Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

United States and foreign income (loss) from continuing operations before income taxes was as follows (in thousands):
 
 December 31,
 
 December 31,
 
 December 31,
 
2013
 
2012
 
2011
United States
$
(99,503
)
 
$
(42,803
)
 
$
(18,701
)
Foreign
(13,399
)
 
—

 
—

Pretax loss from operations
$
(112,902
)
 
$
(42,803
)
 
$
(18,701
)


The income tax provision (benefit) based on the income (loss) from continuing operations was as follows (in thousands):
 
 December 31,
 
 December 31,
 
 December 31,
 
2013
 
2012
 
2011
Current:
 
 
 
 
 
Federal
$
1,878

 
$
—

 
$
—

State
7

 
—

 
—

Foreign
4,858

 
—

 
—

 
$
6,743

 
$
—

 
$
—

Deferred:
 
 
 
 
 
Federal
$
(2,742
)
 
$
—

 
$
—

State
3

 
—

 
—

Foreign
(2,165
)
 
—

 
—

 
(4,904
)
 
—

 
—

Total provision
$
1,839

 
$
—

 
$
—



The Company’s statutory tax rates vary by location, and are most influenced by the United States at 35% Federal and 2% from states, Germany at 33%, the United Kingdom at 23% and Canada at 27%. The income tax provision (benefit) from continuing operations differs from the amount obtained by applying the Federal statutory tax rate as follows (in thousands):
 
 December 31,
 
 December 31,
 
 December 31,
 
2013
 
2012
 
2011
Income tax provision (benefit) at Federal statutory rate
$
(39,512
)
 
$
(14,553
)
 
$
(6,358
)
State income tax, net of federal benefit
(384
)
 
(850
)
 
(547
)
Permanent items
25,374

 
4,776

 
148

Stock compensation
(82
)
 
315

 
—

Tax credits
(3,093
)
 
(125
)
 
(303
)
Other
1,463

 
—

 
—

Uncertain tax positions
95

 
—

 
—

Withholding taxes
2,831

 
—

 
—

Rate differential
5,783

 
—

 
—

Rate adjustment
60

 
—

 
858

Change in valuation allowance
9,304

 
10,437

 
6,202

 
$
1,839

 
$
—

 
$
—



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,
 
2013
 
2012
Deferred tax assets:
 
 
 
Intangible assets
$
6,596

 
$
5,520

Allowances and reserves
294

 
3

Accrued expenses
2,505

 
342

Inventory
1,053

 
465

Stock compensation
980

 
403

Tax credits
4,309

 
2,013

Net operating losses
39,282

 
30,657

Total gross deferred tax asset
55,019

 
39,403

Less valuation allowance
(50,782
)
 
(39,122
)
Net deferred tax assets
$
4,237

 
$
281

 
 
 
 
Deferred tax liabilities:
 
 
 
Fixed assets
$
(1,385
)
 
$
(279
)
Intangible assets
(25,422
)
 
—

Investments in affiliates
(51
)
 
—

Other
(25
)
 
(2
)
Total deferred tax liabilities:
(26,883
)
 
(281
)
Net deferred tax assets (liabilities)
$
(22,646
)
 
$
—


 
 December 31,
 
 December 31,
Presented on the balance sheet as follows (in thousands):
2013
 
2012
Deferred tax assets:
 
 
 
Net current deferred assets
$
3,252

 
$
—

Net noncurrent deferred assets
480

 
—

Total deferred tax assets
$
3,732

 
$
—

 
 
 
 
Deferred tax liabilities:
 
 
 
Net current deferred tax liabilities
$
(1,192
)
 
$
—

Net noncurrent deferred tax liabilities
(25,186
)
 
—

Total deferred tax liabilities
$
(26,378
)
 
$
—



In connection with the acquisition of AIA and IFES, the Company recorded net deferred tax liabilities of $22.2 million and $7.0 million, respectively.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. As of December 31, 2013, the Company’s tax years for 2012, 2011 and 2010 are subject to examination by the tax authorities. With certain exceptions, as of December 31, 2013, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2010.  Tax year 2009 was open as of December 31, 2012.
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, 2013, the Company has recorded a valuation allowance of $48.9 million and $1.9 million against its domestic and foreign deferred tax assets, respectively, due to the uncertainties over its ability to realize future taxable income in those jurisdictions. As of December 31, 2012, the valuation allowance on domestic and foreign deferred tax assets were $39.1 million and $0, respectively.

As of December 31, 2013 and December 31, 2012, the Company had federal net operating loss carry-forwards ("NOLs") of $102.2 million and $81.0 million, respectively, and state net operating loss carry-forwards of $58.9 million and $54.2 million, respectively, which losses will begin to expire during the fiscal years ending in December 31, 2026 and 2014, 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. Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50% over a three year period. In the event that an ownership change has occurred, or were to occur, utilization of the Company's NOLs would be subject to an annual limitation under Section 382 as determined by multiplying the value of the Company's stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused annual limitation may be carried over to later years. The Company could experience an ownership change under Section 382 as a result of events in the past in combination with events in the future. If so, the use of the Company's NOLs, or a portion thereof, against future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of the NOLs before utilization. Therefore, the Company could be liable for income taxes sooner than otherwise would be true if the Company were not subject to Section 382 limitations. The Company is performing a study to determine the extent of the limitation, if any. Any carry-forwards that expire prior to utilization as a result of such limitations will be removed, if applicable, from deferred tax assets with a corresponding reduction of the valuation allowance.

As of December 31, 2013, the Company intends to reinvest the foreign earnings of its subsidiaries on an indefinite basis. As a result, deferred taxes have not been established for unremitted earnings of foreign subsidiaries. As of December 31, 2013, the Company has not quantified the amount of unremitted earnings and the related taxes associated with the unremitted earnings.

The Company is subject to the accounting guidance for uncertain income tax positions. The Company's policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of income tax expense. The Company assumed and recorded approximately $3.2 million of liabilities for uncertain tax position including related interest and penalties as a result of Business Combinations in 2013. Included in the $3.2 million liability at December 31, 2013 is an estimate for potential claims by the Canadian Revenue Agency (the “CRA”), who is currently investigating one of AIA’s Canadian subsidiaries for the tax years 2008 through 2012. The CRA is questioning the taxability and presence of the subsidiary’s locations in Dubai, United Arab Emirates, and whether income derived from Dubai would have constituted taxable earnings subject to Canadian income tax for the tax year ended December 31, 2008.

No uncertain income tax positions were recorded during 2011 or 2012, and the Company does not expect its uncertain tax position to materially change through the end of 2014. As of December 31, 2013, the Company has recorded a $3.4 million cumulative liability for uncertain income tax positions including accumulated interest and penalties of $0.6 million. Approximately $1.2 million of uncertain tax positions, if reversed, would result in a tax benefit.

The following table summarizes the changes to unrecognized tax benefits for the year ended December 31, 2013 (in thousands):

Balance at December 31, 2012
$
—

Additions from business combinations
2,569

Additions based on tax positions related to the current year
262

Balance at December 31, 2013
$
2,831


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

Balance at December 31, 2011
$
28,480

Increase in valuation allowance
10,642

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