Hoist and rigging maker Columbus McKinnon Corp. is likely to report a significant paper loss for its fiscal third quarter, after taking a huge "non-cash" charge against its deferred tax assets because it may not be able to use them.
The Amherst-based materials handling company said in a filing with the federal Securities and Exchange Commission on Monday that it will record a charge of between $42 million and $47 million -- or $2.20 to $2.46 per share -- as part of its income tax provision for the quarter ended Dec. 31.
The charge relates to the firm's decision, required by accounting rules, to set aside a full-valuation allowance against U.S. tax credits that are on its books. Those have been accumulated through its employee benefit plans and insurance reserves, as well as from operating losses that it incurred in fiscal 2010 and 2011 because of restructuring costs.
Companies amass such "deferred tax assets," particularly "tax loss carryforwards," when they incur certain charges or quarterly losses and, as a result, pay no taxes because they earned no income. Those credits can then be applied against income in future periods over 20 years to reduce future tax bills.
But under accounting rules, companies must reduce the value of deferred tax assets if they incur cumulative losses for a certain minimum period of time and cannot prove that the losses won't continue, even if they are confident of future profits.
In Columbus McKinnon's case, executives determined as of Dec. 31 that the company would lose money for a total of three years, primarily because of one-time restructuring charges that it has incurred so far in the United States in fiscal 2011. That's even though the company expects to report an operating profit for the rest of the fiscal year, which ends March 31. The operating profit does not take the bookkeeping loss into consideration.
"It's really a function of strict accounting rules," said Chief Financial Officer Karen L. Howard.
As of Sept. 30, Columbus McKinnon had $49 million in deferred tax assets, not counting $1.6 million in valuation allowances. In order to recover all of the tax benefit, based on its tax rate, the company would have to report taxable income of $164 million over a 20-year period that includes fiscal 2009, 2010 and 2011, according to documents filed with the SEC.
Officials noted in their filing that the allowance against the tax assets could be reduced or reversed in the future if evidence shows that the company is likely to use all or part of the tax credits.
"We have a high degree of confidence that it will be reversed at some point in the future," Howard said. "We know we will have future earnings."
Howard also said that setting aside the allowance doesn't stop the company from using the assets on its tax returns to reduce what it will owe.
Separately, Columbus McKinnon also said late Monday that it will refinance $125 million in senior debt, pushing out the maturity date while getting a lower interest rate.