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10-Q - FORM 10-Q - Xstelos Holdings, Inc.v326124_10q.htm
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v2.4.0.6
Income Taxes
9 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

8. Income Taxes

 

The Company has available for federal income tax purposes net operating loss carryforwards (“NOLs”), subject to review by the authorities, aggregating approximately $111.9 million and $119.9 million, respectively, as of September 30, 2012 and December 31, 2011 that, if not utilized, will begin expiring for federal purposes in 2025.  Utilization of the net operating loss carry forwards may be subject to an annual limitation in the event of a change in ownership in future years as defined by Section 382 of the Internal Revenue Code and similar state provisions. It should be noted that there may be certain limitations other than those potentially imposed by Section 382 of the Code on the Company’s ability to use its NOLs to offset certain taxable income, including, potentially, income generated in respect of the CPEX business. In assessing the realizability of deferred taxes, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized based on projections of our future taxable earnings.  The ultimate realization of deferred tax assets is dependent upon several factors, including the generation of future taxable income during the periods in which those temporary differences become deductible.

 

As a result of the 2011 CPEX acquisition, the Company recorded an approximately $19.5 million net deferred tax liability, and reduced approximately $19.5 million of the valuation allowance against its NOL carryforward tax asset, which is reflected as an income tax benefit for the three and nine months ended October 1, 2011. The Company reviews the valuation of deferred tax assets based on positive evidence, such as projections of future taxable earnings along with negative evidence, such as operational uncertainties. As a result, the Company concluded that it is more likely than not that certain deferred tax assets will be realized as of September 30, 2012, based primarily on the actual earnings from CPEX operations since the date of acquisition in April 2011 and the forecasted performance of CPEX and reduced the previously recorded valuation allowance resulting in a tax benefit of approximately $21.2 million for the three and nine months then ended.

 

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

 

Deferred tax asset:   September 30, 2012     December 31, 2011  
NOL   $ 39,171     $ 46,186  
Employee Benefits     451       460  
Unrealized Capital Losses     43       -  
Property & Equipment     184       4,543  
      39,849       51,189  
Less: valuation Allowance     -       (31,441 )
Less: long-term portion deferred tax liability     (18,695 )     (18,343 )
    $ 21,154     $ 1,405  
Deferred tax liability:                
Amortization of intangible asset     18,695       19,748  
Net long term portion against deferred tax asset     (18,695 )     (18,343 )
    $ -     $ 1,405  

 

Amounts included in the condensed consolidated balance sheet as follows (in thousands):

 

    September 30, 2012     December 31, 2011  
Current deferred tax asset   $ 5,513     $ 1,405  
Long term deferred tax asset     15,641          
Non-current deferred tax liability     -       (1,405 )
    $ 21,154     $ -