Audiovox 2010 Annual Report Download - page 91

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 28, 2010
(Dollars in thousands, except share and per share data)
In assessing the realizability of deferred tax assets, Management considers whether it is more-likely-than-not that some portion or all
of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income in those periods in which temporary differences become deductible and /or net operating loss carryforwards can be
utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies and
projected future taxable income in determining whether a valuation allowance is warranted. Based on these considerations, the
Company believes it cannot realize a substantial portion of its deferred tax assets on a more likely than not basis.
In accordance with ASC 350, the Company does not amortize indefinite-lived intangibles for book purposes but does amortize
intangibles with tax basis for tax purposes. The deferred tax liability at February 28, 2010 and February 28, 2009 relates to the tax
effect of differences between the book and tax bases of intangible assets not expected to reverse during the Company’s net operating
loss carry forward period.
As of February 28, 2010, the Company had approximately $9.2 million of U.S. federal net operating loss carryforwards, which are
available to offset future taxable income. These carryforwards expire in the tax years between 2027 and 2030, if not utilized. In
addition, the Company has approximately $3.3 of foreign tax credits that expire in 2012 through 2016 if not utilized. In addition, the
Company has various state net operating loss carryforwards that expire in varying amounts through fiscal year 2030.
The Company has not provided for U.S. federal and foreign withholding taxes on its foreign subsidiaries undistributed earnings in
Germany and Venezuela as of February 28, 2010, because such earnings are intended to be indefinitely reinvested overseas. The
amount of unrecognized deferred tax liabilities for temporary differences related to investments in undistributed earnings is not
practicable to determine at this time.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
Balance at February 29, 2008 $ 3,865
Additions based on tax positions taken in the current and prior years 2,014
Settlements -
Lapse in statute of limitations (125)
Balance at February 28, 2009 $ 5,754
Additions based on tax positions taken in the current and prior years 334
Change in tax law (1,166)
Settlements -
Lapse in statute of limitations (2,297)
Balance at February 28, 2010 $ 2,625
At February 28, 2010, the Company had unrecognized tax benefits of $888. A reasonable estimate of timing of these liabilities is not
possible. As of February 28, 2010, Company had approximately $330 of accrued interest and penalties. The Company records both
accrued interest and penalties related to income tax matters in the provision for income taxes in the accompanying consolidated
statement of operations. Included in the reconciliation of unrecognized tax benefits additions based on tax positions taken in prior
years for Fiscal 2009 are excess tax benefits for stock based compensation deductions which have not yet reduced the Company’s
current taxes payable as prescribed by ASC 718. In addition, the Company believes that the uncertain tax positions will not
materially change within the next twelve months.
During Fiscal 2010, the Company recorded an income tax benefit primarily related to a reduction of its valuation allowance in
connection with its ability to carryback certain net operating losses to the 2005 tax year as a result of new legislation enacted during
Fiscal 2010. As a result, the Company received an income tax refund of approximately $10.1 million in connection with such
carryback. The income tax refund remains subject to further review by the Joint Committee on Taxation
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Source: AUDIOVOX CORP, 10-K, May 14, 2010 Powered by Morningstar® Document Research℠