Vonage 2013 Annual Report Download - page 75

F-19 VONAGE ANNUAL REPORT 2013
our sustained profitable operating performance over the past three years
excluding certain losses associated with our prior convertible notes and
our December 2010 debt refinancing, our evaluation determined that
the benefit resulting from our net deferred tax assets (namely, the NOLs),
are likely to be realized prior to their expiration. Accordingly, we released
the related valuation allowance against our United States federal and
Canada net deferred tax assets, and a portion of the allowance against
our state net deferred tax assets as certain NOLs may expire prior to
utilization due to shorter utilization periods in certain states, resulting in
a one-time non-cash income tax benefit of $325,601 and a
corresponding net deferred tax asset of $325,601 in the fourth quarter
of 2011. We still maintain a full valuation allowance against our United
Kingdom net deferred tax assets as we are unable to conclude that it
is more likely than not that some or all of the related United Kingdom
net deferred tax assets will be realized.
In connection with the acquisition of Vocalocity, we recorded
a net deferred tax liability of $24,000 related to the $75,000 of identified
intangible assets that will be amortized for financial reporting purposes
but not for tax purposes and a deferred tax asset of $8,637 primarily
consisting of NOLs. We have recorded a valuation allowance of $2,637
against Vocalocity's deferred tax assets based upon our preliminary
assessment of the utilization of the NOLs as the NOLs are subject to
Section 382 limitations.
In the future, if available evidence changes our conclusion
that it is more likely than not that we will utilize our net deferred tax
assets prior to their expiration, we will make an adjustment to the related
valuation allowance and income tax expense at that time. In subsequent
periods, we would expect to recognize income tax expense equal to our
pre-tax income multiplied by our effective income tax rate, an expense
that was not recognized prior to the reduction of the valuation allowance.
The reconciliation between the United States statutory federal income tax rate and the effective rate is as follows:
For the years ended December 31,
2013 2012 2011
U.S. Federal statutory tax rate 35 % 35 % 35 %
Permanent items 4% 1% 1%
State and local taxes, net of federal benefit — % 5 % (13)%
International tax (1)% (1)% (15)%
Valuation reserve for income taxes and other 1 % (2)% (383)%
Effective tax rate 39 % 38 % (375)%
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VONAGE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)