Overstock.com 2014 Annual Report Download - page 104

Table of Contents
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). ASC 740 requires an asset and liability approach for
measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet
date using enacted tax rates for years in which taxes are expected to be paid or recovered.
The components of our deferred tax assets and liabilities as of December 31, 2014 and 2013 are as follows (in thousands):
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Deferred tax assets:
Net operating loss carryforwards
$ 50,952
$ 56,859
R&D tax credits
7,382
5,332
AMT and other tax credits
850
639
Accrued expenses
10,924
5,773
Reserves and other
3,119
4,565
Gross deferred tax assets
73,227
73,168
Valuation allowance
(1,000)
—
Total deferred tax assets
72,227
73,168
Deferred tax liabilities:
Fixed assets
(5,786)
(3,291)
Prepaid expenses
(1,275)
(1,357)
Total deferred tax liabilities
(7,061)
(4,648)
Total deferred tax assets, net
$ 65,166
$ 68,520
At December 31, 2014 and 2013, we had federal NOL carryforwards of approximately $155.0 million and $166.2 million and state NOL
carryforwards of approximately $144.0 million and $154.7 million, respectively, which may be used to offset future taxable income. Of the total federal and
state NOLs, $20.6 million was generated from stock option deductions and are not reflected in our deferred tax assets. The net tax benefit of $7.9 million will
be credited to additional paid-in capital in our consolidated balance sheets under the "with-and-without" method of utilization for tax attributes. We utilize
the with-and-without approach in determining if and when such excess tax benefits are realized. Under this approach excess tax benefits related to stock-
based compensation are the last to be realized. Our NOLs begin to expire in 2018 to 2034 if unused. In accordance with an Internal Revenue Code section
382 study completed during 2014, the NOL carryforwards indicated above are not limited in future periods.
At December 31, 2014 and 2013, we had federal research credit carryforwards of approximately $7.8 million and $6.0 million and state research
credit carryforwards of approximately $4.2 million and $3.3 million, respectively, which may be used to offset future income tax. These tax credits expire at
various dates between 2021 and 2034. We do not have any indefinite lived intangibles and the remaining deferred tax assets have no expiration date.
Each quarter we assess the recoverability of our deferred tax assets under ASC 740. We are required to establish a valuation allowance for any
portion of the assets that we conclude is not more likely than not realizable. Our assessment considers, among other things, the three year cumulative net
income, positive pretax net income and taxable income, forecasts of our future taxable income, carryforward periods, our utilization experience with
operating loss and tax credit carryforwards, and tax planning strategies. We have concluded based on all available positive and negative evidence it is more
likely than not the Company’s deferred tax assets as of December 31, 2014 arising from ordinary income and deductions and tax credits will be realized in the
future. We have also concluded it is unlikely the Company’s deferred tax asset arising from unrealized capital losses will be realized in the future. On the
basis of this evaluation, as of December 31, 2014, a valuation allowance of $1.0 million has been recorded to record only the portion of the deferred tax asset
that is more likely than not to be realized. This assessment required significant judgment and estimates about our ability to generate revenue, gross profit,
operating income and taxable income in future periods. Except as otherwise disclosed, there are no known trends, events, transactions or other uncertainties
that are expected to negatively impact the future levels of taxable income. We will continue to monitor the need for a valuation allowance against our federal
and state deferred tax assets on a quarterly basis.
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