CKEC » Topics » We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.

These excerpts taken from the CKEC 10-K filed Mar 16, 2009.

We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.

As of December 31, 2008 after applying Internal Revenue Code (“IRC”) Section 382 limitations, we had $19.0 million of federal and state operating loss carryforwards with which to offset our future taxable income. The federal and state net operating loss carryforwards will begin to expire in the year 2020. If these loss carryforwards are unavailable for our use in future periods, this may adversely affect our results of operations and financial position.

We experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during the fourth quarter of 2008. The ownership change has and will continue to subject our net operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset our taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The date of ownership change and the occurrence of more than one ownership change can significantly impact the amount of the annual limitation. We have analyzed the available information to determine the amount of the 2008 limitation. We estimate the 2008 limitation to be $1.2 million per year, based on the information available to us. In total, we estimate that the effect of the 2008 ownership change to result in $97.8 million of net operating loss carryforwards expiring unused.

We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our
future tax liability.

As of December 31, 2008 after applying Internal Revenue Code (“IRC”) Section 382
limitations, we had $19.0 million of federal and state operating loss carryforwards with which to offset our future taxable income. The federal and state net operating loss carryforwards will begin to expire in the year 2020. If these loss
carryforwards are unavailable for our use in future periods, this may adversely affect our results of operations and financial position.

SIZE="2">We experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during the fourth quarter of 2008. The ownership change has and will continue to subject our net
operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset our taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate
value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The date of ownership change and the occurrence of more than one ownership change can significantly impact the amount of the annual
limitation. We have analyzed the available information to determine the amount of the 2008 limitation. We estimate the 2008 limitation to be $1.2 million per year, based on the information available to us. In total, we estimate that the effect of
the 2008 ownership change to result in $97.8 million of net operating loss carryforwards expiring unused.

These excerpts taken from the CKEC 10-K filed Mar 17, 2008.

We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.

As of December 31, 2007, after generating approximately $7.6 million of operating loss carryforwards for 2007, we had approximately $110.2 million of federal and state operating loss carryforwards with which to offset our future taxable income. The federal and state net operating loss carryforwards will begin to expire in the year 2020. If these loss carryforwards are unavailable for our use in future periods, this may adversely affect our results of operations and financial position.

We believe that an “ownership change” within the meaning of Section 382 (g) of the Internal Revenue Code of 1986, as amended, occurred during 2007. The ownership change will subject our net operating loss carryforwards to an annual limitation, which may significantly restrict our ability to use them to offset our

 

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Index to Financial Statements

taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The date of ownership change and the occurrence of more than one ownership change can significantly impact the amount of the annual limitation. We are currently analyzing the information to determine the amount of such limitation. We project the federal limitation could be as low as $3.4 million per year, based on information currently available to us. To further refine our estimate of the limitation, we must determine whether or not we had a net unrealized built-in gain or loss (“NUBIG” or “NUBIL”) at the date of the ownership change. Generally, a NUBIG or NUBIL is determined based on the difference between the fair market value of the assets and their tax basis. If the computed NUBIG or NUBIL is below a de minimis threshold, the amount of the NUBIG or NUBIL is considered to be zero. Otherwise, certain deductions recognized during the five-year period beginning on the date of ownership change would be subject to limitation when a NUBIL is present. Conversely, the Section 382 limitation would be increased by certain income recognized during this five-year period. We are currently evaluating whether or not a NUBIG or NUBIL exists.

We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.

As of December 31, 2007, after generating approximately $7.6 million of operating loss carryforwards for 2007, we had
approximately $110.2 million of federal and state operating loss carryforwards with which to offset our future taxable income. The federal and state net operating loss carryforwards will begin to expire in the year 2020. If these loss
carryforwards are unavailable for our use in future periods, this may adversely affect our results of operations and financial position.

SIZE="2">We believe that an “ownership change” within the meaning of Section 382 (g) of the Internal Revenue Code of 1986, as amended, occurred during 2007. The ownership change will subject our net operating loss carryforwards
to an annual limitation, which may significantly restrict our ability to use them to offset our

 


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Table of Contents


Index to Financial Statements



taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the
ownership change multiplied by a specified tax-exempt interest rate. The date of ownership change and the occurrence of more than one ownership change can significantly impact the amount of the annual limitation. We are currently analyzing the
information to determine the amount of such limitation. We project the federal limitation could be as low as $3.4 million per year, based on information currently available to us. To further refine our estimate of the limitation, we must
determine whether or not we had a net unrealized built-in gain or loss (“NUBIG” or “NUBIL”) at the date of the ownership change. Generally, a NUBIG or NUBIL is determined based on the difference between the fair market value
of the assets and their tax basis. If the computed NUBIG or NUBIL is below a de minimis threshold, the amount of the NUBIG or NUBIL is considered to be zero. Otherwise, certain deductions recognized during the five-year period beginning on
the date of ownership change would be subject to limitation when a NUBIL is present. Conversely, the Section 382 limitation would be increased by certain income recognized during this five-year period. We are currently evaluating whether or not
a NUBIG or NUBIL exists.

This excerpt taken from the CKEC 10-K filed Mar 16, 2007.

We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.

As of December 31, 2006, after generating approximately $9.6 million of operating loss carryforwards for 2006, we had approximately $106.2 million of federal and $132.2 million of state operating loss carryforwards with which to offset our future taxable income. The federal net operating loss carryforwards will begin to expire in the year 2020. If these loss carryforwards are unavailable for our use in future periods, this may adversely affect our results of operations and financial position.

The determination of whether we underwent an ownership change for purposes of Section 382 of the Internal Revenue Code of 1986, as amended, as a result of the issuance of common stock pursuant to our plan of reorganization (the “Plan Stock Issuance”) is subject to a number of highly complex legal issues and factual uncertainties. In our federal income tax return for 2002, we reported the Plan Stock Issuance as causing a Section 382 ownership change, although the matter is not free from doubt and arguments can be advanced to support the contrary position. Based on our reported tax treatment, we believe that the special exception in Section 382(l)(5) available to debtors in bankruptcy applied, so that our net operating loss carryforwards did not become subject to a Section 382 limitation as a result of the Plan Stock Issuance. If, however, we underwent a second ownership change within two years following our date of reorganization — that is, by January 31, 2004 — and assuming that the Plan Stock Issuance caused an ownership change, our net operating losses would have become subject to a Section 382 limitation of zero and their future use effectively would have been eliminated. The sale of shares in the offering of August 2004 caused us to undergo an “ownership change” within the meaning of Section 382 (g) of the Internal Revenue Code of 1986, as amended. The ownership change has subjected our net operating loss carryforwards to an annual limitation on their use, which will restrict our ability to use them to offset our taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate, and is further increased by certain “built-in gains” recognized during the five-year period following the ownership change. Such limitation is projected to be approximately $27.0 million per year for the first five years and will decrease to approximately $15.0 million per year thereafter.

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