Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.1.9
Income Taxes
12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The components of loss before income taxes consist of the following (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Loss before income taxes:
 

 
 

 
 

Domestic
$
(26,271
)
 
$
(18,450
)
 
$
(48,582
)
Foreign
(2,636
)
 
(1,167
)
 
(773
)
Total loss before income taxes
$
(28,907
)
 
$
(19,617
)
 
$
(49,355
)

The provision for income tax expense (benefit) consists of the following (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Current:
 

 
 

 
 

U.S. Federal
$
(122
)
 
$
(627
)
 
$
(2,461
)
State
35

 
28

 
30

Foreign
(96
)
 

 

Total current
(183
)
 
(599
)
 
(2,431
)
Deferred:
 

 
 

 
 

U.S. Federal
(5,693
)
 
(2,475
)
 
6,972

State
(562
)
 
(322
)
 
(106
)
Foreign
(126
)
 

 

Total deferred
(6,381
)
 
(2,797
)
 
6,866

Total provision for income tax expense (benefit)
$
(6,564
)
 
$
(3,396
)
 
$
4,435


Total income tax expense (benefit) differs from the expected income tax expense (benefit), computed by applying the federal statutory rate of 34% to earnings before income taxes as follows (in thousands):
 
Years Ended December 31,
 
2014
 
2013
 
2012
Expected income tax expense (benefit)
$
(9,828
)
 
$
(6,671
)
 
$
(16,805
)
State income taxes, net of federal tax effect
(347
)
 
(549
)
 
(669
)
Change in tax rate
20

 
1

 
69

Federal R&D credit
(88
)
 
(57
)
 

Change in valuation allowance
2,957

 
3,659

 
13,957

Goodwill impairment

 

 
7,554

Foreign tax
690

 
108

 
187

Other, net
32

 
113

 
142

Total provision for income tax expense (benefit)
$
(6,564
)
 
$
(3,396
)
 
$
4,435


The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are presented below (in thousands):
 
December 31,
 
2014
 
2013
Deferred tax assets:
 

 
 

Inventory provisions and uniform capitalization
$
35

 
$
225

Accounts receivable allowances
20

 
73

Fixed assets

 
244

Non-qualified stock option and restricted stock expense
2,176

 
2,367

Deferred maintenance revenue
221

 
726

Loss and credit carryforwards of U.S. subsidiary
19,153

 
15,502

Loss carryforward of foreign subsidiaries
221

 
1,107

Other accruals and reserves
907

 
880

Other
33

 
75

Total deferred tax assets before valuation allowance
22,766

 
21,199

Less valuation allowance
(19,916
)
 
(18,110
)
Total deferred tax assets
$
2,850

 
$
3,089

Deferred tax liabilities:
 

 
 

Acquired intangibles
$
(3,865
)
 
$
(3,029
)
Fixed Assets
(100
)
 

Total deferred tax liabilities
$
(3,965
)
 
$
(3,029
)
Total net deferred tax assets (liabilities)
$
(1,115
)
 
$
60


As of December 31, 2014, the Company had net operating loss carryforwards of $44.0 million for U.S. federal tax purposes. The Company also had $43.9 million of various state net operating loss carryforwards. The loss carryforwards for federal tax purposes will expire between 2023 and 2035 if not utilized. The loss carryforwards for state tax purposes will expire between 2022 and 2035 if not utilized.
As of December 31, 2014, the Company had federal and state research and development credit carryforwards of $2.8 million, net of Section 383 limitations, which will begin to expire in 2022 if not utilized.
As a result of its acquisition of Qumu, Inc. in October 2011, utilization of U.S. net operating losses and tax credits of Qumu, Inc. are subject to annual limitations under Internal Revenue Code Sections 382 and 383, respectively.

During the year ended December 31, 2012, the Company recorded a non-cash charge of approximately $14 million primarily associated with the establishment of a valuation allowance on its U.S. deferred tax assets, including the deferred tax assets established as part of the acquisition of Qumu, Inc. ASC 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence, using a “more likely than not” standard. Accordingly, the Company determined a U.S. valuation allowance is appropriate, except to the extent of carryback potential. The valuation allowance will be reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance.

As a result of Qumu's acquisition of Kulu Valley in October 2014, the Company established a deferred tax asset of approximately $0.2 million related to the tax benefits of acquired loss carryforwards. The net operating losses generated by Kulu Valley approximated $1.1 million and do not expire. The Company believes that it is more likely than not that the availability of deferred tax liabilities established primarily from acquired intangibles and the future results of operations will generate sufficient taxable income to realize the tax benefits related to the deferred tax assets established as part of the acquisition.
The Company generally believes that it is more likely than not that the future results of the operations of its subsidiary in Japan will generate sufficient taxable income to realize the tax benefits related to net deferred tax assets established in 2014 of approximately $0.1 million.
The Company has not provided deferred taxes on unremitted earnings attributable to its international subsidiaries that are considered to be reinvested indefinitely. Accumulated undistributed foreign earnings relate primarily to operations of the Company's subsidiaries in Japan and the U.K., and amount to approximately $1.8 million as of December 31, 2014. The amount of cash, cash equivalent and marketable securities held by the Company's international subsidiaries that are not available to fund domestic operations unless repatriated was $3.8 million as of December 31, 2014. The Company currently does not intend to repatriate the cash and related balances held by its international subsidiaries. However, if circumstances change and these funds are needed to meet cash requirements in the U.S., the Company may be required to accrue and pay U.S. taxes, net of related foreign tax credits, to repatriate these funds. Based on current tax laws and structures, the Company does not believe this would have a material impact on its consolidated financial statements and cash flows.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits for the years ended December 31 is presented in the table below (in thousands):
 
Years Ended December 31,
 
2014
 
2013
Gross unrecognized tax benefits at beginning of year
$
1,036

 
$
1,017

Increases related to:
 

 
 

Prior year income tax positions

 
97

Current year income tax positions
64

 
84

Decreases related to:
 

 
 

Prior year income tax positions - closure of statute of limitations
(200
)
 
(162
)
Gross unrecognized tax benefits at end of year
$
900

 
$
1,036


Included in the balance of unrecognized tax benefits at December 31, 2014 are potential benefits of $8,000 that if recognized, would affect the effective tax rate. The Company does not anticipate that the total amount of unrecognized tax benefits as of December 31, 2014 will change significantly by December 31, 2015.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Total accrued interest and penalties amounted to $1,000 and $18,000 on a gross basis at December 31, 2014 and 2013, respectively, and are excluded from the reconciliation of unrecognized tax benefits presented above. Interest and penalties recognized in the Consolidated Statements of Operations related to uncertain tax positions amounted to a net tax benefit in 2014 of $18,000 and net tax expense in 2013 of $3,000.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2014, the Company was no longer subject to income tax examinations for taxable years before 2013 in the case of U.S. federal taxing authorities, and taxable years generally before 2010 in the case of state taxing authorities, consisting primarily of Minnesota and California.