INCOME TAXES

United States and foreign income (loss) before income taxes for the years ended February 2014, 2015 and 2016 was as follows:



	2014			2015			2016
United States	$	16,659		$	(58,692	)	$	1,765
Foreign	(2,067		)	(345		)	—
Income (loss) before income taxes	$	14,592		$	(59,037	)	$	1,765

The (benefit) provision for income taxes for the years ended February 2014, 2015, and 2016 consisted of the following:



	2014			2015		2016
Current:
State	$	(900	)	$	229	$	(31	)
Foreign	13			—		—
Total current	(887		)	229		(31		)
Deferred:
Federal	(25,219		)	27,431		1,793
State	(7,957		)	9,288		307
Total deferred	(33,176		)	36,719		2,100
(Benefit) provision for income taxes	$	(34,063	)	$	36,948	$	2,069

The (benefit) provision for income taxes for the years ended February 2014, 2015 and 2016 differs from that computed at the Federal statutory corporate tax rate as follows:



	2014			2015			2016
Computed income tax (benefit) provision at 35%	$	5,110		$	(20,663	)	$	618
State income tax (benefit) provision	(8,857		)	9,517			276
Foreign taxes	737			120			—
Tax benefit resulting from swap expiration and related OCI reversal	—			5			—
Nondeductible stock compensation	55			122			296
Entertainment disallowance	455			421			366
Change in valuation allowance	(31,059		)	50,250			2,376
Tax attributed to noncontrolling interest	(1,793		)	(1,994		)	(1,932		)
Federal tax credit	—			(173		)	(43		)
Other	1,289			(657		)	112
(Benefit) provision for income taxes	$	(34,063	)	$	36,948		$	2,069

The components of deferred tax assets and deferred tax liabilities at February 28, 2015 and February 29, 2016 are as follows:



	2015			2016
Deferred tax assets:
Net operating loss carryforwards	$	32,627		$	34,341
Intangible assets	30,299			28,737
Compensation relating to stock options	1,438			1,768
Deferred revenue	1,260			840
Accrued rent	2,071			2,275
Tax credits	1,987			3,265
Investments in subsidiaries	2,951			214
Capital loss carryforward	—			2,740
Other	1,875			1,628
Valuation allowance	(62,984		)	(66,674		)
Total deferred tax assets	11,524			9,134
Deferred tax liabilities
Indefinite-lived intangible assets	(41,576		)	(43,673		)
Property and equipment	(751		)	(1,055		)
Cancellation of debt income	(10,772		)	(8,079		)
Other	(39		)	(42		)
Total deferred tax liabilities	(53,138		)	(52,849		)
Net deferred tax liabilities	$	(41,614	)	$	(43,715	)

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset ("DTA") will not be realized. The Company historically recorded a full valuation allowance on all U.S. (federal and state) deferred tax assets. During the year ended February 28, 2014, due to improved operating results, the Company determined that a valuation allowance on most of its deferred tax assets was no longer appropriate and reversed the valuation allowance on all U.S. deferred tax assets (with the exception of certain state net operating loss deferred DTAs). During the fourth quarter of the year ended February 28, 2015, an impairment charge of $67.9 million was recorded, resulting in a three year cumulative loss position. For that reason, the Company recorded a valuation allowance on the majority of its U.S. (federal and state) net deferred tax assets as of February 28, 2015. The Company does not benefit its deferred tax assets based on the deferred tax liabilities ("DTLs") related to indefinite-lived intangibles that are not expected to reverse during the carry-forward period. Because these DTLs would not reverse until some future indefinite period when the intangibles are either sold or impaired, any resulting temporary differences cannot be considered a source of future taxable income to support realization of the DTAs.

The Company increased its valuation allowance by $3.7 million ($2.4 million federal and $1.3 million state), from $63.0 million as of February 28, 2015, to $66.7 million as of February 29, 2016.

The Company has considered future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowance. The Company will assess quarterly whether it remains more likely than not that the deferred tax assets will not be realized. In the event the Company determines at a future time that it could realize its deferred tax assets in excess of the net amount recorded, the Company will reduce its deferred tax asset valuation allowance and decrease income tax expense in the period when the Company makes such determination.

The Company has federal net operating losses ("NOLs") of $82 million and state NOLs of $185 million available to offset future taxable income. These NOLs include an unrealized benefit of approximately $2.7 million related to share-based compensation that will be recorded in equity when realized. The federal net operating loss carryforwards begin expiring in 2028, and the state net operating loss carryforwards expire between the years ending February 2017 and February 2037. A valuation allowance has been provided for the net operating loss carryforwards related to states in which the Company no longer has operating results as it is more likely than not that substantially all of these net operating losses will expire unutilized.

The $3.3 million of tax credits at February 29, 2016 primarily relates to alternative minimum tax carryforwards that can be carried forward indefinitely. This amount also includes tax credits in Illinois, Texas, and a federal research credit, all of which have a full valuation allowance.

The activities of Digonex Technologies, Inc., a C Corporation under the Internal Revenue Code, are consolidated for financial statement purposes, but are not included in the U.S. consolidated income tax return of Emmis. As of February 29, 2016, Digonex has federal NOLs of $43 million and state NOLs of $43 million . If Digonex produces pretax income in the future, it is possible that the utilization of these NOL carryforwards will be limited due to Section 382 of the Internal Revenue Code. The Company is in the process of completing a Section 382 study to determine the applicable limitation, if any. As of February 29, 2016, the Company was able to determine that at least $13 million of federal NOLs and $13 million of state NOLs will be fully available to offset future taxable income. These amounts are included in the above consolidated NOL totals of $82 million and $185 million.

Accounting Standards Codification paragraph 740-10 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken within a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest benefit that is greater than 50 percent likely of being realized upon ultimate settlement. As of February 29, 2016, the estimated value of the Company’s net uncertain tax positions is approximately $0.1 million, most of which is included in other noncurrent liabilities, as the Company does not expect to settle the items within the next 12 months.

The following is a tabular reconciliation of the total amounts of gross unrecognized tax benefits for the years ending February 28, 2015 and February 29, 2016:



	For the year ending February 28 (29),
	2015			2016
Gross unrecognized tax benefit – opening balance	$	(158	)	$	(172	)
Gross increases – tax positions in prior periods	(14		)	(21		)
Gross decreases—settlements with taxing authorities	—			81
Gross decreases – lapse of applicable statute of limitations	—			25
Gross unrecognized tax benefit – ending balance	$	(172	)	$	(87	)

Included in the balance of unrecognized tax benefits are tax benefits that, if recognized, would reduce the Company’s provision for income taxes totaling $0.2 million and $0.1 million as of February 28, 2015 and February 29, 2016, respectively. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities that could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the tax provision, or reclassify amounts on the accompanying consolidated balance sheets in the period in which such matter is effectively settled with the taxing authority.

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the uncertain tax benefits noted above, the Company accrued an immaterial amount of interest during the year ending February 29, 2016 and in total, as of February 29, 2016, has recognized a liability for interest of $9 thousand.