Nautilus 2010 Annual Report Download - page 48

Table of Contents
Our effective tax rate for fiscal years 2010 and 2009 was an expense rate of 6.4% and a benefit rate of 36.9%, respectively. Our tax rate in 2009
was affected by the partial release of the valuation allowance due to the enactment of a new law in the fourth quarter of 2009. The effective tax
rate for 2010 differs from the statutory rate due to the recognition of a valuation allowance against deferred tax assets. Nautilus must periodically
evaluate the potential realization of its deferred income tax assets and, if necessary, record a valuation allowance to reduce the net carrying value
of such assets to the amount expected to be realized. In 2010 and 2009 Nautilus concluded that cumulative taxable losses in recent years
indicated a valuation allowance against its deferred income tax assets was required. If and when a review of objective evidence indicates that
some or all of the Company's valuation allowance is no longer appropriate, release of the valuation allowance would be recognized as an income
tax benefit to continuing operations in the period in which such assessment is made. The amount of valuation allowance offsetting the
Company's deferred income tax assets was $59.6 million and $53.7 million as of December 31, 2010 and 2009 , respectively.
Nautilus has net operating loss, capital loss and income tax credit carryforwards in various jurisdictions, all of which are fully offset by valuation
allowances and are available to offset future taxable income, if any. The timing and manner in which the Company is permitted to utilize its net
operating loss carryforwards may be limited by Internal Revenue Code Section 382, Limitation on Net Operating Loss Carry-forwards and
Certain Built-in-Losses Following Ownership Change . As of December 31, 2010
, the Company had the following income tax carryforwards (in
millions):
Under accounting guidance, an uncertain tax position represents the Company's expected treatment of a tax position taken in a filed tax return, or
planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes.
Following is a reconciliation of gross unrecognized tax benefits from uncertain tax positions (excluding the impact of penalties and interest) in
the years ended December 31, 2010 and 2009 (in thousands):
46
2010 2009
U.S. statutory income tax rate
35.0
%
35.0
%
State tax, net of U.S. federal tax benefit
2.2
%
3.4
%
Nondeductible incentive stock option expense
0.2
%
(0.1
)%
Non-U.S. income taxes
13.1
%
(0.6
)%
Effect of double taxation dividend received
(13.6
)%
—
Nondeductible operating expenses
(0.1
)%
(0.1
)%
Research and development credit —
%
0.3
%
Change in deferred tax measurement rate
0.3
%
(0.2
)%
Change in uncertain tax positions
(1.0
)%
(0.6
)%
Valuation allowance
(40.4
)%
(42.5
)%
Release of valuation allowance —
%
42.4
%
Other
(2.1
)%
(0.1
)%
Effective income tax benefit (expense) rate
(6.4
)%
36.9
%
Amount Expires in
Net operating loss carryforwards:
Federal
$
76.6
2029 - 2030
State
104.6
2012 - 2030
Germany
6.7
Indefinite
Switzerland
13.3
2012 - 2017
China
3.5
2012 - 2013
Italy
2.1
2013 - 2015
Federal capital loss carryforward
11.3
2013
Income tax credit carryforwards:
Federal
2.5
2018 - 2030
State
0.6
2018 - 2022