Rosetta Stone 2015 Annual Report Download - page 94

Table of Contents
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The following table summarizes the significant components of the Company's deferred tax assets and liabilities as of December 31, 2015 and 2014 (in
thousands):






Deferred tax assets:
Inventory
$ 564
$ 535
Net operating and capital loss carryforwards
48,334
27,637
Deferred revenue
13,908
12,447
Accrued liabilities
9,780
12,890
Stock-based compensation
4,656
5,760
Amortization and depreciation
31
—
Bad debt reserve
398
501
Foreign and other tax credits
1,517
1,283
Gross deferred tax assets
79,188
61,053
Valuation allowance
(70,464)
(53,809)
Net deferred tax assets
8,724
7,244
Deferred tax liabilities:
Goodwill and indefinite lived intangibles
(4,782)
(3,465)
Deferred sales commissions
(7,337)
(5,714)
Prepaid expenses
(625)
(555)
Amortization and depreciation
—
(1,337)
Foreign currency translation
(973)
(391)
Other
(5)
(5)
Gross deferred tax liabilities
(13,722)
(11,467)
Net deferred tax liabilities
$ (4,998)
$ (4,223)
For the year ended December 31, 2015, the Company recorded income tax expense of $1.2 million primarily related to current year operations in
Germany and the UK and the tax impact of the amortization of indefinite lived intangibles, and the inability to recognize tax benefits associated with current
year losses of operations in all other foreign jurisdictions and in the U.S. due to the valuation allowance recorded against the deferred tax asset balances of
these entities. These tax expenses were partially offset by tax benefits related to current year losses (excluding the Consumer Fit Brains goodwill impairment)
in Canada. The goodwill that was impaired is not deductible for tax. Additionally, tax benefits were recorded related to the reversal of accrued withholding
taxes as a result of an intercompany transaction.
For the year ending December 31, 2014, the Company recorded an income tax benefit of $6.5 million primarily resulting from the tax benefits related
to the goodwill impairment taken during the first quarter of 2014 related to the ROW Consumer reporting unit, the goodwill impairment taken during the
fourth quarter of 2014 related to the North America Consumer Language reporting unit, and current year losses in Canada and France. The goodwill that was
impaired related to acquisitions from prior years, a portion of which resulted in a tax benefit as a result of writing off a deferred tax liability previously
recorded (i.e., goodwill had tax basis and was amortized for tax). These tax benefit amounts were partially offset by income tax expense related to profits from
certain foreign operations and foreign withholding taxes. The tax benefits were also partially offset by the tax expense related to the tax impact of
amortization of indefinite lived intangibles, and the inability to recognize tax benefits associated with current year losses of operation in all other foreign
jurisdictions and in the U.S. due to the valuation allowance recorded against the deferred tax asset balances of these entities.
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,
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