8x8 2012 Annual Report Download - page 55

2012 2011 2010
Tax provision at statutory rate $ 2,337 $ 2,226 $ 1,320
State income taxes before valuation allowance,
net of federal effec
t
408 372 298
Research and development credits (211) (128) (112)
Change in valuation allowance (65,042) (2,147) (1,536)
Income (loss) from change in fair value of warrant liabilit
y
- (57) 50
Compensation/option differences (87) (291) (20)
Non-deductible compensatio
n
220 75 51
Othe
r
21 5 (48)
$ (62,354) $ 55 $ 3
Years Ended March 31,
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):
2012 2011 2010
Balance at beginning of year $ 1,726 $ 1,743 $ 2,206
Gross increases - tax position in prior period 111 - -
Gross decreases - tax position in prior period - (157) (586)
Gross increases - tax positions related to the current year 646 140 123
Settlements - - -
Lapse of statue of limitations - - -
Balance at end of year $ 2,483 $ 1,726 $ 1,743
Unrecognized Tax Benefits
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $2.5 million, but any
effect would have been fully offset by the application of the valuation allowance. To the extent that the unrecognized tax
benefits are ultimately recognized, they may have an impact on the effective tax rate in future periods; however, such impact
on the effective tax rate would only occur if the recognition of such unrecognized tax benefits occurs in a future period when
the Company has already determined that its deferred tax assets are more likely than not realizable. The Company does not
expect the unrecognized tax benefits to change significantly over the next 12 months.
The Company files U.S. federal, state and foreign 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 2012 tax years generally remain subject to examination by federal and most state tax authorities. In significant
foreign jurisdictions, the fiscal year 2009 and 2010 tax years remain subject to examination by their respective tax authorities.
The Company's policy for recording interest and penalties associated with audits is to record such items as a component of
operating expense income before taxes. During the fiscal year ended March 31, 2012, 2011 and 2010, the Company did not
recognize any interest or penalties related to unrecognized tax benefits.
Undistributed earnings of the Company’ s foreign subsidiaries are indefinitely reinvested in foreign operations. No provision
has been made for taxes that might be payable upon remittance of such earnings, nor is it practicable to determine the amount
of this liability.
The Company has performed an analysis of its changes in ownership under Section 382 of the Internal Revenue Code of 1986,
as amended (the “Code”), and has determined that any ownership changes which have occurred do not result in a permanent
limitation on usage of the Company’ s federal and state net operating losses.
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