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Income Taxes
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9 Months Ended |
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Dec. 31, 2013
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| Income Tax Expense (Benefit) [Abstract] | |
| Income Taxes |
Income Taxes
At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year and uses that rate to provide for income taxes on a current year-to-date basis before discrete items. If a reliable estimate cannot be made, the Company may make a reasonable estimate of the annual effective tax rate, including use of the actual effective rate for the year-to-date. The impact of discrete items is recorded in the quarter in which they occur. The Company utilizes the liability method of accounting for income taxes and deferred taxes which are determined based on the differences between the financial statements and tax basis of assets and liabilities given 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 Company's deferred tax assets, the Company considered whether it is more likely than not that some or all of the deferred tax assets will be realized though the generation of future taxable income. In making this determination, the Company assessed all of the evidence available at the time including recent earnings, forecasted income projections and historical performance. In fiscal year 2013, the Company determined that the negative evidence outweighed the objectively verifiable positive evidence and recorded a full valuation allowance against deferred tax assets. The Company will continue to reassess realizability going forward.
The Company recorded $38,000 and $125,000 of income tax expense in the three and nine months ended December 31, 2013, respectively, using an effective income tax rate of 19.1%. The estimate of the annual effective tax rate for the full fiscal year did not result in a reliable estimate for the nine months ended December 31, 2013 and consequently the Company has used the actual effective tax rate for the nine months ended December 31, 2013. The expense resulted primarily from state income tax for Kentrox and a state tax based on gross margin, not pre-tax income.
In the three and nine months ended December 31, 2012, the Company recorded a net tax benefit of $1.3 million and $3.2 million, respectively, which resulted from an estimated annual effective tax rate of 39.6% for the fiscal year plus the effects of a discrete item. For the three and nine months ended December 31, 2012, there was $304,000 and $123,000 of discrete tax benefit, respectively, resulting primarily from the deferred state tax impact of estimated changes in state apportionment factors offset by tax shortfalls related to settlements of share-based compensation. An income tax benefit of $1.0 million and $1.1 million was included in discontinued operations for the three and nine months ended December 31, 2012, respectively.
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