Nautilus 2013 Annual Report Download - page 52

Further there was a total of $4.4 million
of Deferred Income Tax Asset reversal related to the expiration of capital loss and certain state net
operating loss carryforwards during the fourth quarter of 2013. Accordingly a corresponding amount of valuation allowance was reversed in the
same quarter.
Evaluating the need for, and amount of, a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis
of all available evidence on a jurisdiction-by-
jurisdiction basis. Such judgments require us to interpret existing tax law and other published
guidance as applied to our circumstances. As part of this assessment, we consider both positive and negative evidence. The weight given to the
potential effect of positive and negative evidence must be commensurate with the extent to which the strength of the evidence can be objectively
verified. We generally consider the following, but are not limited to, objectively verified evidence to determine the likelihood of realization of
the deferred tax assets:
During 2008, we determined that it was no longer more likely than not that the tax benefits from the existing U.S. deferred tax assets would be
realized due to the substantial amount of the cumulative accounting losses realized in the recent years in the U.S. and the large taxable losses
incurred in the U.S. in 2007 and 2008. Accordingly, we established a full valuation allowance against our U.S. net deferred tax assets in 2008.
Each quarter, we assess the total weight of positive and negative evidence and re-
evaluate whether any adjustments or release of all or any
portion of valuation allowance is appropriate. In our assessment during the second quarter of 2013, we heavily weighted the positive evidence of
1) cumulative profits realized in recent years combined with the upward financial trends of current periods; and 2) future realization of the
existing U.S. deferred tax assets. Given our recent improved financial performance along with the sustained cumulative accounting profit, we
projected a positive forecasted taxable income in the U.S. during the second quarter of 2013. Accordingly, based on our review of the objective
evidence and our detailed analysis during the second quarter of 2013, we determined that a portion of our U.S. domestic valuation allowance was
no longer required.
Of the remaining valuation allowance, $4.1 million
relates to certain domestic loss and other credit carryforwards that we may not be able to
utilize primarily due to their shorter remaining carryforward periods and $8.8 million relates to foreign net operating loss carryfowards. Should it
be determined in the future that it is more likely than not that our domestic Deferred Income Tax Assets will be realized, an additional valuation
allowance would be released during the period in which such an assessment is made. There have been no material changes to our foreign
operations since December 31, 2012 and, accordingly, we maintain our existing valuation allowance on foreign Deferred Income Tax Assets in
such jurisdictions at December 31, 2013.
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• Our current financial position and our historical results of operations for recent years. We generally consider cumulative pre-
tax losses
in the three-
year period ending with the current quarter to be significant negative evidence regarding our future profitability. A pattern
of objectively-
measured recent financial reporting losses is heavily weighted as a source of negative evidence. Further, we also consider
the historical and current financial trends in the recent years.
•
Sources of taxable income of the appropriate character. Future realization of deferred tax assets is dependent on projected taxable
income of the appropriate character from our continuing operations. Future reversals of existing temporary differences are heavily-
weighted sources of objectively verifiable positive evidence. Projections of future taxable income exclusive of reversing temporary
differences are a source of positive evidence only when the projections are combined with a history of recent profits and current
financial trends and can be reasonably estimated.
•
Carryback and carryforward periods available. The long carryback and carryforward periods permitted under the tax law are objectively
verified positive evidence.
• Tax planning strategies. Tax planning strategies can be, depending on their nature, heavily-
weighted sources of objectively verifiable
positive evidence when the strategies are available and can be reasonably executed. We consider tax planning strategies only if they are
feasible and justifiable considering our current operations and our strategic plan. Tax planning strategies, if executed, may accelerate
the recovery of a deferred tax asset so the tax benefit of the deferred tax asset can be carried back.