NOTE 15.  INCOME TAXES

 

The Company’s foreign operations that are considered to be permanently reinvested have statutory tax rates of 25%.

 

As of December 31, 2014, the Company’s gross deferred tax asset was $73,465.  The Company had recorded a valuation allowance of $16,081, resulting in a net deferred tax asset of $57,384, before deferred tax liabilities of $21,644.  The Company provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2014, because the ultimate realization of those assets did not meet the more likely than not criteria.

 

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 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 interim reporting period.  During the three months ended September 30, 2015, the Company recorded an increase to its valuation allowance of $49,194.  The change in valuation allowance resulted in a discrete charge to income tax expense of $48,335 for the three and nine months ended September 30, 2015.  Certain events and circumstances transpired during the three months ended September 30, 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.  As a result of the POC Disposition that occurred on October 7, 2015, the assets and liabilities of POC have been segregated and reported as held for sale as of September 30, 2015 and December 31, 2014.  The POC Disposition removed a substantial portion of the Company’s projected future taxable income.  Additionally, during the three months ended September 30, 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.

 

As of December 31, 2014, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $167,303 ($294 relates to excess tax benefits related to share based payment compensation, which will not be recorded until an income tax payable exists), $1,337 and $56, respectively.  To the extent the Company has future taxable income, 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.

 

NOLs available to offset taxable income, subject to compliance with Section 382 of the Internal Revenue Code, as amended (the “Code”) begin to expire based upon the following schedule: