SBN » Topics » Provision for Income Taxes

These excerpts taken from the SBN 10-K filed Dec 10, 2008.
Provision for Income Taxes
 
We recorded a provision for income taxes of $2.0 million in 2008 and $0.4 million in 2007. Our tax provision is primarily related to U.S. federal taxes, and state and foreign income taxes, and is impacted by our net operating loss carryforwards and our ability to use them. As a result of these circumstances, and due to significant changes in our period to period results, we have experienced significant fluctuations in our effective tax rate and respective tax provisions or benefits over the past several quarters and expect such fluctuations to continue over the next several quarters.
 
Based upon available evidence, there is uncertainty regarding our ability to realize our deferred tax assets and we have therefore recorded a full valuation allowance against the deferred tax assets in our consolidated financial statements. Based on our estimates for 2009 and beyond, we believe the uncertainty regarding the


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ability to realize our deferred tax assets may diminish to the point where the recognition of our deferred tax assets may be warranted in the future. If we determine that it is more likely than not that we will be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset valuation allowance would be recorded in the period when such determination is made.
 
Prior to any changes in our overall assessment in the realizability of our fully reserved deferred tax assets, as discussed above, if we generate taxable income in the U.S. or certain other international jurisdictions, and utilize pre-acquisition net operating loss carryforwards to offset this income, we will recognize income tax expense at the applicable statutory rate in our consolidated statement of operations, as the reduction in the related valuation allowance for these pre-acquisition net operating loss carryforwards will reduce goodwill rather than offset income tax expense. As discussed in Note 2 to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, when we adopt SFAS 141R in our fiscal year 2010, changes in deferred tax asset valuation allowances from a business combination after the measurement period will impact income tax expense and not goodwill. Due to the age of the respective net operating loss carryforwards, we first must use carryforwards related to our acquisition of MAI, which we acquired in 2006 (see Note 6), followed by our carryforwards from Fourth Shift which we acquired in 2001. The MAI and Fourth Shift carryforwards both had a full valuation allowance against them at the time of acquisition, so the applicable purchase price was allocated to goodwill and not to net deferred tax assets.
 
Effective October 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) as required. The adoption did not have a material impact on our consolidated financial statements. Additional information on the adoption of FIN 48 is presented in Note 9 to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
 
Provision
for Income Taxes



 



We recorded a provision for income taxes of $2.0 million in
2008 and $0.4 million in 2007. Our tax provision is
primarily related to U.S. federal taxes, and state and
foreign income taxes, and is impacted by our net operating loss
carryforwards and our ability to use them. As a result of these
circumstances, and due to significant changes in our period to
period results, we have experienced significant fluctuations in
our effective tax rate and respective tax provisions or benefits
over the past several quarters and expect such fluctuations to
continue over the next several quarters.


 



Based upon available evidence, there is uncertainty regarding
our ability to realize our deferred tax assets and we have
therefore recorded a full valuation allowance against the
deferred tax assets in our consolidated financial statements.
Based on our estimates for 2009 and beyond, we believe the
uncertainty regarding the





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ability to realize our deferred tax assets may diminish to the
point where the recognition of our deferred tax assets may be
warranted in the future. If we determine that it is more likely
than not that we will be able to realize our deferred tax assets
in the future, an adjustment to the deferred tax asset valuation
allowance would be recorded in the period when such
determination is made.


 



Prior to any changes in our overall assessment in the
realizability of our fully reserved deferred tax assets, as
discussed above, if we generate taxable income in the
U.S. or certain other international jurisdictions, and
utilize pre-acquisition net operating loss carryforwards to
offset this income, we will recognize income tax expense at the
applicable statutory rate in our consolidated statement of
operations, as the reduction in the related valuation allowance
for these pre-acquisition net operating loss carryforwards will
reduce goodwill rather than offset income tax expense. As
discussed in Note 2 to our Consolidated Financial
Statements in Item 8 of this Annual Report on
Form 10-K,
when we adopt SFAS 141R in our fiscal year 2010, changes in
deferred tax asset valuation allowances from a business
combination after the measurement period will impact income tax
expense and not goodwill. Due to the age of the respective net
operating loss carryforwards, we first must use carryforwards
related to our acquisition of MAI, which we acquired in 2006
(see Note 6), followed by our carryforwards from Fourth
Shift which we acquired in 2001. The MAI and Fourth Shift
carryforwards both had a full valuation allowance against them
at the time of acquisition, so the applicable purchase price was
allocated to goodwill and not to net deferred tax assets.


 



Effective October 1, 2007, we adopted the provisions of
FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes
(“FIN 48”) as required. The
adoption did not have a material impact on our consolidated
financial statements. Additional information on the adoption of
FIN 48 is presented in Note 9 to Consolidated
Financial Statements in Item 8 of this Annual Report on
Form 10-K.


 




EXCERPTS ON THIS PAGE:

10-K (2 sections)
Dec 10, 2008
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