Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.1.9
Income Taxes
 12 Months Ended
Mar. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes:
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. 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, forecasted income projections, and historical financial performance. The Company has fully reserved deferred tax assets as a result of this assessment.
The income tax expenses (benefits) from continuing operations are summarized as follows:
 
Fiscal Year Ended March 31,
(in thousands)
2015
 
2014
 
2013
Federal:
 
Current
$
—

 
$
6

 
$
—

Deferred
13

 
(7,110
)
 
24,578

 
13

 
(7,104
)
 
24,578

State:
 
 
 
 
 
Current
(31
)
 
433

 
2

Deferred
(87
)
 
(1,712
)
 
4,797

 
(118
)
 
(1,279
)
 
4,799

Foreign:
 
 
 
 
 
Current
31

 
56

 
(8
)
Deferred
(127
)
 
(133
)
 
23

 
(96
)
 
(77
)
 
15

Total
$
(201
)
 
$
(8,460
)
 
$
29,392


The statutory federal income tax rate is reconciled to the Company's effective income tax rates below:
 
Fiscal Year Ended March 31,
 
2015
 
2014
 
2013
Statutory federal income tax rate
34.0
 %
 
34.0
 %
 
34.0
 %
Meals and entertainment
(0.1
)
 
(1.5
)
 
(0.2
)
State income tax, net of federal tax effect
3.7

 
2.4

 
3.1

Valuation allowance
(17.6
)
 
208.3

 
(256.1
)
Goodwill impairment
(18.7
)
 
—

 
(2.1
)
Deferred tax adjustments
(0.1
)
 
8.3

 
1.4

Foreign tax credit
—

 
3.3

 
(0.3
)
Equity compensation
(0.8
)
 
(6.4
)
 
(0.6
)
Capitalized transaction costs
—

 
(2.7
)
 
—

Other
(0.1
)
 
(3.2
)
 
(2.7
)
Effective income tax rate
0.3
 %
 
242.5
 %
 
(223.5
)%

Components of the net deferred income tax assets are as follows:
 
March 31,
(in thousands)
2015
 
2014
Deferred income tax assets:
 
Allowance for doubtful accounts
$
17

 
$
33

Alternative minimum tax credit carryforward
697

 
697

Foreign tax credit carryforward
824

 
785

Depreciation
1,025

 
940

Deferred revenue
1,227

 
950

Compensation accruals
887

 
2,323

Inventory reserves
3,492

 
1,903

Warranty reserves
196

 
92

Net operating loss carryforward
35,380

 
29,510

Restructuring reserve
1,048

 
—

Other
1,129

 
863

Gross deferred tax assets
45,922

 
38,096

Valuation allowance
(39,117
)
 
(28,864
)
Net deferred income tax assets
6,805

 
9,232

Deferred income tax liabilities:
 
 
 
Inventory step-up
—

 
(379
)
Intangibles and goodwill
(6,851
)
 
(9,026
)
Net deferred income tax liabilities
$
(46
)
 
$
(173
)
Classified in Consolidated Balance Sheets as follows:
 
March 31,
(in thousands)
2015
 
2014
Deferred income tax assets
$
973

 
$
899

Deferred income tax liability
(1,019
)
 
(1,072
)
Net deferred income tax liabilities
$
(46
)
 
$
(173
)

In addition to the deferred tax assets listed in the table above, the Company has $1.5 million and $1.3 million of unrecorded tax benefits at March 31, 2015, and 2014, 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 carryforwards, which are discussed below.
In fiscal year 2015, the Company continues to maintain a full valuation allowance on deferred tax assets. The Company recorded an income tax benefit of $0.2 million that resulted from foreign tax and state tax based on gross margin.
In fiscal year 2014, the Company continued to fully reserve deferred tax assets. The Company acquired Kentrox and CSI in stock transactions. Deferred tax liabilities of $8.8 million resulted from the acquisitions relating primarily to acquired intangible assets. The Company's anticipated ability to realize deferred tax assets from the reversal of these deferred tax liabilities resulted in a reversal of valuation allowance. Income tax expense, excluding the impact of the acquisitions noted above, was $0.4 million primarily from state income tax expense in non-unitary states and state taxes based on gross margin, not taxable income.
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 domestic deferred income tax assets by $34.0 million, which taken together with the liability for uncertain tax positions, had the effect of reserving in full all of the Company's deferred tax assets as of March 31, 2013.
The Company has, on a tax effected basis, approximately $1.5 million in tax credit carryforwards and $30.9 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 2022. The federal net operating loss carryforwards begin to expire in fiscal year 2023. State net operating loss carryforwards, on a tax effected basis and net of federal tax benefits, are $6.0 million. The state net operating loss carryforwards begin to expire in fiscal year 2016.
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 2014 and 2015 is as follows: 
(in thousands)
 
Unrecognized tax benefits at March 31, 2013
$
2,768

Additions from acquisitions
186

Additions based on positions related to fiscal year 2014
—

Additions for tax positions of years prior to fiscal year 2014
1

Reductions for tax positions of years prior to fiscal year 2014
—

Reductions as a result of expirations of applicable statutes of limitations
—

Settlements
—

Unrecognized tax benefits at March 31, 2014
$
2,955

Additions based on positions related to fiscal year 2015
—

Additions for tax positions of years prior to fiscal year 2015
1

Reductions for tax positions of years prior to fiscal year 2015
—

Reductions as a result of expirations of applicable statutes of limitations
—

Settlements
—

Unrecognized tax benefits at March 31, 2015
$
2,956


If the unrecognized tax benefit balances at March 31, 2015, and 2014, were recognized, it would affect the effective tax rate.
The Company recognized interest and penalties of $6,000, $3,000 and $12,000 as a component of income tax expense as of March 31, 2015, 2014, and 2013, respectively.   As of March 31, 2015, and 2014, accrued interest and penalties were $1,000 and $1,000, 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
2011
-
2014
U.S. State
2010
-
2014
Foreign
2010
-
2014