SCOR » Topics » Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

This excerpt taken from the SCOR 10-K filed Mar 16, 2009.
Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
 
We have experienced “changes in control” that have triggered the limitations of Section 382 of the Internal Revenue Code on our net operating loss carryforwards. As a result, we may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. Federal income tax purposes.
 
As of December 31, 2008, we had federal and state net operating loss carryforwards for tax purposes of approximately $64.6 million and $34.7 million, respectively. These net operating loss carryforwards begin to expire in 2021 for federal income tax reporting purposes and begin to expire in 2014 for state income tax reporting purposes.
 
In addition, at December 31, 2008 we had aggregate net operating loss carryforwards for tax purposes related to our foreign subsidiaries of $9.7 million, which begin to expire in 2014.
 
We periodically assess the likelihood that we will be able to recover our deferred tax assets, principally net operating loss carryforwards. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies. As a result of this analysis of all available evidence, both positive and negative, we reduced the valuation allowance against a substantial portion of our U.S. deferred tax assets and certain foreign deferred tax assets and recognized an income tax benefit during the year ended December 31, 2008 of $20.4 million.
 
As of December 31, 2008, we had a valuation allowance of $2.8 million against certain deferred tax assets. The valuation allowance relates to the acquired deferred tax assets of the M:Metrics UK subsidiary and the deferred tax asset related to the unrealized impairment on the marketable securities in the U.S. Depending on our actual results in the future, there may be sufficient positive evidence to support the conclusion that all or a portion of our


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remaining valuation allowance should be further reduced. To the extent we determine that all or a portion of our valuation allowance is no longer necessary, we expect to recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. These events could have a material impact on our reported results of operations.
 
During 2009, we expect to reduce our net deferred tax asset each quarter and recognize deferred income tax expense that, when combined with our current income tax expense for cash taxes due, will result in a “normalized” effective tax rate. However, to the extent we realize losses in jurisdictions in which we cannot record an income tax benefit due to concern regarding the realization of the associated deferred tax asset, our effective tax rate will be negatively impacted.
 
This excerpt taken from the SCOR 10-K filed Mar 11, 2008.
Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
 
We have experienced “changes in control” that have triggered the limitations of Section 382 of the Internal Revenue Code on our net operating loss carryforwards. As a result, we may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. Federal income tax purposes.


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Table of Contents

As of December 31, 2007, we had both federal and state net operating loss carryforwards for tax purposes of approximately $67.8 million and $48.1 million, respectively. These net operating loss carryforwards begin to expire in 2020 for federal income tax reporting purposes and begin to expire in 2010 for state income tax reporting purposes.
 
In addition, at December 31, 2007 we had aggregate net operating loss carryforwards for tax purposes related to our foreign subsidiaries of $561,000, which begin to expire in 2010.
 
In the years ended December 31, 2006 and 2007, deferred tax assets, before valuation allowance, decreased approximately $2.4 million and $4.4 million, respectively, due to our use of net operating loss carryforwards to offset taxable income.
 
As of December 31, 2007, we had a valuation allowance of $21.3 million against certain deferred tax assets, which consisted principally of net operating loss carryforwards. We have continued to evaluate our valuation allowance position on a regular basis. After weighing both the positive and negative evidence, management believed that it was more likely than not that a portion of its deferred tax assets will be realized. Therefore, during 2007, we recognized a deferred tax asset of approximately $8.1 million based on our projected pre-tax income for 2008. If we determine that future reversals of our valuation allowance are appropriate, it may have a material impact on our results of operations.
 
During 2008, it is expected that the deferred tax asset recognized in 2007 will decrease each quarter as the net deferred tax asset is utilized. Therefore, we expect that we will have a “normalized” effective tax rate in the interim periods in 2008 for GAAP reporting purposes, with no tax impact on operating and free cashflow. On a quarterly basis throughout 2008, we will re-evaluate the realizability of our deferred tax assets for any material events. We will also consider the impact of full-year 2008 operating results, additional evidence concerning the predictability of our revenue streams and forecasts of future income.
 
We periodically assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits. As a result of this analysis of all available evidence, both positive and negative, we concluded that a full valuation allowance against deferred tax assets should be applied as of December 31, 2006. Depending on our actual results in the future, there may be sufficient positive evidence to support the conclusion that all or a portion of our valuation allowance should be further reduced. To the extent we determine that all or a portion of our valuation allowance is no longer necessary, we will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. Once the valuation allowance is eliminated or reduced, its reversal will no longer be available to offset our current tax provision. These events could have a material impact on our reported results of operations.
 

EXCERPTS ON THIS PAGE:

10-K
Mar 16, 2009
10-K
Mar 11, 2008
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