Rosetta Stone 2013 Annual Report Download - page 99

Table of Contents
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For the year ended December 31, 2013, the Company’s recorded income tax benefit of $1.9 million is primarily attributable to a partial valuation
allowance release of $5.4 million related to the net deferred tax liabilities acquired with the Livemocha and Lexia acquisitions, offset by income related to
current year profits of operations in Canada, Germany, and the U.K., foreign withholding taxes, the tax impact related to amortization of indefinite lived
intangibles, and an inability to recognize tax benefits associated with current year losses associated with operations in Brazil, Korea, Japan, and the U.S.
During the second quarter of 2012, the Company established a full valuation allowance to reduce the deferred tax assets of the Korea subsidiary
resulting in a non-cash charge of $0.4 million. During the third quarter of 2012, the Company established a full valuation allowance to reduce the deferred tax
assets of its operations in Brazil, Japan, and the U.S., resulting in a non-cash charge of $0.4 million, $2.1 million, and $23.1 million, respectively.
Additionally, no tax benefits were provided on 2012 losses incurred in foreign jurisdictions where the Company has determined a valuation allowance is
required. As of December 31, 2012, a full valuation allowance was provided for domestic and certain foreign deferred tax assets in those jurisdictions where
the Company has determined the deferred tax assets will more likely than not be realized.
As of December 31, 2013, the Company had federal tax NOL carryforwards in the amount of $20.0 million in the U.S. that if not utilized, would begin
to expire in 2031. During the year ended December 31, 2013 the Company utilized $0.8 million of state NOL’s acquired by Lexia. As of December 31, 2013,
the Company had state tax NOL carryforwards in the amount of $20.0 million in the U.S. that if not utilized, would begin to expire in 2017. Additionally, the
Company has foreign tax credit carryforwards of $0.6 million, which if not utilized, would expire in 2022.
As of December 31, 2013, the Company had foreign net operating loss carryforwards related to operations in Japan of $7.3 million which expire in
2020, Brazil of $4.0 million which have an unlimited carryforward, and Korea of $6.2 million which expire in 2024.
If future events change the outcome of the Company's projected return to profitability, a valuation allowance may not be required to reduce the deferred
tax assets. The Company will continue to assess the need for a valuation allowance.
The components of income (loss) before income taxes and the provision for taxes on income consists of the following (in thousands):
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


United States
$(14,360)
$(933)
$(32,708)
Foreign
(3,658)
(4,143)
5,289
Loss before income taxes
$(18,018)
$(5,076)
$ (27,419)
Current:
Federal
$155
$ 288
$(8,758)
State
123
333
(582)
Foreign
1,709
2,150
3,458
Total current
$1,987
$2,771
$(5,882)
Deferred:
Federal
$ (3,972)
$ 20,075
$(498)
State
(112)
3,278
(857)
Foreign
213
2,785
(532)
Total deferred
(3,871)
26,138
(1,887)
Provision (benefit) for income taxes
$(1,884)
$28,909
$(7,769)
Reconciliation of income tax provision (benefit) computed at the U.S. federal statutory rate to income tax expense is as follows (in thousands):
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