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Income Taxes
 9 Months Ended
Jun. 30, 2011
Income Taxes  
Income Taxes

3. Income Taxes

 

The income tax expense for the three and nine months ended June 30, 2011 was $1,000 and $77,000, respectively, compared to income tax expense of $270,000 and an income tax benefit of $135,000, respectively, for the three and nine months ended June 30, 2010.  The income tax expense for the three months ended June 30, 2011 reflects the cumulative adjustment resulting from an update to the forecast annual effective tax rate, and the income tax expense for the nine months ended June 30, 2011 reflects that adjustment.  The income tax expense for the three months ended June 30, 2010 resulted from the pretax income for the quarter.  The income tax benefit recorded for the nine months ended June 30, 2010 resulted from the pretax loss for that period.

 

The effective tax rates for the three months ended June 30, 2011 and 2010 were (1%) and 16%, respectively.  The effective tax rate for the three months ended June 30, 2011 was impacted by the pre-tax loss for the quarter and the reforecast of the effective tax rate for the year.  The effective tax rate for the three months ended June 30, 2010 was impacted by a decrease in the overall forecast effective tax rate for the year from the previous quarter, and a positive pre-tax income for the quarter compared to prior quarters in that year, and also a decrease in the provision for an uncertain tax position and related liability following the expiration of a related statute of limitations.

 

The effective tax rates for the nine months ended June 30, 2011 and 2010 were 10% and 21%, respectively.  The effective tax rate differs from the statutory rate for the nine months ended June 30, 2011 primarily because of the favorable impact of various deductible temporary differences forecast in current tax expense and the forecast utilization of research and experimentation tax credit carry-forwards based on the forecast level of pre-tax income.  Such items do not generate deferred tax expense because of the Company’s maintenance of the valuation allowance.  The effective tax rate differs from the statutory rate for the nine months ended June 30, 2010 because of the forecast reversals of various deductible temporary differences that are fully offset by a valuation allowance and the forecast utilization of research and experimentation tax credit carry-forwards based on the forecast level of pre-tax income and a decrease in an uncertain tax position and related liability upon the expiration of a statute of limitations.

 

In December of 2010, Congress enacted a two-year extension of the Research and Experimentation Tax Credit. This retroactive extension covered amounts paid or incurred from January 1, 2010 to December 31, 2010. The Company recognized the entire impact of this retroactive extension in the first quarter ended December 31, 2010, as required by ASC Topic 740.

 

The Company maintains a full valuation allowance against its net deferred tax assets, which consist primarily of deductible temporary differences and other carry-forward items.  The Company will continue to maintain this valuation allowance until an appropriate level of profitability is sustained to warrant a conclusion that it is more likely than not that a portion of these net deferred tax assets will be realized in future periods.  Accordingly, future pre-tax income within the jurisdictions for which the Company maintains a valuation allowance may result in these tax benefits being realized; however, there is no assurance of future pre-tax income.