Chegg 2014 Annual Report Download - page 123

Table of Contents
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A summary of our deferred tax assets is as follows (in thousands):
Year Ended December 31,
2014 2013
Deferred tax assets:
Accrued expenses and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,291 $ 2,405
Share-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,391 13,261
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,589 3,373
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,847 34,919
Fixed assets, textbooks and intangibles assets . . . . . . . . . . . . . . . . . . . . . . . 10,754 1,862
Other items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,277 2,628
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,149 58,448
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (79,093)(58,411)
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 37
Deferred tax liabilities:
Intangible asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 —
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 —
Net deferred tax (liabilities) assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(265) $ 37
At December 31, 2014 the deferred tax liability is created by the tax amortization of acquired indefinite lived
intangible assets. Under the accounting guidance this deferred tax liability cannot be used as a source of income for
recognition of deferred tax assets when determining the amount of valuation allowance to be recorded. We had no deferred tax
liabilities at December 31, 2013.
Realization of the deferred tax assets is dependent upon future taxable income, the amount and timing of which are
uncertain. Accordingly, the federal and state gross deferred tax assets have been fully offset by a valuation allowance. The net
valuation allowance increased approximately $20.7 million and $17.1 million during 2014 and 2013, respectively.
As of December 31, 2014, we have net operating loss carryforwards for federal and state income tax purposes of
approximately $96.9 million and $56.5 million, respectively, which will begin to expire in years beginning 2028 and 2015,
respectively. As of December 31, 2013, we have net operating loss carryforwards for federal and state income tax purposes of
approximately $98.3 million and $37.5 million, respectively.
As of December 31, 2014, we have tax credit carryforwards for federal and state income tax purposes of
approximately $2.5 million and $2.7 million, respectively. The federal credits expire in various years beginning in 2030. The
state credits do not expire. As of December 31, 2013, we had tax credit carryforwards for federal and state income tax purposes
of approximately $1.7 million and $2.0 million, respectively.
Utilization of our net operating losses and tax credit carryforwards may be subject to substantial annual limitations due
to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations
could result in the expiration of the net operating losses and tax credit carryforwards before utilization.
As of December 31, 2014 and 2013, we have permanently reinvested approximately $3.4 million and $2.3 million of
earnings from our international subsidiaries, respectively, and have not provided for U.S. federal income and foreign
withholding taxes. If we were to distribute these earnings, such earnings could be subject to income or other taxes upon
repatriation. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
We recorded unrecognized tax benefits of approximately $1.3 million during 2014, and had a cumulative unrecognized
tax benefit balance of approximately $4.3 million as of December 31, 2014. The actual amount of any change could vary
significantly depending on the ultimate timing and nature of any settlement. The amount of unrecognized tax benefits, if
recognized, that would affect the effective tax rate is $1.3 million. One or more of these unrecognized tax benefits could be
subject to a valuation allowance if and when recognized in a future period, which could impact the timing of any related
effective tax rate benefit.