Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

16.

Income Taxes

Income Tax Expense

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

	Years ended December 31,
	2016		2015			2014
Income before income taxes
Domestic	$	50,181	$	48,608		$	63,232
Foreign		689		(354	)		(1,727	)
	$	50,870	$	48,254		$	61,505

	Years ended December 31,
	2016			2015			2014
Provision for (benefit from) income taxes:
Current provision:
Federal	$	14,982		$	14,572		$	18,301
State		3,265			3,635			3,895
Foreign		302			249			192
		18,549			18,456			22,388
Deferred provision:
Federal		(70	)		(370	)		1,153
State		(84	)		(33	)		122
Foreign		(72	)		(557	)		(477	)
		(226	)		(960	)		798
Total provision	$	18,323		$	17,496		$	23,186

Deferred Tax Assets and Liabilities

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

	December 31,
	2016		2015
Deferred tax assets:
Net operating loss carry forward, foreign	$	1,253	$	1,567
Stock-based compensation expense		1,882		1,043
Foreign currency exchange		677		762
Accrued expenses and other		308		510
Inventory reserve		640		547
Deferred tax assets	$	4,760	$	4,429

	December 31,
	2016			2015
Deferred tax liabilities:
Acquisition-related Intangibles	$	(2,932	)	$	(3,738	)
Depreciation		(8,376	)		(7,466	)
Deferred tax liabilities	$	(11,308	)	$	(11,204	)
Net deferred tax liabilities	$	(6,548	)	$	(6,775	)

Tax Rate

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

	Years ended December 31,
	2016			2015			2014
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State tax expense, net of federal benefit		4.5	%		4.8	%		4.9	%
Permanent items, including nondeductible expenses		0.5	%		(0.3	%)		0.1	%
State investment tax credit		(0.1	%)		0.0	%		(0.1	%)
Federal, state and foreign research and development credits		(0.9	%)		(0.4	%)		(0.7	%)
Foreign rate differential		(0.1	%)		0.1	%		0.2	%
Domestic production deduction		(2.9	%)		(2.9	%)		(1.7	%)
Effective income tax rate		36.0	%		36.3	%		37.7	%

As of

December

31,

2016,

the Company had NOL’s for income tax purposes in Italy of

$5.2

million that do not expire.

Accounting for Uncertainty in Income Taxes

The Company had

no

unrecognized tax benefits for the years ended

December

31,

2016

and

2015,

respectively.

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 United States on a federal basis, 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. Substantially all of the Company’s filings from

2013

through the present tax year remain subject to examination by the Internal Revenue Service (“IRS”) and other taxing authorities for U.S. federal and state tax purposes. The Company’s

2014

tax filing has been audited by the IRS and closed. The Company currently has a tax audit in progress in Italy which it does not anticipate will have a material impact on its financial statements.  The Company’s filings from

2010

through the present tax year remain subject to examination by the appropriate governmental authorities in Italy.

The Company does not anticipate experiencing any significant increases or decreases in its unrecognized tax benefits within the

twelve

months following

December

31,

2016.

The Company incurred expenses related to stock-based compensation in

2016

,

2015,

and

2014

of

$3.4

million,

$2.2

million, and

$1.6

million, 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

$1.2

million,

$1.1

million, and

$3.1

million in

2016,

2015,

and

2014,

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

$0.6

million,

$0.9

million, and

$9.6

million in

2016,

2015,

and

2014,

respectively.