Vonage 2010 Annual Report Download - page 72

V
O
NA
G
EH
O
LDIN
GS CO
RP
.
N
OTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(
In thousands, except per share amounts
)
We have net losses for financial reporting purposes.
Recognition of deferred tax assets will require generatio
n
o
ff
u
t
u
r
e
t
a
x
ab
l
e
in
co
m
e
.Th
e
r
eca
n
be
n
o assu
r
a
n
ce
th
at
we will
g
enerate sufficient taxable income in future years
.
T
herefore
,
we established a valuation allowance on net
deferred tax assets of
$
415
,
903 as of December 31
,
2010
and
$
385,941 as of December 31, 2009
.
The com
p
onents of income
(
loss
)
before income tax ex
p
ense are as follows:
F
or t
h
e
Y
ears
E
n
d
e
dD
ecem
b
er
3
1
,
20
1
0 2009 2008
U
nited
S
tate
s
$
(86,030) $(41,761) $(59,475
)
F
ore
i
g
n
2,683 (1) (4,423
)
$(
83,347
)$(
41,762
)$(
63,898
)
The com
p
onents of the income tax ex
p
ense are as follows
:
For the Years Ended December 31
,
2
0
1
0
2
009
2
008
C
urrent:
S
tate and local taxes
$(
304
)$(
836
)$(
678
)
Forei
gn
(
14
)
—
—
Fede
r
al
———
$(318) $(836) $(678
)
De
f
erred
:
S
tate and local taxes
$
—
$
—
$
—
Forei
gn
———
Fede
r
al
———
$
—
$
—
$
—
$(318) $(836) $(678
)
The reconciliation between the United
S
tates statutor
y
federal income tax rate and the effective rate is as follows
:
For the Years Ended December 31
,
20
1
0
2
009
2
008
U.
S
. Federal statutory tax rate
(
34%
)(
34%
)(
34%
)
P
e
rm
a
n
e
nt it
e
m
s
2
%
35
%
0
%
S
tate and local taxes, net of federal benefit 0% 2%
(
4%
)
S
ale of net operatin
g
loss carryforwards 0% 0%
(
1%
)
Va
l
ua
ti
o
nr
ese
rv
e
f
o
rin
co
m
e
t
a
x
es
3
2%
(
1%
)
40
%
Eff
ec
tiv
e
t
a
xr
a
t
e
0
%
2
%
1
%
As of December 31, 2010, we had net operatin
g
loss
carry forwards for United
S
tates federal and state ta
x
p
urposes of
$
885,431 and
$
849,567, respectively, expir-
i
n
g
at various times from years endin
g
2012 throu
g
h2030
.
In addition, we had net operatin
g
loss carry forwards fo
r
C
anadian tax purposes of
$
42,457 expirin
g
throu
g
h 2027
.
We also had net operatin
g
loss carry
f
orwards
f
or Unite
d
Kin
g
dom tax purposes of
$
40,335 with no expiration date
.
No
p
rovision has been made
f
or income taxes on the
undistributed earnin
g
so
f
our
f
orei
g
n subsidiaries o
f
$
18,389 at December 31, 2010 as we intend to indefinitely
r
einvest such earnin
g
s.
U
nder Section 382 of the Internal Revenue Code, if
a
corporation under
g
oes an “ownership chan
g
e” (
g
enerall
y
defined as a
g
reater than 50% chan
g
e (by value) in it
s
equity ownership over a three-year period), the corporation’
s
ability to use its pre-chan
g
eo
f
control net operatin
g
los
s
carry
f
orward and other pre-chan
g
e tax attributes a
g
ainst it
s
post-chan
g
e income may be limited. The Section 382 limi
-
t
ation is applied annually so as to limit the use o
f
ou
r
pre-chan
g
e net operatin
g
loss carry
f
orwards to an amount
t
hat
g
enerally equals the value o
f
our stock immediately
be
f
ore the ownership chan
g
e multiplied by a desi
g
nated
f
ederal lon
g
-term tax-exemp
t
r
a
t
e
.D
ue
t
o
th
ecu
m
u
l
a
tiv
e
i
mpact o
f
our equity issuances over the three year period
ended April 2005, a chan
g
eo
f
ownership occurred upon th
e
i
ssuance of our previously outstandin
g
Series E Preferred
Stock at the end of A
p
ril 2005. As a result, $171,147 of th
e
t
otal United States net operatin
g
losses were subject to a
n
annual base limitation of $39
,
374
.
F
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17