TeleNav 2010 Annual Report Download - page 96

TELENAV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our effective tax rate for fiscal 2010 was 39% compared with 29% for fiscal 2009. The increase in the
effective tax rate in fiscal 2010 was primarily attributable to a $2.5 million tax benefit in fiscal 2009 related to
the release of a portion of our valuation allowance against U.S. federal and state deferred tax assets and a
reduction in the forecasted federal research credit for fiscal 2010 due to the expiration of the federal research and
development tax credit effective December 31, 2009. The increase was partially offset by a tax benefit
recognized in fiscal 2010 for a tax deduction related to Qualified Domestic Production Activities under
Section 199 of the Internal Revenue Code and by the release of the remaining valuation allowance related to U.S.
federal and state deferred tax assets.
Deferred income taxes reflect the net tax effects 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 our net deferred tax assets were as follows (in thousands):
June 30,
2010 2009
Deferred tax assets:
Federal, state and foreign net operating losses .................................. $3,451 $ 3,283
Federal and state tax credits ................................................ 309 282
Stock-based compensation ................................................. 1,260 53
Accrued expenses and reserves ............................................. 4,100 1,486
Total deferred tax assets: ...................................................... 9,120 5,104
Deferred tax liabilities:
Property and equipment ................................................... (269) (248)
Capitalized software ...................................................... (2,061) (978)
Total deferred tax liabilities: ................................................... (2,330) (1,226)
Net deferred tax assets: ........................................................ 6,790 3,878
Valuation allowance .......................................................... (1,669) (1,402)
Net deferred tax assets: ........................................................ $5,121 $ 2,476
Realization of the deferred tax assets is dependent upon future taxable income. After considering both
positive and negative evidence, during fiscal 2009, we determined that it was more likely than not that $2.5
million of our U.S. federal and state deferred tax assets would be realizable, based on our earnings history and
our projected future taxable income. We recognized an income tax benefit of $2.5 million in fiscal 2009 as a
result of the release of a portion of our valuation allowance. During fiscal 2010, the valuation allowance
increased by $267,000 due to foreign operations. This is net of a benefit of $390,000 as we determined that it was
now more likely than not that the remaining U.S. federal and state deferred tax assets would be realizable based
on continued earnings history and projected future income and we released the remaining valuation allowance for
U.S. federal and state jurisdictions. As of June 30, 2010, the remaining valuation allowance is all attributable to
foreign net operating losses.
As of June 30, 2010, we had federal and state net operating loss carryforwards for income tax purposes of
$9.9 million and $16.6 million, respectively. These loss carryforwards will begin to expire in 2020 for federal
purposes and 2012 for state purposes. In addition, we have federal and California research and development tax
credit carryforwards of $384,000 and $22,000, respectively, as of June 30, 2010. The federal research credits will
begin to expire in 2023 and the California research credits have no expiration date. During fiscal 2009, we
completed an analysis pursuant to Section 382 of the Internal Revenue Code of 1986, as amended. The analysis
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