|12 Months Ended|
Dec. 31, 2016
|Income Taxes [Abstract]|
NOTE 15. INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company is subject to income taxes in certain foreign jurisdictions which creates deferred tax assets and liabilities in these jurisdictions. The Company has netted these deferred tax assets and deferred tax liabilities by jurisdiction. Deferred income tax assets are reviewed for recoverability and valuation allowances are provided when it is more likely than not that a deferred tax asset is not realizable in the future.
The Company’s foreign operations that are considered to be permanently reinvested have statutory tax rates of approximately 25%.
The Company recognizes interest expense and penalties related to income tax matters in income tax expense.
Consolidated (loss) income from continuing operations before income taxes consists of the following:
The components of the provision (benefit) for income taxes attributable to continuing operations consist of the following:
The allocation of income tax expense (benefit) was as follows:
The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the Company’s financial statements:
Deferred income tax assets and liabilities are determined based on the difference between the financial reporting carrying amounts and tax bases of existing assets and liabilities and operating loss and tax credit carryforwards. Significant components of the Company’s existing deferred income tax assets and liabilities as of December 31, 2016 and 2015 are as follows:
As of December 31, 2016, the Company’s gross deferred tax asset was $75,416. The Company has recorded a valuation allowance of $67,662, resulting in a net deferred tax asset of $7,754, before deferred tax liabilities of $16,720. The Company has provided a valuation allowance against a portion of the deferred tax assets as of December 31, 2016, because the ultimate realization of those assets does not meet the more likely than not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheet and the judgment required in determining the Company’s future taxable income. The need for a valuation allowance is reassessed at each reporting period. During the year ended December 31, 2015, the Company recorded an increase to its valuation allowance of $48,858. Certain events and circumstances as explained below transpired during the third quarter of the year ended December 31, 2015, which caused the Company to conclude that the realization of some portion of its deferred tax assets does not satisfy the more-likely-than-not threshold. The POC Disposition removed a substantial portion of the Company’s projected future taxable income. Additionally, during the year ended December 31, 2015, the Company made the decision to scale back its apparel initiative and announced a realignment of resources. The totality of these events and circumstances impedes management’s ability to forecast future long-term taxable income to the extent that it does not meet the more-likely-than-not threshold.
The net change in the valuation allowance for deferred income tax assets was $3,176, $48,858, and ($1,023) during the years ended December 31, 2016, 2015, and 2014, respectively. A roll forward of our valuation allowance for deferred income tax assets for the years ended December 31, 2016, 2015, and 2014 is as follows:
As of December 31, 2016, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $172,419 ($270 relates to excess tax benefits related to share based payment compensation, which will not be realized until an income tax payable exists), $3,407 and $315, respectively. The Company believes its U.S. Federal net operating loss (“NOL”) will substantially offset its future U.S. Federal income taxes, excluding the amount subject to U.S. Federal Alternative Minimum Tax (“AMT”). AMT is calculated as 20% of AMT income. For purposes of AMT, a maximum of 90% of income is offset by available NOLs. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F. income and will be offset with the NOL.
NOLs available to offset taxable income, subject to compliance with Section 382 of the Code, begin to expire based upon the following schedule:
Tax positions are recognized in the financial statements when it is more-likely-than-not that the position will be sustained upon examination by the tax authorities. The Company conducts its business globally. As a result, the Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions, and are subject to examination for the open tax years in the U.S. federal and state jurisdictions of 2013-2015 and in the foreign jurisdictions of 2005-2015. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended December 31, 2016 and 2015 and are follows:
Included in the balance of total unrecognized tax benefits at December 31, 2016 and 2015, are potential benefits of $1,135 and $322, respectively, that if recognized, would affect the effective rate, subject to impact of valuation allowance, on income from continuing operations. Unrecognized tax benefits that reduce a net operating loss, similar tax loss or tax credit carryforward are presented as a reduction to deferred income taxes. As a result, the Company classified $327 and $230 of its unrecognized tax benefit as a reduction to deferred tax assets as of December 31, 2016 and 2015, respectively.
The Company expects approximately $738 of tax and $181 of interest which was recorded during the year ended December 31, 2016, to reverse in the next 12 months on an uncertain tax position associated with the formal closure and liquidation of the Company’s Black Diamond Equipment foreign subsidiary in Zhuhai, China. In the U.S., there is not a formal federal or state audit; however, the Company believes that a portion of its position on research and development credits do not meet the more-likely-than-not criteria, and therefore has recorded a tax reserve of $397 and interest expense of $4 as of December 31, 2016.
Interest and penalty expense recognized related to uncertain tax positions amounted to $183, $2, and $0 during the years ending December 31, 2016, 2015, and 2014, respectively. Total accrued interest and penalties as of December 31, 2016 and 2015 were $185 and $2, respectively, and were included in accounts payable and accrued liabilities.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef