Vonage 2008 Annual Report Download - page 42

2008 com
p
ared to 2007
D
epreciation and amortization
.
T
he increase in depreciatio
n
and amortization of
$
12,894, or 36%, was primarily due to an
increase in depreciation of network equipment, computer
equipment and amortization related to patents and so
f
tware. We
also recorded asset im
p
airment of
$
3,666 in 2008 for assets that
n
o lon
g
er had future benefit compared to impairment of $1,37
4
in 2007.
2007 com
p
ared to 2006
D
epreciation and amortization
.
T
he increase in depreciatio
n
and amortization of
$
12
,
041
,
or 51%
,
was due to an increase in
capital expenditures primaril
y
for the continued expansion and
u
pgrade o
f
our network and amortization related to patents and
s
oftware. We also recorded asset im
p
airment of
$
1,374 in 2007
.
O
ther Income
(
Expense
)
F
or the Years Ended December 31
,
D
o
ll
a
r
Chang
e
2008
v
s.
2007
D
o
ll
ar
Change
200
7v
s
.
2006
P
ercent
C
hang
e
2008
v
s.
2007
P
ercent
Change
200
7v
s
.
2006
(
in thousands, except percentages
)
2008 200
7
2006
I
nterest income
$
3,236
$
17,582
$
21,472
$
(14,346)
$
(3,890) (82%) (18%)
I
nterest expense
(
29,878
)(
22,810
)(
19,583
)(
7,068
)(
3,227
)(
31%
)(
16%
)
Loss on early extinguishment of notes
(
30,570
)
––
(
30,570
)
–*
*
O
ther, net
(
247
)(
238
)(
189
)(
9
)(
49
)(
4%
)(
26%
)
$
(57,459)
$
(5,466)
$
1,700
$
(51,993)
$
(7,166
)
2008
compare
d
to
200
7
I
nt
e
r
es
t
i
n
co
m
e
.
T
h
e dec
r
ease
in int
e
r
es
tin
co
m
eo
f
$
14,346, or 82%, was due to lower interest rates and lower cas
h
b
alances resulting
f
rom payment o
f
IP litigation settlements in
t
he fourth quarter of 2007, and the use of cash on hand to repay
a portion o
f
our exitin
g
convertible notes in November 2008
.
I
nterest ex
p
ense
.
T
he increase in interest ex
p
ense of
$
7,068, or 31%, was primaril
y
related to incremental interest
expense on our Financing and an increase in interest expense o
f
$
662 on our AT&T litigation settlement.
L
oss on early extinguishment o
f
notes
.
W
e incurred a los
s
of $30,570 as a result of the early extinguishment of notes
,
comprised of $20,452 in third part
y
costs and $9,672 represent-
ing the excess o
f
the
f
air value o
f
the replacement debt over th
e
carrying value of the extinguished debt and
$
446 of other
.
200
7 compare
d
to
2006
I
nt
e
r
es
t
i
n
co
m
e.
T
he decrease in interest income of $3,890,
or 18
%
, was due to the decrease in cash, cash equivalents an
d
m
arketable securities
f
or 2007 com
p
ared to 2006.
I
nterest expense
.
T
he increase in interest expense o
f
$
3,227, or 16%, was primarily related to the
$
2,703 additiona
l
deferred financin
g
cost we recorded in 2007 related to th
e
convertible notes and $2,254 in interest expense on the Verizon
judgment and royalty required to be deposited into escrow in
2
007. This was offset by the decrease of $1,913 in interest on
our convertible notes, which was accrued at 7
%f
or the three
m
onths ended March 31
,
2006 which is the in kind interest rat
e
com
p
ared to 5% for the rest of the
q
uarters which is the cas
h
i
nt
e
r
es
tr
a
t
e
.
I
ncome Tax Benefit
(
Ex
p
ense
)
F
or t
h
e
Y
ears
E
n
d
e
dD
ecem
b
er
3
1
,
Dollar
C
han
ge
2008 vs.
2007
Dolla
r
C
han
g
e
2
007 vs.
2006
Pe
r
ce
nt
C
han
ge
2008 vs
.
2007
Pe
r
ce
nt
C
han
g
e
2
007 vs.
2006
(in thousands, except percentages
)
2008 200
7
2006
I
ncome tax benefit (expense) $(678) $(182) $215 $(496) $(397) (273%) (185%
)
PROVISION FOR INCOME TAXES
W
e have net losses
f
or
f
inancial reportin
g
purposes. Reco
g
-
n
ition o
f
de
f
erred tax assets will require generation o
ff
utur
e
t
axa
bl
e
i
ncome.
Th
ere can
b
e no assurance t
h
at we w
ill g
en-
erate su
ff
icient taxable income in
f
uture
y
ears. There
f
ore, we
established a valuation allowance on net de
f
erred tax assets o
f
$
386,547 as of December 31, 2008
.
W
e participated in the State of New Jersey’s corporatio
n
b
usiness tax benefit certificate transfer pro
g
ram, which allows
certa
i
n
high
tec
h
no
l
o
g
yan
dbi
otec
h
no
l
o
g
y compan
i
es to trans-
f
er unused New Jersey net operating loss carryovers to othe
r
N
ew
J
ersey corporat
i
on
b
us
i
ness taxpayers.
D
ur
i
ng 2003 an
d
2004, we su
b
m
i
tte
d
an app
li
cat
i
on to t
h
e
N
ew
J
ersey
E
conom
i
c
Development Authority, or EDA, to participate in the pro
g
ra
m
and the a
pp
lication was a
pp
roved. The EDA then issued a
certificate certifyin
g
our eli
g
ibility to participate in the pro
g
ram
.
The pro
g
ram requires that a purchaser pay at least 75
%
o
f
th
e
amount o
f
the surrendered tax bene
f
it. In tax years 2006, 200
7
and 2008, we sold approximately, $6,493, $8,488 and $10,051,
r
espectively, of our New Jersey State net operatin
g
los
s
carryforwards for a recognized benefit of approximately
$
496 in
2006, $649 in 2007 and $605 in 2008. Collectively, all trans-
actions represent approximatel
y
85
%
o
f
the surrendered ta
x
b
ene
f
it each year and have been recognized in the yea
r
recei
v
ed
.
3
4
VO
NA
G
E ANN
U
AL REP
O
RT 2008