SHOR » Topics » 5. Income Taxes

This excerpt taken from the SHOR 10-Q filed May 8, 2009.

5. Income Taxes

The income tax benefit of $1.1 million for the three months ended March 31, 2009 on a net loss of $8.1 million resulted in an effective tax rate of (14%). The tax benefit is primarily a result of the year to date losses which were greater than the non-deductible expenses and thus the prior quarters tax provision was reduced. This resulted in a benefit during the three months ended March 31, 2009. The tax benefit of $0.1 million for the three months ended March 31, 2008 was primarily due to the decrease in the estimated annual effective tax for fiscal 2008 and reflects the effect of the expected use in fiscal 2008 of net operating loss and tax credit carryforwards based on the Company’s reduction in its annual income projection and the impact of the valuation allowance.

The income tax benefit of $0.2 million for the nine months ended March 31, 2009 on a net loss of $11.3 million resulted in an effective tax rate of (2%). The tax expense of $0.2 million for the nine months ended March 31, 2008 was primarily due to the decrease in the estimated annual effective tax for fiscal 2008 and reflects the effect of the expected use in fiscal 2008 of net operating loss and tax credit carryforwards based on the Company’s reduction in its annual income projection and the impact of the valuation allowance.

 

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During the quarter ended March 31, 2009, management determined that a reliable estimate of the Company’s annual effective tax rate could not be made due to the wide variability in the effective tax rate that could result from the impact of significant permanent differences, coupled with management’s assessment of the Company’s current business outlook for fiscal 2009. Accordingly, in accordance with FASB Interpretation 18, Accounting for Income Taxes in Interim Periods, the tax provision for the nine months ended March 31, 2009 was determined on a discrete basis, based upon actual operating results and tax credit carryforwards.

The “Emergency Economic Stabilization Act of 2008,” which contains the “Tax Extenders and Alternative Minimum Tax Relief Act of 2008”, was signed into law on October 3, 2008. Under the Act, the research credit was retroactively extended for amounts paid or incurred after December 31, 2007 and before January 1, 2010. Since the law was enacted during the Company’s nine months ended March 31, 2009, the effects of the change in the tax law have been recognized in the current period.

Assembly Bill 1452, enacted September 30, 2008 by the State of California, suspends net operating loss deductions for 2008 and 2009 and extends the carryforward period of any net operating losses not utilized due to such suspension. As of March 31, 2009, the Company does not have any California net operating loss carryforwards and, therefore, the change has no impact on the Company’s quarter ended March 31, 2009. Further, the bill limits the utilization of tax credits to 50% of a taxpayer’s California tax liability. Since the Company is in a net taxable loss and there is not utilization of any tax credits, the bill has no impact on the Company’s quarter ended March 31, 2009.

As of March 31, 2009, the Company had gross unrecognized tax benefits of $2.0 million, as compared to $1.5 million as on June 30, 2008, representing an increase of $0.5 million for the nine months of fiscal 2009. The increase in the reserve for unrecognized tax benefits during the nine months ended March 31, 2009, is primarily due to Federal and California research tax credits. None of the total unrecognized tax benefits of the Company, if recognized, would impact the effective tax rate, as the Company has a full valuation allowance on its carryforward attributes.

While management believes that the Company has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the Company’s current position. Accordingly, the Company’s provisions on federal, state and foreign tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved. The Company does not expect its unrecognized tax benefits to change materially over the next 12 months.

The Company’s only major tax jurisdiction is the United States. The tax years 2000 through 2007 remain open and subject to tax examination by the appropriate governmental agencies in the United States.

This excerpt taken from the SHOR 10-Q filed Feb 9, 2009.

5. Income Taxes

The income tax provision of $0.3 million for the three months ended December 31, 2008 on a net loss of $1.7 million resulted in an effective tax rate of (18%). The negative effective tax rate is primarily a result of nondeductible stock compensation expenses, limitations on the utilization of credit carryforwards and the impact of the valuation allowance. The tax benefit of $0.5 million for the three months ended December 31, 2007 was primarily due to the decrease in the estimated annual effective tax for fiscal 2008 and reflects the effect of the expected use in fiscal 2008 of net operating loss and tax credit carryforwards based on the Company’s reduction in its annual income projection and the impact of the valuation allowance. The income tax provision of $0.9 million for the six months ended December 31, 2008 on a net loss of $3.2 million resulted in an effective tax rate of (28%). The negative effective tax rate is primarily a result of nondeductible stock compensation expenses, limitations on the utilization of credit carryforwards and the impact of the valuation allowance. The tax expense of $0.3 million for the six months ended December 31, 2007 was primarily due to the decrease in the estimated annual effective tax for fiscal 2008 and reflects the effect of the expected use in fiscal 2008 of net operating loss and tax credit carryforwards based on the Company’s reduction in its annual income projection and the impact of the valuation allowance.

During the quarter ended December 31, 2008 management determined that a reliable estimate of the Company’s annual effective tax rate could no longer be made due to the wide variability in the effective tax rate that could result from the impact of significant permanent differences and management’s assessment of the Company’s current business outlook for fiscal 2009. Accordingly, in accordance with FASB Interpretation 18, Accounting for Income Taxes in Interim Periods, the tax provision for the six months ended December 31, 2008 was determined on a discrete basis, based upon actual operating results and tax credit carryforwards.

The “Emergency Economic Stabilization Act of 2008,” which contains the “Tax Extenders and Alternative Minimum Tax Relief Act of 2008”, was signed into law on October 3, 2008. Under the Act, the research credit was retroactively extended for amounts paid or incurred after December 31, 2007 and before January 1, 2010. Since the law was enacted during the Company’s three months ended December 31, 2008, the effects of the change in the tax law have been recognized in the current quarter.

Assembly Bill 1452, enacted September 30, 2008 by the State of California, suspends net operating loss deductions for 2008 and 2009 and extends the carryforward period of any net operating losses not utilized due to such suspension. As of June 30, 2008, the Company does not have any California net operating loss carryforwards and therefore, the change has no impact on the Company’s three and six months ended December 31, 2008. Further the bill limits the utilization of tax credits to 50% of a taxpayer’s California tax liability. The Company is able to utilize research and development credit to the extent of 50% of the Company’s tax liability.

As of December 31, 2008, the Company had gross unrecognized tax benefits of $2.1 million, as compared to $1.5 million as on June 30, 2008, representing an increase of $0.6 million for the first six months of fiscal 2009. The increase in the reserve for unrecognized tax benefits during the six months ended December 31, 2008 is primarily due to the Federal and California research tax credit. None of the total unrecognized tax benefits of the Company, if recognized, would impact the effective tax rate, as the Company has a full valuation allowance on its carryforward attributes.

While management believes that the Company has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the Company’s current position. Accordingly, the Company’s provisions on federal, state and foreign tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved. The Company does not expect its unrecognized tax benefits to change materially over the next 12 months.

The Company’s only major tax jurisdiction is the United States. The tax years 2000 through 2007 remain open and subject to tax examination by the appropriate governmental agencies in the United States.

This excerpt taken from the SHOR 10-Q filed Nov 6, 2008.

5. Income Taxes

The Company recorded an income tax provision of $0.6 million and $0.8 million for the three months ended September 30, 2008 and 2007, respectively.

During the quarter ended September 30, 2008 management determined that a reliable estimate of the Company’s annual effective tax rate could no longer be made due to the wide variability in the effective tax rate that could result from the impact of significant permanent differences, primarily non-deductible stock option expense, coupled with management’s assessment of the Company’s current business outlook for fiscal 2009. Accordingly, in accordance with FASB Interpretation 18, Accounting for Income Taxes in Interim Periods, the tax provision for the three months ended September 30, 2008 was determined on a discrete basis, based upon actual operating results and tax credit carryforwards.

The “Emergency Economic Stabilization Act of 2008,” which contains the “Tax Extenders and Alternative Minimum Tax Relief Act of 2008”, was signed into law on October 3, 2008. Under the Act, the research credit was retroactively extended for amounts paid or incurred after December 31, 2007 and before January 1, 2010. Since the law was enacted during the Company’s second fiscal quarter, the effects of the change in the tax law will be recognized in the second quarter. The Company is currently in the process of analyzing the impact of the new law.

Assembly Bill 1452, enacted September 30, 2008 by the State of California, suspends net operating loss deductions for 2008 and 2009 and extends the carryforward period of any net operating losses not utilized due to such suspension. As of June 20, 2008, the Company does not have any California net operating loss carryforwards and therefore, the change has no impact on the Company’s quarter ended September 30, 2008. Further the bill limits the utilization of tax credits to 50% of a taxpayer’s California tax liability. The Company is able to utilize research and development credit to the extent of 50% of the Company’s tax liability.

As of September 30, 2008, the Company had gross unrecognized tax benefits of $1.6 million, as compared to $1.5 million as on June 30, 2008, representing an increase of $0.1 million for the first three months of fiscal 2009. The increase in the reserve for unrecognized tax benefits during the three months ended September 30, 2008, is primarily due to California research credit. None of the total unrecognized tax benefits of the Company, if recognized, would impact the effective tax rate, as the Company has a full valuation allowance on its carryforward attributes.

While management believes that the Company has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the Company’s current position. Accordingly, the Company’s provisions on federal, state and foreign tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved. The Company does not expect its unrecognized tax benefits to change materially over the next 12 months.

The Company’s only major tax jurisdiction is the United States. The tax years 2000 through 2007 remain open and subject to tax examination by the appropriate governmental agencies in the United States.

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