Can someone explain this statement, taken from the company's website letter to shareholders to me in layman's terms? Would there be any adverse or beneficial affects to a new investor to Clarus Corportation due to this deferred tax mentioned below? What does it mean that "will release the related portion of its valuation allowance"?
"In connection with the closing of the transactions, the Company expects that it will more likely than not be able to realize a significant portion of its approximately $88.9 million deferred tax asset and therefore will release the related portion of its valuation allowance. As of March 31, 2010, Clarus’ net operating loss carryforwards were approximately $231 million."
What I really want to know is whether or not I should invest now or wait until the transaction is finished with BDE. Thanks, I appreciate your time!
Yea it is a weird statement. When there is a 50% chance or greater (ie more likely than not) that a company will use their NOLs they have to create a deferred tax asset. Think of it like a prepayment asset on the balance sheets. So what they are saying is that they are creating that deferred tax asset for approx 88M. I would say its more of a positive indicator than negative. I'm not sure if there is a defined methodology in determining the 50% or greater criteria (ie what kind of growth assumptions they are allowed to use etc.) Would be interesting though because might be able to back into EBITDA if there were defined criteria.