 2014, the liability for income taxes associated with uncertain tax positions was $4.6 million and $4.2 million, respectively.

The net increase in the liabilities during 2015 is primarily attributable to activity related to ongoing examinations by the Canada Revenue Agency regarding the taxability and presence of the subsidiary’s locations in Dubai and whether income derived from Dubai would have constituted taxable earnings subject to Canadian income tax. The net amounts of $4.5 million and $3.2 million as of December 31, 2015 and 2014, respectively, if recognized, would favorably affect the Company’s effective tax rate.

The following table summarizes the changes to unrecognized tax benefits for the years ended December 31, 2015 and 2014 (in thousands):



	2015		2014
Balance at beginning of year	$	4,237	$	2,831
Reversal of prior tax positions	—		(1,795		)
Additions based on tax positions related to the current year	400		3,201
Balance at end of year	$	4,637	$	4,237

The Company’s continuing practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense. As of December 31, 2015 and 2014, the Company had accrued $1.4 million and $1.0 million, respectively, of interest and penalties related to uncertain tax positions.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions may significantly decrease within the next 12 months. These changes may be the result of ongoing audits.

The following table summarizes the changes in the valuation allowance balance for the years ended December 31, 2015, 2014 and 2013 (in thousands):



Balance at December 31, 2012	$	39,122
Acquired valuation allowance from purchased acquisitions	2,356
Increase in valuation allowance	9,304
Balance at December 31, 2013	$	50,782
Increase in valuation allowance	22,877
Balance at December 31, 2014	$	73,659
Acquired valuation allowance from purchased acquisitions	(1,400		)
Decrease in valuation allowance	(19,060		)
Balance at December 31, 2015	$	53,199