8x8 2013 Annual Report Download - page 59

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The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be
sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured
based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. A reconciliation
of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2013 2012 2011
Balance at beginning of year $ 2,483 $ 1,726 $ 1,743
Gross increases - tax position in prior period 73 111 -
Gross decreases - tax position in prior period - - (157)
Gross increases - tax positions related to the current year 468 646 140
Settlements - - -
Lapse of statue of limitations - - -
Balance at end of year $ 3,024 $ 2,483 $ 1,726
Unrecognized Tax Benefits
At March 31, 2013, the company had a liability for unrecognized tax benefits of $3.0 million, all of which, if recognized,
would affect the company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change
significantly over the next 12 months.
The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. The
Company has not been under examination by income tax authorities in federal, state or other foreign jurisdictions. The 1995
through fiscal 2013 tax years generally remain subject to examination by federal and most state tax authorities.
The Company's policy for recording interest and penalties associated with tax examinations is to record such items as a
component of operating expense income before taxes. During the fiscal year ended March 31, 2013, 2012 and 2011, the
Company did not recognize any interest or penalties related to unrecognized tax benefits.
Utilization of the Company’s net operating loss and tax credit carryforwards can become subject to a substantial annual
limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state
provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit
carryforwards before utilization. The Company has performed an analysis of its changes in ownership under Section 382 of the
Internal Revenue Code. Management currently believes that the Section 382 limitation will not limit utilization of the
carryforwards prior to their expiration, with the exception of certain acquired loss and tax credit carryforwards of Contactual,
Inc.
3. FAIR VALUE MEASUREMENT
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company considers the principal market or the most advantageous
market in which it would transact.
The accounting guidance for fair value measurement requires the Company to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs that reflect the assumptions
market participants would use in valuing the asset or liability and are developed based on market data obtained from sources
independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that
market participants would use in valuing the asset or liability developed based on the best information available in the
circumstances.