Etsy 2015 Annual Report Download - page 101

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Etsy, Inc.
Notes to Consolidated Financial Statements
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) are as follows (in thousands):
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Deferred tax assets:
Net operating loss carryforwards $ 3,274
$ 7,961
Research and development credit carryforwards —
898
Stock-based compensation expense 2,222
3,953
Accrued VAT liability 612
74
Alternative minimum tax credit 163
717
Allowance for doubtful accounts 701
650
Deferred rent 108
146
Accrued vacation 413
640
Unrealized loss on foreign currency 554
3,035
Other, net 1,041
1,143
Total deferred tax assets 9,088
19,217
Less valuation allowance 1,892
9,540
Total net deferred tax asset 7,196
9,677
Deferred tax liabilities:
Depreciation and amortization (5,467)
(4,490)
Restructuring liability —
(65,585)
Other liabilities (1,878)
(1,022)
Total deferred tax liabilities (7,345)
(71,097)
Net deferred tax liabilities $ (149)
$ (61,420)
As of December 31, 2014, the Company had approximately $6.9 million and $4.3 million of federal and preapportionment New York City NOL
carryforwards, respectively, as well as immaterial amounts of NOLs in other states. As of December 31, 2015, the Company had approximately $0.2 million
and $0.0 million of federal and preapportionment New York City NOL carryforwards, respectively, as well as immaterial amounts of NOLs in other states. The
federal NOLs will begin to expire in 2032 if unused. The remainder of the NOL deferred tax asset balance is comprised of losses in certain foreign jurisdiction
and are currently subject to a valuation allowance.
The utilization of the Company’s NOL carryforwards is subject to an annual limitation under Section 382 of the Internal Revenue Code due to a change of
ownership. However, the Company does not believe such annual limitation will impact its realization of the NOL carryforwards.
As of December 31, 2014 and 2015, the Company had approximately $0.2 million and $0.7 million of federal alternative minimum tax credits, which may be
carried forward indefinitely. As of December 31, 2015, the Company had federal research and development tax credit carryforwards of $2.8 million, which
will begin to expire in 2031 if unused.
The Company assesses the likelihood of its ability to realize the benefit of its deferred tax assets in each jurisdiction by evaluating all relevant positive and
negative evidence. To the extent the Company determines that some or all of its deferred tax assets are not more likely than not to be realized, it establishes a
valuation allowance. For the year ended December 31, 2015, the Company determined that the existence of a three-year cumulative loss incurred in certain
foreign jurisdictions, inclusive of 2015, constituted sufficiently strong negative evidence to warrant the establishment of a valuation allowance. As a result, a
valuation allowance of $9.5 million as of December 31, 2015 has been recorded against certain of the Company’s deferred tax assets. The amount of the
deferred tax assets considered realizable is $9.7 million.
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