Groupon 2014 Annual Report Download - page 125

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
121
The deferred income tax assets and liabilities consisted of the following components as of December 31, 2014 and 2013
(in thousands):
December 31,
2014 2013
Deferred tax assets:
Reserves and allowances ................................................................ $ 32,379 $ 65,356
Stock-based compensation.............................................................. 6,911 13,462
Net operating loss and tax credit carryforwards ............................. 221,674 152,271
Intangible assets, net....................................................................... 11,910 30,039
Investments ..................................................................................... 1,441 3,730
Unrealized foreign exchange losses................................................ 5,011 —
Other ............................................................................................... 2,610 1,692
Total deferred tax assets............................................................... 281,936 266,550
Less valuation allowances.......................................................... (205,486)(173,577)
Deferred tax assets, net of valuation allowance ...................... 76,450 92,973
Deferred tax liabilities:
Unrealized foreign exchange gains................................................. — (3,034)
Prepaid expenses and other assets .................................................. (1,455)(1,078)
Property, equipment and software, net ........................................... (25,159)(19,239)
Deferred revenue ............................................................................ (25,013)(64,154)
Total deferred tax liabilities.......................................................... (51,627)(87,505)
Net deferred tax asset........................................................................ $ 24,823 $ 5,468
The Company regularly reviews deferred tax assets to assess whether it is more likely than not that the deferred tax assets
will be realized and, if necessary, establishes a valuation allowance for portions of such assets to reduce the carrying value. For
purposes of assessing whether it is more likely than not that the Company's deferred tax assets will be realized, the Company
considers the following four sources of taxable income for each tax jurisdiction: (a) future reversals of existing taxable temporary
differences, (b) projected future earnings, (c) taxable income in carryback years, to the extent that carrybacks are permitted under
the tax laws of the applicable jurisdiction, and (d) tax planning strategies, which represent prudent and feasible actions that a
company ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused.
The Company has incurred significant losses in recent years and had accumulated deficits of $922.0 million and $848.9 million
as of December 31, 2014 and 2013, respectively. A cumulative loss in the most recent three-year period is a significant piece of
negative evidence that is difficult to overcome when assessing the realizability of deferred tax assets. The Company has only
recognized deferred tax assets to the extent that they will be realizable either through future reversals of existing taxable temporary
differences, through taxable income in carryback years for the applicable jurisdictions or based on projections of future income
for those jurisdictions in a cumulative income position for the most recent three-year period. During the fourth quarter of 2013,
earnings in the United States moved to a cumulative income position for the most recent three-year period and the Company
released a portion of the valuation allowance against its federal and state deferred tax assets, resulting in a $9.6 million reduction
to income tax expense. The Company continues to maintain a valuation allowance in the United States against a portion of its
acquired domestic federal net operating losses that are subject to limitations under the tax law and state net operating loss
carryforwards and tax credits that are not expected to be realized. As of December 31, 2014 and 2013, the Company recorded a
valuation allowance of $205.5 million and $173.6 million, respectively, against its domestic and foreign net deferred tax assets,
as it believes it is more likely than not that these benefits will not be realized.
The Company had $121.2 million of federal and $270.5 million of state net operating loss carryforwards as of December 31,
2014 which will begin expiring in 2027 and 2016, respectively. As of December 31, 2014, the Company had $714.9 million of
foreign net operating loss carryforwards, a significant portion of which carry forward for an indefinite period.
The Company is subject to taxation in the United States, state jurisdictions and foreign jurisdictions. Significant judgment