Pandora 2012 Annual Report Download - page 94

Table of Contents
Pandora Media, Inc.
Notes to Consolidated Financial Statements - Continued
The major components of deferred tax assets and liabilities were as follows:
As of January 31,
2011 2012
(in thousands)
Deferred tax assets:
Net operating loss carryforwards $ 30,640 $ 31,314
Tax credit carryforwards 1,178 1,881
Allowances and other 1,400 2,819
Depreciation and amortization 184 297
Total deferred tax assets 33,402 36,311
Deferred tax liabilities:
Depreciation and amortization (1,995) (2,427)
Total deferred tax liabilities (1,995) (2,427)
Valuation allowance (31,407) (33,884)
Net deferred tax assets $ — $ —
At January 31, 2012, the Company had federal net operating loss carryforwards of approximately $100.4 million, which includes stock-based
compensation deductions of approximately $22.8 million and tax credit carryforwards of approximately $1.3 million. The federal net operating losses and tax
credits expire in years beginning in 2021. At January 31, 2012, the Company had state net operating loss carryforwards of approximately $107.9 million
which expire in years beginning in 2014. In addition, the Company had state tax credit carryforwards of approximately $2.8 million that do not expire. 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 tax 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. We have previously experienced "ownership changes" under
section 382 of the Code and comparable state tax laws. We estimate that approximately $1.7 million of our federal and approximately $2.1 million of our state
net operating losses will expire unused due to the limitation in Section 382 of the Code.
During the fiscal year ended January 31, 2012 the Company's valuation allowance increased by approximately $2.5 million. At January 31, 2011 and
2012, the Company maintained a full valuation allowance on its net deferred tax assets. The valuation allowance was determined in accordance with the
provisions of ASC 740, Accounting for 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. The Company's 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. The Company
intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.
At January 31, 2012, unrecognized tax benefits of approximately $1.4 million, 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. The Company does not anticipate that the amount of
existing unrecognized tax benefit will significantly increase or decrease within the next 12 months. Accrued interest and penalties related to unrecognized tax
benefits are recorded as income tax expenses. The Company did not have such interest, penalties or tax benefits during the fiscal year ended January 31, 2012.
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