TeleNav 2015 Annual Report Download - page 63

Table of Contents
The usage of our remaining U.S. federal and state loss carryforwards at June 30, 2015 of approximately $7.5 million and $10.9 million,
respectively, is substantially limited each fiscal year by Section 382 of the Internal Revenue Code.
As of June 30, 2015 , our cumulative unrecognized tax benefit was $6.1 million , of which $4.4 million was netted against deferred tax
assets. Included in the other long-term liabilities are unrecognized tax benefits at June 30, 2015 of $1.7 million that, if recognized, would affect
the annual effective tax rate.
We believe it is reasonably possible that the gross unrecognized tax benefits as of June 30, 2015 could decrease (whether by payment,
release, or a combination of both) by approximately $1.3 million in the next 12 months. We recognize interest and penalties related to
unrecognized tax benefits as part of our provision for income taxes. We had $0.5 million and $0.6 million accrued for the payment of interest
and penalties at June 30, 2015 and 2014 , respectively.
All available evidence, both positive and negative, was considered to determine whether, based upon the weight of the evidence, a
valuation allowance for deferred tax assets is needed. In fiscal 2015, we released the valuation allowance on deferred tax assets, net of liabilities,
in Germany due to cumulative net income, expectation of continued profits, and continued growth and sustainability of the European business.
In fiscal 2015, we maintained a valuation allowance on our U.S. deferred tax assets, net of liabilities, since the assets are not more likely
than not to be realized based upon our assessment of all positive and negative evidence. Realization of deferred tax assets is dependent upon
future taxable earnings, the timing of which is uncertain. Due to losses in fiscal 2014 and 2015, and expected losses in fiscal 2016 and
potentially future years in the U.S., we maintained a valuation allowance on deferred tax assets in the U.S. Due to foreign operating losses in
previous years and continued foreign earnings volatility, we continued to maintain a full valuation allowance for our foreign deferred tax assets
in China, Brazil and the United Kingdom. Our valuation allowance increased from the prior fiscal year by approximately $4.7 million , $10.1
million and $0.7 million in fiscal 2015 , 2014 and 2013 , respectively. The $10.1 million increase in our valuation allowance in fiscal 2014
included a $7.4 million valuation allowance against deferred tax assets in the U.S.
On December 31, 2014, the research and development credit expired for federal tax purposes. The Tax Increase Prevention Act of 2014
extended the research and development credit for one year until December 31, 2014. Although the research and development credit has been
extended every year since enactment, a tax benefit cannot be recorded for the expired period until an extension has been passed and signed by
the President. If and when an extension is passed and signed with retroactive effect, a retroactive tax benefit will be recorded in the period the
extension is passed and signed. We have recorded a tax benefit for the federal research and development credit through December 31, 2014.
We file income tax returns with the Internal Revenue Service, or IRS, California, various states and foreign tax jurisdictions in which we
have subsidiaries. The statute of limitations remains open for fiscal 2012 through fiscal 2014 in the U.S., for fiscal 2011 through fiscal 2014 in
state jurisdictions, and for fiscal 2010 through fiscal 2014 in foreign jurisdictions. Fiscal years outside the normal statute of limitations remain
open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in
subsequent years when utilized.
Comparison of the fiscal years ended June 30, 2014 and 2013
Revenue, cost of revenue and gross profit .
Consolidated overview . Product revenue increased 5% to $72.7 million in fiscal 2014 from $69.2 million in fiscal 2013. The increase was
due primarily to increased royalty revenue from automotive navigation solutions we provide for Ford vehicles, including the launch of our
solutions in additional Ford and Lincoln models and further geographic distribution. Services revenue decreased 37% to $77.6 million in fiscal
2014 from $122.6 million in fiscal 2013. The decrease in services revenue was due primarily to lower subscription fees resulting from decreases
in the number of paying subscribers for mobile navigation services, partially offset by an increase in advertising revenue.
Our cost of product revenue decreased 4% to $36.8 million in fiscal 2014 from $38.2 million in fiscal 2013. The decrease was due
primarily to a decrease in amortization of capitalized software and recognition of deferred costs, partially offset by an increase in third party
content costs associated with the increased royalty revenue from automotive navigation solutions. Our cost of services revenue decreased 22%
to
$24.1 million in fiscal 2014 from $30.9 million
in fiscal 2013. The decrease was due primarily to a decrease in cost of mobile navigation revenue
associated with the decline in such revenue, partially offset by an increase in amortization expense, primarily related to developed technology
acquired from Thinknear and skobbler.
Our gross profit decreased to $89.5 million in fiscal 2014 from $122.7 million in fiscal 2013. Our gross margin decreased to 60% in fiscal
2014 from 64%
in fiscal 2013. The decrease in gross margin was primarily due to lower services revenue and the increased proportion of product
revenue contributed from our on-board automotive navigation solutions provided to our
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