Shutterfly 2014 Annual Report Download - page 105

for California tax purposes, and 15 years for Arizona purposes. The research and development tax credit
will expire starting in 2021 for federal and 2024 for Arizona.
Internal Revenue Code limits the use of net operating loss and tax credit carryforwards in the case of
an ‘‘ownership change’’ of a corporation. Any ownership changes, as defined, may restrict utilization of
carryforwards.
The components of the net deferred tax assets as of December 31, 2014 and 2013 are as follows
(in thousands):
December 31,
2014 2013
Deferred tax assets:
Net operating loss carryforwards .............................. $ 6,672 $ 4,994
Reserves and other tax benefits ............................... 41,549 30,704
Tax credits .............................................. 7,211 5,296
Deferred tax assets ....................................... 55,432 40,994
Valuation allowance ...................................... (4,850) (2,872)
Net deferred tax assets .................................. 50,582 38,122
Deferred tax liabilities:
Depreciation and amortization ................................ (63,478) (53,655)
Net deferred tax assets / (liabilities) ......................... $ (12,896) $ (15,533)
Realization of deferred tax assets is dependent upon the generation of future taxable income, if any,
the timing and amount of which are uncertain. The valuation allowance related to deferred income taxes
was $4.9 million as of December 31, 2014 and $2.9 million as of December 31, 2013. The increase in the
valuation allowance was attributed to the Company’s generation of certain California and South Carolina
deferred tax assets which it believes it will not be able to utilize.
As of December 31, 2014, the Company had $8.6 million of unrecognized tax benefits. A reconciliation
of the beginning and ending amounts of unrecognized income tax benefits is as follows (in thousands):
2014 2013 2012
Balance of unrecognized tax benefits at January 1 ......... $ 7,035 $ 5,445 $ 4,364
Additions for tax positions of prior years .............. 41 22 137
Additions for tax positions related to current year ........ 1,502 1,811 1,009
Reductions for tax positions of prior years ............. (12) (243) (65)
Balance of unrecognized tax benefits at December 31 ....... $ 8,566 $ 7,035 $ 5,445
If the $8.6 million of unrecognized tax benefits as of December 31, 2014 is recognized, approximately
$4.9 million would decrease the effective tax rate in the period in which each of the benefits is recognized.
The remaining amount would be offset by the reversal of related deferred tax assets on which a valuation
allowance is placed. The Company does not expect any material changes to its unrecognized tax benefits
within the next twelve months.
The Company provides for federal income taxes on the earnings of its foreign subsidiary, as such,
earnings are currently recognized as US taxable income.
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