Avid 2014 Annual Report Download - page 87

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Net deferred tax assets (liabilities) consisted of the following at December 31, 2014 and 2013 (in thousands):
December 31,
2014 2013
Deferred tax assets:
Tax credit and net operating loss carryforwards $ 290,523 $ 244,379
Allowances for bad debts 231 277
Difference in accounting for:
Revenues 63,916 98,838
Costs and expenses 29,004 29,784
Inventories 7,004 9,209
Acquired intangible assets 13,667 17,726
Gross deferred tax assets 404,345 400,213
Valuation allowance (398,733) (396,143)
Deferred tax assets after valuation allowance 5,612 4,070
Deferred tax liabilities:
Difference in accounting for:
Costs and expenses (3,540) (1,712)
Gross deferred tax liabilities (3,540) (1,712)
Net deferred tax assets $ 2,072 $ 2,358
Recorded as:
Current deferred tax assets, net 322 522
Long-term deferred tax assets, net 1,886 2,415
Current deferred tax liabilities, net — (14)
Long-term deferred tax liabilities, net (136) (565)
Net deferred tax assets $ 2,072 $ 2,358
Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and the temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. The ultimate realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income
in the applicable tax jurisdictions. Based on the magnitude of the deferred tax assets at December 31, 2014 and 2013 and the level of
historical U.S. tax losses, management has determined that the uncertainty regarding the realization of these assets warranted a full
valuation allowance at December 31, 2014 and 2013. The change in the valuation allowance totaled $2.6 million and $0.5 million and
$(35.3) million for the years ended December 31, 2014, 2013 and 2012, respectively.
For U.S. federal and state income tax purposes at December 31, 2014, the Company had tax credit carryforwards of $50.2 million,
which will expire between 2016 and 2034, and net operating loss carryforwards of $693.0 million, which will expire between 2019
and 2034. The federal net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of
ownership rules of the Internal Revenue Code. The Company completed an assessment at March 31, 2014 regarding whether there
may have been a Section 382 ownership change and concluded that it is more likely than not that none of the Company’s net operating
loss and tax credit amounts are subject to any Section 382 limitation.
Additionally, the Company has foreign net operating loss carryforwards of $23.7 million and tax credit carryforwards of $4.4 million
that begin to expire in 2029. The Company has determined there is uncertainty regarding the realization of a portion of these assets
and has recorded a valuation allowance against $19.8 million of net operating losses and $4.4 million of tax credits at December 31,
2014.
The Company’s assessment of the valuation allowance on the U.S. and foreign deferred tax assets could change in the future based on
its levels of pre-tax income and other tax related adjustments. Removal of the valuation allowance in whole or in part would result in
a non-cash reduction in income tax expense during the period of removal.