Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Mar. 31, 2013
Income Tax Expense (Benefit) [Abstract]  
Income Taxes
Income Taxes:
The income tax expenses (benefits) from continuing operations are summarized as follows:
 
Fiscal Year Ended March 31,
(in thousands)
2013
 
2012
 
2011
Federal:
 
Current
$
—

 
$
(775
)
 
$
685

Deferred
24,578

 
9,604

 
(53,606
)
 
24,578

 
8,829

 
(52,921
)
State:
 
 
 
 
 
Current
2

 
1,219

 
(130
)
Deferred
4,797

 
2,770

 
(288
)
 
4,799

 
3,989

 
(418
)
Foreign:
 
 
 
 
 
Current
(8
)
 
50

 
71

Deferred
23

 
7

 
(36
)
 
15

 
57

 
35

Total
$
29,392

 
$
12,875

 
$
(53,304
)

The statutory federal income tax rate is reconciled to the Company's effective income tax rates below:
 
Fiscal Year Ended March 31,
 
2013
 
2012
 
2011
Statutory federal income tax rate
34.0
 %
 
35.0

 
35.0
 %
Meals and entertainment
(0.2
)
 
0.1

 
0.3

State income tax, net of federal tax effect
3.1

 
3.1

 
4.0

Valuation allowance
(241.3
)
 
5.3

 
(591.7
)
Goodwill impairment
(1.9
)
 
—

 
—

Deferred tax adjustments
0.5

 
2.6

 
14.7

Contingent tax reserves
—

 
(6.3
)
 
(4.0
)
Other
(2.6
)
 
0.1

 
(1.3
)
 
(208.4
)%
 
39.9
 %
 
(543.0
)%

Components of the net deferred income tax assets are as follows:
 
March 31,
(in thousands)
2013
 
2012
Deferred income tax assets:
 
Allowance for doubtful accounts
$
4

 
$
3

Alternative minimum tax credit carryforward
697

 
697

Foreign tax credit carryforward
674

 
718

Research and development credit carryforward
2,735

 
3,451

Depreciation
1,224

 
1,286

Compensation accruals
1,326

 
1,186

Inventory reserves
888

 
575

Warranty reserves
57

 
90

Net operating loss carryforward
29,315

 
25,874

Intangibles and goodwill
689

 
172

Other
1,105

 
518

 
38,714

 
34,570

Valuation allowance
(36,285
)
 
(2,253
)
Net deferred income tax assets
$
2,429

 
$
32,317

Classified in Consolidated Balance Sheets as follows:
 
March 31,
(in thousands)
2013
 
2012
Deferred income tax assets
$
2,735

 
$
32,599

Deferred income tax liability – included in other long-term liabilities
(306
)
 
(282
)
Net deferred income tax assets
$
2,429

 
$
32,317


In addition to the deferred tax assets listed in the table above, the Company has $1.0 million and $0.9 million of unrecorded tax benefits at March 31, 2013, and March 31, 2012, 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 which are determined based on the differences between the financial statements and tax bases 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 then forecasted income projections, and historical financial performance.
In fiscal year 2013, the Company considered both the positive and negative evidence available to assess the realizability of its deferred tax assets. The Company considered negative factors which included recent losses and a forecasted three-year cumulative loss position, as well as positive evidence consisting primarily of projected future earnings. The Company concluded that the negative evidence outweighed the objectively verifiable positive evidence. As a result, the Company increased the valuation allowance against deferred income tax assets by $34.0 million, which taken together with the liability for uncertain tax positions, has the effect of reserving in full all of the Company's deferred tax assets as of March 31, 2013.
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 result, 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 $0.6 million tax expense.
In fiscal year 2011, after considering both the positive and negative evidence, including improved financial performance, expected future taxable income, the exit from a three-year cumulative loss, and the sale of the majority of its CNS business for a $31.7 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 an income tax benefit 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 $4.1 million in tax credit carryforwards and $73.8 million of federal net operating loss carryforwards that are available to offset taxable income in the future. The tax credit carryforwards will begin to expire in fiscal year 2020. The federal net operating loss carryforwards begin to expire in fiscal year 2023. State net operating loss carryforwards, net of federal tax benefits, are $5.3 million and have varying carryforward periods of from 5 to 20 years.
An income tax benefit of $0.1 million related to stock-based compensation was credited to additional paid-in-capital during fiscal year 2012. No related benefit was recorded in fiscal years 2013 or 2011.
The Company accounts for uncertainty in income taxes under 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 2012 and 2013 is as follows: 
(in thousands)
 
Unrecognized tax benefits at March 31, 2011
$
6,259

Additions based on positions related to fiscal year 2012
—

Additions for tax positions of years prior to fiscal year 2012
32

Reductions for tax positions of years prior to fiscal year 2012
(8
)
Reductions as a result of expirations of applicable statutes of limitations
(699
)
Settlements
(2,101
)
Unrecognized tax benefits at March 31, 2012
$
3,483

Additions based on positions related to fiscal year 2013
—

Additions for tax positions of years prior to fiscal year 2013
1

Reductions for tax positions of years prior to fiscal year 2013
—

Reductions as a result of expirations of applicable statutes of limitations
(716
)
Settlements
—

Unrecognized tax benefits at March 31, 2013
$
2,768


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, 2013, and 2012, 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.
The Company recognized interest and penalties of $12,000, $14,000 and $(28,000) as a component of income tax expense as of March 31, 2013, 2012, and 2011, respectively.  Interest and penalty credits result from reductions in uncertain tax positions.  As of March 31, 2013, and March 31, 2012, accrued interest and penalties was $9,000 and $7,000, 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, stated as the Company's fiscal years, are as follows:
Jurisdiction
Open Tax Years
U.S. Federal
2009
-
2013
U.S. State
2008
-
2013
Foreign
2008
-
2013