Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

16. Income Taxes

 Income Tax Expense

The components of the Company’s income before income taxes and our provision for (benefit from) income taxes consist of the following:

	Years ended December 31,
	2014			2013			2012
Income (loss) before income taxes
Domestic	$	63,231,721		$	33,060,976		$	26,170,313
Foreign		(1,726,700	)		(581,445	)		(6,642,892	)
	$	61,505,021		$	32,479,531		$	19,527,421

	Years ended December 31,
	2014			2013			2012
Provision for (benefit from) income taxes:
Current provision:
Federal	$	18,301,334		$	8,024,303		$	7,594,287
State		3,894,577			1,580,963			885,958
Foreign		192,268			94,136			(188,650	)
		22,388,179			9,699,402			8,291,595
Deferred provision:
Federal		1,153,024			2,374,850			776,486
State		121,376			114,546			602,447
Foreign		(477,037	)		(283,788	)		(1,900,567	)
		797,363			2,205,608			(521,634	)
Total provision	$	23,185,542		$	11,905,010		$	7,769,961

Deferred Tax Assets and Liabilities

Significant components of the Company’s deferred tax assets and liabilities consist of the following:

	December 31,
	2014		2013
Deferred tax assets:
Net operating loss carry forward, foreign	$	2,292,023	$	2,578,640
Stock-based compensation expense		755,044		1,358,554
Accrued expenses and other		856,871		649,402
Inventory reserve		333,842		283,996
Deferred revenue		23,854		852,207
Tax credit carry forward		45,621		19,967
Deferred tas assets	$	4,307,255	$	5,742,766

	December 31,
	2014			2013
Deferred tax liabilities:
Acquisition-related Intangibles	$	(4,826,937	)	$	(6,056,162	)
Depreciation		(7,221,440	)		(6,964,428	)
Deferred tax liabilities	$	(12,048,377	)	$	(13,020,590	)

Tax Rate

The reconciliation between the U.S. federal statutory rate and our effective rate is summarized as follows:

	Years ended December 31,
	2014			2013			2012
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State tax expense, net of federal benefit		4.9	%		4.8	%		6.4	%
Permanent items, including nondeductible expenses		0.1	%		(0.2	%)		0.9	%
State investment tax credit		(0.1	%)		(0.1	%)		(0.2	%)
Federal, state and foreign research and development credits		(0.7	%)		(0.5	%)		(1.2	%)
Foreign rate differential		0.2	%		0.1	%		2.5	%
Domestic production deduction		(1.7	%)		(2.4	%)		(3.6	%)
Effective income tax rate		37.7	%		36.7	%		39.8	%

As of December 31, 2014, the Company had NOL’s for income tax purposes in Italy of $8,334,628 with no expiration date.

In connection with the preparation of the financial statements, the Company performed an analysis to ascertain if it was more likely than not that it would be able to utilize, in future periods, the net deferred tax assets associated with its NOL carry-forward. The Company has concluded that the positive evidence outweighs the negative evidence and, thus, that the deferred tax assets not otherwise subject to a valuation allowance are realizable on a “more likely than not” basis. As such, the Company has not recorded a valuation allowance at December 31, 2014 or 2013.

Accounting for Uncertainty in Income Taxes

A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:

	Years ended December 31,
	2014		2013			2012
Unrecognized tax benefit, beginning of year	$	-	$	56,170		$	56,170
Tax positions related to current year		-		-			-
Tax positions related to prior years		-		-			38,329
Statute expirations		-		(56,170	)		(38,329	)
Unrecognized tax benefit, end of year	$	-	$	-		$	56,170

In the normal course of business, Anika and its subsidiaries may be periodically examined by various taxing authorities. The Company files income tax returns in the U.S. federal jurisdiction, in certain U.S. states, and in Italy. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The 2011 through 2014 tax years remain subject to examination by the IRS and other taxing authorities for U.S. federal and state tax purposes. The 2010 through 2014 tax years remain subject to examination by the appropriate governmental authorities for Italy.

The Company does not anticipate experiencing any significant increases or decreases in our unrecognized tax benefits within the twelve months following December 31, 2014.

The Company incurred expenses related to stock-based compensation in 2014, 2013, and 2012 of $1,607,421, $1,268,070, and $1,151,199, respectively. Accounting for the tax effects of certain stock-based awards requires that the Company establish a deferred tax asset as the compensation expense is recognized for financial reporting prior to recognizing the related tax deduction upon exercise of the awards. The gross tax benefit recognized in the consolidated statement of operations related to stock-based compensation totaled $3,134,425, $1,984,280, and $285,068 in 2014, 2013, and 2012, respectively.

Upon the settlement of certain stock-based awards (i.e., exercise, vesting, forfeiture, or cancellation), the actual tax deduction is compared with cumulative financial reporting compensation cost and any excess tax deduction related to these awards is considered a windfall tax benefit. Such benefits are tracked in a “windfall tax benefit pool” to offset any future tax deduction shortfalls, and they will be recorded as increases to additional paid-in capital in the period when the tax deduction reduces income taxes payable. The Company follows the with-and-without approach for the direct effects of windfall/shortfall items and to determine the timing of the recognition of any related benefits. The Company recorded a net windfall of $9,626,064, $856,830 and $452,471 in 2014, 2013 and 2012, respectively.