Rosetta Stone 2009 Annual Report Download - page 107

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Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. INCOME TAXES
The following table summarizes the significant components of the Company's deferred tax assets and liabilities as of December 31, 2009 and 2008 (in
thousands):
As of
December 31,
2009 2008
Deferred tax assets:
Inventory $ 290 $ 183
Amortization and depreciation 3,521 5,068
Net operating loss carryforwards 4,359 5,112
Deferred revenue 663 528
Accrued liabilities 6,456 3,118
Stock-based compensation 2,266 965
Bad debt reserve 425 338
17,980 15,312
Valuation allowance (5,012) (5,263)
12,968 10,049
Deferred tax liabilities:
Prepaid expenses 1,328 876
Foreign currency translation loss 50 58
Other 5 5
1,383 939
Net deferred tax assets $ 11,585 $ 9,110
Net deferred tax assets as of December 31 are classified as follows:
Current $ 6,020 $ 2,282
Non-current 5,565 6,828
Total $ 11,585 $ 9,110
At December 31, 2009, the Company had $7.8 million of net operating loss ("NOL") carryforwards for United Kingdom income tax purposes that do not
expire, with a tax value of $2.2 million. The Company also had $5.2 million of NOL carryforwards for Japanese income tax purposes which expire in 2014
and 2015, with a tax value of $2.2 million. Accounting Standards Codification topic 740, Income Taxes ("ASC 740") requires that a valuation allowance be
established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. As a result of the losses incurred for the years ended
December 31, 2008 and 2007, both the United Kingdom and Japanese operations remain in cumulative loss positions providing sufficient negative evidence
under the provisions of ASC 740 for the Company to determine that a valuation allowance of $5.0 million against the deferred tax assets associated with its
foreign operations is appropriate. The decrease of $0.3 million in the valuation allowance is attributable to utilization of net deferred tax assets, primarily
operating losses, in the United Kingdom and Japan in the year ended December 31, 2009 and changes year over year in the value of deferred tax assets when
translated from local currency to U.S. dollars. The valuation allowance will offset assets associated with future foreign tax deductions as well as carryforward
items.
F-31