Pandora 2016 Annual Report Download - page 107

of state and $4.3 million of foreign net operating loss carryforwards related to acquisitions.
Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes
an "ownership change," the corporation's ability to use its pre-change net operating loss carryforwards and other pre-change
attributes, such as research tax credits, to offset its post-change income may be limited. In general, an "ownership change" will
occur if there is a cumulative change in our ownership by "5-percent shareholders" that exceeds 50 percentage points over a
rolling three-year period. Similar rules may apply under state tax laws. Utilization of our net operating loss and tax credit
carryforwards may be subject to annual limitations due to ownership changes. Such annual limitations could result in the
expiration of our net operating loss and tax credit carryforwards before utilized.
During the twelve months ended December 31, 2015, our valuation allowance increased by $18.8 million. At
December€31, 2014 and 2015, we maintained a full valuation allowance on our net deferred tax assets. The valuation allowance
was determined in accordance with the provisions of Accounting Standards Codification 740 - Income Taxes, which requires an
assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets
are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. Our history of cumulative losses, along with
expected future U.S. losses required that a full valuation allowance be recorded against all net deferred tax assets. We intend to
maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the
valuation allowance.
At December€31, 2014 and 2015 we have unrecognized tax benefits of approximately $5.8 million and $6.9 million. The
increase in our unrecognized tax benefits was primarily attributable to current year activities. A reconciliation of the beginning
and ending amounts of unrecognized tax benefits (excluding interest and penalties) is as follows:
Twelve Months Ended€
€December 31,
2014 2015
(in thousands)
Beginning balance $5,220 $5,793
Increases related to tax positions taken
during a prior year 1,161 —
Decreases related to tax positions taken
during a prior year (1,924)(74)
Increases related to tax positions taken
during the current year 1,336 1,145
Ending balance $5,793 $6,864
The total unrecognized tax benefits, if recognized, would not affect the Company’s effective tax rate as the tax benefit
would increase a deferred tax asset, which is currently offset with a full valuation allowance. We do not anticipate that the
amount of existing unrecognized tax benefits will significantly increase or decrease within the next twelve months. Accrued
interest and penalties related to unrecognized tax benefits are recorded in the provision for income taxes. We did not have such
interest, penalties or tax benefits during the eleven months ended December 31, 2013 and the twelve months ended December
31, 2014 and 2015.
We file income tax returns in the United States, California, other states and international jurisdictions. Tax years 2000 to
2015 remain subject to examination for U.S. federal, state and international purposes. All net operating loss and tax credits
generated to date are subject to adjustment for U.S. federal and state purposes. We are not currently under examination in
federal, state or international jurisdictions.
Table of Contents
Pandora Media,€Inc.
96
10.€€€€€€€€€€€€€€€€€€€€€€ Stock-based Compensation Plans and Awards
Stock Compensation Plans
In 2000, our board of directors adopted the 2000 Stock Incentive Plan, as amended (the "2000 Plan"). In 2004, our board
of directors adopted the 2004 Stock Option Plan (the "2004 Plan"), which replaced the 2000 Plan and provided for the issuance
of incentive and non-statutory stock options to employees and other service providers of Pandora. In 2011, our board of
directors adopted the Pandora Media,€Inc. 2011 Equity Incentive Plan (the "2011 Plan" and, together with the 2000 Plan and the
2004 Plan, the "Plans"), which replaced the 2004 Plan. The Plans are administered by the compensation committee of our board