INTERNAP FORM 10-Q HIGHLIGHTS
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
1. Nature Of Operations And Basis Of Presentation
3. | Segments |
The following tables show operating results for our reportable segments, along with reconciliations from segment profit to loss before income taxes and equity in earnings of equity-method investment:
| IP Services | Data Center Services | CDN Services | Other | Total | ||||||||||||||||
| Three Months Ended June 30, 2008: | ||||||||||||||||||||
| Revenues | $ | 30,395 | $ | 26,511 | $ | 5,419 | $ | — | $ | 62,325 | ||||||||||
| Direct costs of network, sales and services, exclusive of depreciation and amortization, included below | 11,401 | 20,028 | 2,055 | — | 33,484 | |||||||||||||||
| Segment profit | $ | 18,994 | $ | 6,483 | $ | 3,364 | $ | — | 28,841 | |||||||||||
| Other operating expenses | 32,414 | |||||||||||||||||||
| Loss from operations | (3,573 | ) | ||||||||||||||||||
| Non-operating income | 305 | |||||||||||||||||||
| Loss before income taxes and equity in | ||||||||||||||||||||
| earnings of equity-method investment | $ | (3,268 | ) | |||||||||||||||||
6. | Income Taxes |
At the end of each interim reporting period, we estimate the effective income tax rate expected to be applicable for the full year as required by Accounting Principals Board Opinion No. 28, “Interim Financial Reporting.” The effective income tax rate determined is used to provide for income taxes on a year-to-date basis. The tax effect of any tax law changes and certain other discrete events are reflected in the period in which they occur.
Our effective income tax rate, as a percentage of pre-tax net income, for the six months ended June 30, 2008 and 2007 was (13%) and (1%), respectively. The fluctuation in the effective income tax rate is attributable to discrete events including the creation of a deferred tax liability related to the tax amortization of goodwill from the acquisition of VitalStream in February 2007. Movement in the deferred tax asset caused a corresponding movement in the provision for income taxes during the six months ended June 30, 2008. The effective income tax rate for the year ending December 31, 2008 could further change due to number of factors including, but not limited to, our geographic profit mix between the U.K. and the United States, enactments of new tax laws, new interpretations of existing tax laws and rulings by taxing authorities.
We continue to maintain a full valuation allowance against our non-U.K. unrealized deferred tax assets of approximately $185.0 million, consisting primarily of net operating loss carryforwards. We may recognize deferred tax assets in future periods when they are estimated to be realizable, such as establishing expected continuing profitability on a consolidated basis or by certain of our foreign subsidiaries. To the extent we may owe income taxes in future periods, we intend to use our net operating loss carryforwards to the extent available to offset taxable income and reduce cash outflows for income taxes. Based on an analysis of our projected 2008 and 2009 domestic income, we may have sufficient positive evidence within the next twelve months to begin releasing the valuation allowance against our domestic deferred tax assets.
Tax years 2005 through 2007 remain open to examination by United States Department of Treasury. Currently in the U.K., the tax years which remain open to examination include 2004 through 2007. Additionally, other state and foreign jurisdictions remain open to examination. Net operating losses carryforwards remain subject to examination for the corresponding jurisdiction's statutory period following the period which the net operating loss is fully utilized.
8. Investments
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