|12 Months Ended|
Mar. 31, 2012
|Income Taxes [Abstract]|
Note 4. Income Taxes:
The income tax expenses (benefits) charged to net income from continuing operations are summarized as follows:
The statutory federal income tax rate is reconciled to the Company's effective income tax rates below:
Components of the net deferred income tax asset are as follows:
Classified in Consolidated Balance Sheet as follows:
In addition to the deferred tax assets listed in the table above, the Company has $915,000 and $238,000 of unrecorded tax benefits at March 31, 2012 and March 31, 2011, respectively, primarily attributable to the difference between the amount of the financial statement expense and the allowable tax deduction for stock issued under the Company's stock compensation plans. Although not recognized for financial reporting purposes, this unrecognized tax benefit is available to reduce future income and is incorporated as a reduction to the Company's federal and state NOL carry forwards, which are discussed below.
The Company utilizes the liability method of accounting for income taxes and deferred taxes are determined based on the differences between the financial statements and tax basis of assets and liabilities given the provisions of the enacted tax laws. The Company evaluates the need for valuation allowances on the net deferred tax assets under the rules of ASC 740 Income Taxes. In assessing the realizability of the deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized through the generation of future taxable income. In making this determination, the Company assessed all of the evidence available at the time including recent earnings, the forecasted income projections, and historical financial performance.
In fiscal year 2012, the Company sold its ConferencePlus subsidiary and completed the CNS asset sale. These events resulted in a $64.5 million taxable gain in fiscal year 2012 and changed the outlook for future taxable income, positively with regards to the CNS business which contributed to the majority of the Company's historical losses and negatively in certain states where income generated by ConferencePlus was apportioned. In addition, certain states for which the Company has net operating loss carryforwards, such as Illinois, suspended the use of those carryforwards. The Company therefore was not able to utilize those carryforwards to offset fiscal year 2012 taxable income. The Company considered both the positive and negative evidence and established a forecast of future taxable income to evaluate the deferred tax assets for realizability. On this basis, the Company concluded that it was more likely than not that it would be able to utilize the majority of its deferred tax assets but that certain state net operating loss carryforwards would expire prior to utilization. As a consequence, the Company increased the valuation allowance reserve by $1.7 million to $2.3 million in fiscal year 2012. In addition, the Company recognized $2.1 million of net tax benefits relating to the change in uncertain tax positions.
The Company also changed the federal rate used on deferred taxes from 35% to 34%. This change resulted in a $645,000 tax expense.
In fiscal year 2011, after considering both the positive and negative evidence, including improved financial performance, expected future taxable income, the exit of a three-year cumulative loss, and the sale of the majority of its CNS business for a $32 million taxable gain, the Company concluded that it was more likely than not that it would be able to utilize the majority of its deferred tax assets. Prior to fiscal year 2011, a full valuation allowance on deferred tax assets was in place. As a result of the fiscal year 2011 assessment of realizability of deferred tax assets and current year income, the valuation allowance decreased by $60.8 million, which was recorded as additional income tax benefit (income) in fiscal year 2011. The Company also recognized an additional $0.7 million of tax benefits relating to changes in or expirations of uncertain tax positions.
The Company has approximately $4.6 million in tax credit carryforwards and a $64.8 million federal net operating loss carryforward that is available to offset taxable income in the future. The tax credit carryforwards will begin to expire in fiscal year 2013. The tax credits expiring in 2012 are included within the uncertain tax positions reserve. The federal net operating loss carryforward begins to expire in fiscal year 2023. State net operating loss carryforwards of $4.7 million have varying carryforward periods from five to twenty years. The $2.3 million of valuation allowance as of March 31, 2012 relates to state operating loss carryforwards that are expected to expire prior to utilization.
An income tax benefit of $61,000 related to stock-based compensation was credited to additional paid-in-capital during fiscal year 2012. No related benefit was recorded in fiscal years 2011 or 2010.
The Company accounts for uncertainty in income taxes under FASB Interpretation 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109, as codified in ASC 740, which prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits for fiscal years 2011 and 2012 is as follows:
The unrecognized tax benefits are presented in other long-term liabilities on the Consolidated Balance Sheets.
If the unrecognized tax benefit balances at March 31, 2012 and 2011 were recognized, it would affect the effective tax rate. During fiscal year 2012, $2.1 million of unrecognized tax benefits was recognized as income because the item was settled. During fiscal year 2011, $395,000 of unrecognized tax benefits was recognized as income, as the potential exposures related to these liabilities expired. Approximately $716,000 of unrecognized tax benefits and the related deferred tax asset is anticipated to expire unused in the next year.
The Company recognized interest and penalties of $14,000, $(28,000) and $(66,000) as a component of income tax expense as of March 31, 2012, March 31, 2011 and March 31, 2010, respectively. Interest and penalty credits result from reductions in uncertain tax positions. As of March 31, 2012 and March 31, 2011, accrued interest and penalties was $7,000 and $53,000, respectively.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates.
With few exceptions, the major jurisdictions subject to examination by the relevant taxable authorities and open tax years are as follows:
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef