Note 15.    Income Taxes

The following is a summary of the Company’s provision for income taxes for the years ended December 31, 2015, 2014 and 2013:

 

 

United States and foreign income (loss) before income taxes for the years ended December 31, 2015, 2014 and 2013 is as follows:

 

 

The components of net deferred tax assets (liabilities) are as follows:

 

 

Income taxes differs from the amount computed by applying the statutory U.S. Federal income tax rate because of the effect of the following items:

 

 

As part of the Company’s accounting for the acquisitions, a portion of the purchase price was allocated to goodwill. The acquired goodwill is deductible for tax purposes and amortized over fifteen years for income tax purposes. Under GAAP, the acquired goodwill is not amortized in the Company’s financial statements, as such a deferred income tax expense and a deferred tax liability arise as a result of the tax deductibility for this amount for tax purposes but not for financial statement purposes. The resulting deferred tax liability, which is expected to continue to increase over time will remain on the Company’s balance sheet indefinitely unless there is an impairment of the asset.

As of December 31, 2015 and 2014, the Company maintained a valuation allowance against all of its net deferred tax assets, excluding goodwill, attributable to operations in the United States and all other foreign jurisdictions, except for Japan, as the realization was not considered more likely than not.

The net change in the total valuation allowance for the years ended December 31, 2015, 2014 and 2013 was $7,287, $1,754 and $1,048, respectively.

The Company recognizes tax benefits associated with the exercise of SARs and stock options and vesting of RSUs directly to stockholders’ equity only when the tax benefit reduces income tax payable on the basis that a cash tax savings has occurred. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from tax benefits. As of December 31, 2015 and 2014, the Company has not recognized in its deferred tax assets an aggregate of $5,943 and $6,063 of windfall tax benefits associated with the exercise of SARs and stock options and the vesting of RSUs, respectively.

At December 31, 2015 and December 31, 2014, the Company had potentially utilizable federal and state net operating loss tax carryforwards of $18,427 and $10,019, respectively. The net operating loss carryforwards expire at various times through 2034. At December 31, 2015 and December 31, 2014, the Company had potentially utilizable foreign net operating loss carryforwards of $5,932 and $5,642, respectively. The foreign net operating loss carryforwards expire on various dates through 2035.

The utilization of the Company’s net operating losses may be subject to a substantial limitation due to the “change of ownership provisions” under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their utilization.

As of December 31, 2015, the Company has not provided deferred income taxes on the undistributed earnings of its foreign subsidiaries. The amount of such earnings was $8,375. These earnings have been permanently reinvested and the Company does not plan to initiate action that would precipitate the payment of income taxes thereon. It is not practicable to estimate the amount of additional tax that might be payable on these undistributed earnings.

During the years December 31, 2015, 2014 and 2013, the Company recorded no significant unrecognized tax benefits. Due to the existence of the Company’s valuation allowance, the uncertain tax benefits if recognized would not impact the Company’s effective income tax rate. The Company is subject to U.S. federal and state examinations by tax authorities from 2012. The Company does not expect any significant changes to its unrecognized tax positions during the next twelve months.

No interest and penalties related to uncertain tax positions were accrued at December 31, 2015, 2014 and 2013.

The following table is a reconciliation of the beginning and ending amount of unrecognized tax benefits:

 

 

As of December 31, 2015 and 2014, the unrecognized tax benefits have been recorded as a reduction to the Company’s federal and state net operating loss tax carryforwards in deferred tax assets.