Annual Report 2009 (1 MB, pdf) - Vasco

VASCO DATA SECURITY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except per share data)
At December 31, 2009, we also had foreign NOL carryforwards of $5,391. The foreign NOL carryforwards
have no expiration dates. Included in the foreign NOL carryforwards amount is $2,316 of tax losses obtained in
the acquisition of VDS Austria (formerly Logico). Goodwill for the VDS Austria acquisition was reduced by
$129 in 2008 and $85 in 2007, as the NOL utilized was greater than expected and our original forecasts were
revised. With the adoption of ASC 805-740-30-3 in 2009, any future adjustments to the NOL carryforward
valuation allowance for the VDS Austria acquisition would affect income tax expense, rather than goodwill. In
2009, we recognized a $167 tax benefit for adjustment of this NOL valuation allowance. In 2009, 2008 and 2007,
net utilization (creation) of deferred tax assets for foreign net operating loss carryforwards, excluding goodwill
adjustments related to VDS Austria, were $238, $224 and $65, respectively.
The company has provided a valuation allowance at December 31, 2009 for all of its U.S. deferred tax assets
and certain foreign deferred tax assets. In assessing the realizability of deferred tax assets, the company considers
whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income.
The net change in the valuation allowance for the years ended December 31, 2009, 2008 and 2007 was a
(decrease) increase of $(151), $(2,977) and $445, respectively. This valuation allowance will be reviewed on a
regular basis and adjustments made as appropriate. In addition to the utilization of NOLs in the U.S. and in
foreign countries as noted above, the change in the valuation allowance also reflects other factors including, but
not limited to, changes in our assessment of our ability to use existing NOLs, changes in currency rates and
adjustments to reflect differences between the actual returns filed and the estimates we made at financial
reporting dates. For 2009, we have reviewed the NOL carryforwards for each of our entities to determine if it is
more likely than not that the NOL carryforward would be utilized in future years. Based on our review, we have
reduced income tax expense and the valuation reserve in 2009 by $167, related to the NOL carryforward for VDS
Austria . The company expects to generate adequate taxable income to realize deferred tax assets in foreign
jurisdictions where no valuation reserve exists.
The company has not provided deferred U.S. taxes on its unremitted foreign earnings because it considers
them to be permanently invested. The unremitted foreign earnings are estimated to be $64,000. We have
provided a deferred tax liability of $194 to reflect the foreign tax liability on unremitted earnings to one of our
foreign subsidiaries.
We had no accrued interest or penalties for income tax liabilities at December 31, 2009. Our policy is to
record interest expense and penalties on income taxes as income tax expense.
ASC 740-10 sets a “more likely than not” criterion for recognizing the tax benefit of uncertain tax positions;
it established measurement criteria for tax benefits and it established certain new disclosure requirements. We
have identified one such exposure concerning cost allocations related to the implementation of our worldwide
strategy related to the ownership of our intellectual property for which we had a $475 reserve at December 31,
2008, which is an offset to our U.S. deferred tax asset. This reserve was reduced to $470 at December 31, 2009.
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