Overstock.com 2015 Annual Report Download - page 117

The components of our deferred tax assets and liabilities as of December 31, 2015 and 2014 are as follows (in thousands):
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Deferred tax assets:
Net operating loss carryforwards
$ 47,793
$ 50,952
Accrued expenses
12,605
10,924
Research and development tax credits
8,574
7,382
Reserves and other
3,227
3,119
AMT and other tax credits
1,034
850
Gross deferred tax assets
73,233
73,227
Valuation allowance
(3,071)
(1,000)
Total deferred tax assets
70,162
72,227
Deferred tax liabilities:
Fixed assets
(4,569)
(5,786)
Prepaid expenses
(1,397)
(1,275)
Total deferred tax liabilities
(5,966)
(7,061)
Total deferred tax assets, net
$ 64,196
$ 65,166
At December 31, 2015, we had federal net operating loss carryforwards of approximately $149.3 million and state net operating loss carryforwards of
approximately $139.4 million, which may be used to offset future taxable income. Of the total federal and state NOLs, $24.5 million was generated from
stock option deductions and are not reflected in our deferred tax assets. The net tax benefit of $9.4 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 2019 to 2035 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, 2015, we had income tax net operating loss carryforwards related to our international operations of approximately $630,000 with a
five year carry forward and $528,000 which have an indefinite life. The carryforwards begin expiring in 2020 if unused.
At December 31, 2015, we had federal research credit carryforwards of approximately $9.2 million and state research credit carryforwards of
approximately $4.7 million, which may be used to offset future income tax. These tax credits expire at various dates between 2021 and 2035. 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 that our deferred tax assets as of December 31, 2015 arising from ordinary income and deductions and tax credits will be realized in the future,
with the exception of current year operating losses generated by separate tax-filing subsidiaries in domestic and foreign jurisdictions and foreign deferred tax
assets recorded as part of an acquisition. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $1.5 million has been recorded to
reflect on the portion of the deferred tax assets that are more likely than not to be realized. We have also concluded it is unlikely that our deferred tax asset
arising from unrealized capital losses will be realized in the future. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $1.6
million has been recorded to reflect 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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