CSPI » Topics » Income Taxes

This excerpt taken from the CSPI 10-Q filed May 14, 2009.

Income Taxes

Income Tax Provision

The Company recorded an income tax provision of $112 thousand for the quarter ended March 31, 2009 reflecting an effective income tax rate of 29% compared to an income tax provision of $122 thousand for the quarter ended March 31, 2008, which reflected an effective tax rate of 39%.

 

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In assessing the realizability of deferred tax assets, we considered our taxable future earnings and the expected timing of the reversal of temporary differences. Accordingly, we have recorded a valuation allowance which reduces the gross deferred tax asset to an amount which we believe will more likely than not be realized. Our inability to project future profitability beyond fiscal year 2010 in the U.S. and cumulative losses incurred in recent years in the U.K. represent sufficient negative evidence under SFAS 109 to record a valuation allowance against certain deferred tax assets. We maintained a substantial valuation allowance against our U.K. deferred tax assets as we have experienced cumulative losses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards. To the extent that actual experience deviates from our assumptions, our projections would be affected and hence our assessment of realizability of our deferred tax asset may change.

This excerpt taken from the CSPI 10-Q filed Feb 12, 2009.

Income Taxes

Income Tax Provision

The Company recorded an income tax provision of $257 thousand for the quarter ended December 31, 2008 reflecting an effective income tax rate of 40% compared to an income tax benefit of $139 thousand for the quarter ended December 31, 2007, which reflected an effective tax benefit rate of 35%. Our benefit for the quarter ended December 31, 2007 was due to the carry back of the loss of our US operation for the quarter.

In assessing the realizability of deferred tax assets, we considered our taxable future earnings and the expected timing of the reversal of temporary differences. Accordingly, we have recorded a valuation allowance which reduces the gross deferred tax asset to an amount which we believe will more likely than not be realized. Our inability to project future profitability beyond fiscal year 2010 in the U.S. and cumulative losses incurred in recent years in the U.K. represent sufficient negative evidence under SFAS 109 to record a valuation allowance against certain deferred tax assets. We maintained a substantial valuation allowance against our U.K. deferred tax assets as we have experienced cumulative losses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards. To the extent that actual experience deviates from our assumptions, our projections would be affected and hence our assessment of realizability of our deferred tax asset may change.

These excerpts taken from the CSPI 10-K filed Dec 29, 2008.

Income Taxes

 

Income taxes are accounted for under the provisions of SFAS No. 109, “Accounting for Income Taxes,” using the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. SFAS No. 109 also requires that the deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This methodology requires estimates and judgments in the determination of the recoverability of deferred tax assets and in the calculation of certain tax liabilities. Valuation allowances are recorded against the gross deferred tax assets that management believes, after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, that it is more likely than not that these assets will not be realized.

 

On October 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. This interpretation requires us to recognize in the consolidated financial statements only those tax positions determined to be more-likely-than-not of being sustained upon examination, based on the technical merits of the positions as of the reporting date. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are recognized. This is a different standard for recognition than was previously required. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. Upon adoption of FIN 48, companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment is recorded directly to opening retained earnings in the period of adoption.

 

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future.

 

Income Taxes

 

Income taxes are accounted for under the provisions of SFAS No. 109, “Accounting for Income Taxes,” using the asset and
liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the enactment date. SFAS No. 109 also requires that the deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This methodology requires estimates and judgments in the determination of the recoverability of deferred tax assets and in the
calculation of certain tax liabilities. Valuation allowances are recorded against the gross deferred tax assets that management believes, after considering all the available objective evidence, both positive and negative, historical and prospective,
with greater weight given to historical evidence, that it is more likely than not that these assets will not be realized.

 

STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%">On October 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN
48”), which clarifies the accounting for uncertainty in income tax positions. This interpretation requires us to recognize in the consolidated financial statements only those tax positions determined to be more-likely-than-not of being
sustained upon examination, based on the technical merits of the positions as of the reporting date. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are
recognized. This is a different standard for recognition than was previously required. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. Upon adoption of FIN 48,
companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment is recorded directly to opening retained earnings in the period of
adoption.

 

In addition, the calculation of the Company’s
tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated
tax liabilities include the provision for taxes that may become payable in the future.

 

FACE="Times New Roman" SIZE="2">Earnings per Share of Common Stock

 

FACE="Times New Roman" SIZE="2">Basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss)
per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income (loss) by the assumed weighted average number of common
shares outstanding.

 


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CSP INC. AND SUBSIDIARIES

SIZE="1"> 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ALIGN="center">YEARS ENDED SEPTEMBER 30, 2008 and 2007

 


The reconciliation of the numerators and denominators of the basic and diluted net income per share
computations for the Company’s reported net income (loss) is as follows:

 































































































































   Years ended September 30,
       2008          2007    
   (Amounts in thousands,
except per share data)

Net income (loss)

  $(407) $4,049
        

Weighted average number of shares outstanding—basic

   3,783   3,777

Incremental shares from the assumed exercise of stock options

   —     156
        

Weighted average number of shares outstanding—dilutive

   3,783   3,933
        

Net income (loss) per share—basic

  $(0.11) $1.07
        

Net income (loss) per share—diluted

  $(0.11) $1.03
        

 

Statement of Financial
Accounting Standard No. 128, “Earnings per Share” requires all anti-dilutive securities, including stock options, to be excluded from the diluted earnings per share computation. For fiscal year 2008 and 2007, 268,000 and 117,000
shares, respectively, were excluded from the diluted earnings per share computation.

 

FACE="Times New Roman" SIZE="2">Use of Estimates

 

The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates under different assumptions or
conditions.

 

This excerpt taken from the CSPI 10-K filed Dec 26, 2007.

Income Taxes

 

Income taxes are accounted for under the provisions of SFAS No. 109, “Accounting for Income Taxes,” using the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. SFAS No. 109 also requires that the deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the

 

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CSP INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2007, 2006 AND 2005

 

recorded deferred tax assets will not be realized in future periods. This methodology requires estimates and judgments in the determination of the recoverability of deferred tax assets and in the calculation of certain tax liabilities. Valuation allowances are recorded against the gross deferred tax assets that management believes, after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, that it is more likely than not that these assets will not be realized.

 

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future.

 

This excerpt taken from the CSPI 10-Q filed May 11, 2007.

Income Taxes

Income Tax Provision

The company recorded an income tax provisions of $205 thousand and $1.1 million for the quarter and six months ended March 31, 2007, respectively, reflecting an effective income tax rate of 46% for the six months ended March 31, 2007, compared to an income tax provision of $131 thousand and $225 thousand for the quarter and six months ended March 31, 2006, respectively. Our effective rate was higher than the U.S. statutory rate due to the increased profitability in the U.S. plus profitability of our European subsidiaries, primarily Germany. The tax expense in the quarter and six months ended March 31, 2007 and 2006 was due to the income generated by our foreign subsidiaries in Europe, primarily Germany, as well as for a deferred tax liability related to goodwill, which is not amortizable for financial statement purposes.

In assessing the realizability of deferred tax assets, we considered our taxable future earnings and the expected timing of the reversal of temporary differences. Accordingly, we have recorded a valuation allowance which reduces the gross deferred tax asset to an amount which we believe will more likely than not be realized. Our inability to project future profitability beyond fiscal year 2007 in the U.S. and cumulative losses incurred in recent years in the U.K. represent sufficient negative evidence under SFAS 109 to record a valuation allowance against certain deferred tax assets. Previously, we had recorded a full valuation allowance against our U.S. deferred tax assets due to our history of cumulative losses and our inability to reasonably project whether or not we would have future taxable income, primarily due to the erratic nature of our revenues in the Systems segment which primarily serves government customers. Late in fiscal 2006, we received a $17 million order from Raytheon that we have concluded will result in significant taxable income in fiscal 2007. Based on this order, we concluded that it was more likely than not that we would generate sufficient taxable income in the U.S. in 2007 in order to realize an estimated $1.4 million of deferred tax assets for the year ended September 30, 2006. We recognized this benefit in the fourth quarter of fiscal year 2006 through a reduction of the valuation allowance previously established against our net U.S. deferred tax assets, consisting primarily of inventory temporary differences and net operating loss carryforwards. We maintained a full valuation allowance against our U.K. deferred tax assets as we have experienced continued cumulative losses and do not have any indication that the operation will be profitable in the future to utilize any of our net operating loss carryforwards. To the extent that actual experience deviates from our assumptions, our projections would be affected and hence our assessment of realizability of our deferred tax asset may change.

This excerpt taken from the CSPI 10-Q filed Mar 8, 2007.

Income Taxes

Income Tax Provision

The company recorded an income tax provision of $847 thousand for the three months ended December 31, 2006 reflecting an effective income tax rate of 45% compared to an income tax provision of $94 thousand for the three months ended December 31, 2005. Our effective rate was higher than the U.S. statutory rate due to the increased profitability in the U.S. plus profitability of our European subsidiaries, primarily Germany. The tax expense in the three months ended December 31, 2005 was due to the income generated by our foreign subsidiaries in Europe, primarily Germany, as well as for a deferred tax liability related to goodwill, which is not amortizable for financial statement purposes.

In assessing the realizability of deferred tax assets, we considered our taxable future earnings and the expected timing of the reversal of temporary differences. Accordingly, we have recorded a valuation allowance which reduces the gross deferred tax asset to an amount which we believe will more likely than not be realized. Our inability to project future profitability beyond fiscal year 2007 in the U.S. and cumulative losses incurred in recent years in the U.K. represent sufficient negative evidence under SFAS 109 to record a valuation allowance against certain deferred tax assets. Previously, we had recorded a full valuation allowance against our U.S. deferred tax assets due to our history of cumulative losses and our inability to reasonably project whether or not we would have future taxable income, primarily due to the erratic nature of our revenues in the Systems segment which primarily serves government customers. Late in fiscal 2006, we received a $17 million order from Raytheon that we have concluded will result in significant taxable income in fiscal 2007. Based on this order, we concluded that it was more likely than not that we would generate sufficient taxable income in the U.S. in 2007 in order to realize an estimated $1.4 million of deferred tax assets for the year ended September 30, 2006 we recognized this benefit in the fourth quarter of fiscal year 2006 through a reduction of the valuation allowance previously established against our net U.S. deferred tax assets, consisting primarily of inventory temporary differences and net operating loss carryforwards. We maintained a full valuation allowance against our U.K. deferred tax assets as we have experienced continued cumulative losses and do not have any indication that the operation will be profitable in the future to utilize any of our net operating loss carryforwards. To the extent that actual experience deviates from our assumptions, our projections would be affected and hence our assessment of realizability of our deferred tax asset may change.

This excerpt taken from the CSPI 10-K filed Feb 20, 2007.

Income Taxes

 

Income taxes are accounted for under the provisions of SFAS No. 109, “Accounting for Income Taxes,” using the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. SFAS No. 109 also requires that the deferred tax assets be reduced by a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This methodology requires estimates and judgments in the determination of the recoverability of deferred tax assets and in the calculation of certain tax liabilities. Valuation allowances are recorded against the gross deferred tax assets that management believes, after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, that it is more likely than not that these assets will not be realized.

 

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future.

 

This excerpt taken from the CSPI 10-Q filed Aug 14, 2006.

Income Taxes

We recorded an income tax expense of $26,000 and $251,000 for the three and nine months ended June 30, 2006, respectively, compared to $97,000 and $557,000 of income tax expense for the three and nine months ended June 30, 2005. The tax expense in these periods was primarily due to the income generated by our foreign subsidiaries in Europe, as well as for a deferred tax liability related to goodwill, which is not amortizable for financial statement purposes, state tax and U.S. Alternative Minimum Tax (AMT).

We recorded a valuation allowance for the deferred tax assets for our U.S. and U.K. operations due to the consistent trend of losses sustained during a number of the quarters during the last three years. Management believes that it is more likely than not the deferred tax assets will not be realized. This valuation allowance was determined in accordance with the provisions of SFAS No. 109 (SFAS 109), “Accounting for Income Taxes” which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable. Such assessment is required on a jurisdiction-by-jurisdiction basis. Cumulative losses incurred in recent years represented sufficient negative evidence under SFAS 109 to record a valuation allowance against the deferred tax assets in the U.S. and the U.K.

This excerpt taken from the CSPI 10-Q filed May 15, 2006.

Income Taxes

We recorded an income tax expense of $131,000 and $225,000 for the three and six months ended March 31, 2006, respectively, compared to $257,000 and $454,000 of income tax expense for the three and six months ended March 31, 2005. The tax expense in these periods was primarily due to the income generated by our foreign subsidiaries in Europe, as well as for a deferred tax liability related to goodwill, which is not amortizable for financial statement purposes, state tax and U.S. Alternative Minimum Tax (AMT).

We recorded a valuation allowance for the deferred tax assets for our U.S. and U.K. operations due to the consistent trend of losses sustained during a number of the quarters during the last three years. Management believes that it is more likely than not the deferred tax assets will not be realized. This valuation allowance was determined in accordance with the provisions of SFAS No. 109 (SFAS 109), “Accounting for Income Taxes” which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable. Such assessment is required on a jurisdiction-by-jurisdiction basis. Cumulative losses incurred in recent years represented sufficient negative evidence under SFAS 109 to record a valuation allowance against the deferred tax assets in the U.S. and the U.K.

This excerpt taken from the CSPI 10-Q filed Apr 17, 2006.

Income Taxes

We recorded an income tax expense of $94,000 for the three months ended December 31, 2005 compared to $197,000 of income tax expense for the three months ended December 31, 2004. The tax expense in the three month ended December 31, 2005 was due to the income generated by our foreign subsidiaries in Europe, primarily Germany, as well as for a deferred tax liability related to goodwill, which is not amortizable for financial statement purposes.

We recorded a valuation allowance for the deferred tax assets for our U.S. and U.K. operations due to the consistent trend of losses sustained during a number of the quarters during the last three years. Management believes that it is more likely than not the deferred tax assets will not be realized. This valuation allowance was determined in accordance with the provisions of SFAS No. 109 (SFAS 109), “Accounting for Income Taxes” which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable. Such assessment is required on a jurisdiction-by-jurisdiction basis. Cumulative losses incurred in recent years represented sufficient negative evidence under SFAS 109 to record a valuation allowance against the deferred tax assets in the U.S. and the U.K.

This excerpt taken from the CSPI 10-K filed Mar 17, 2006.

Income Taxes

 

Income taxes are accounted for under the provisions of SFAS No. 109, “Accounting for Income Taxes,” using the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. SFAS No. 109 also requires that the deferred tax assets be reduced by a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This methodology requires estimates and judgments in the determination of the recoverability of deferred tax assets and in the calculation of certain tax liabilities. At September 30, 2005 and 2004, respectively, a full valuation has been recorded against the gross deferred tax assets in the U.S. and U.K. since management believes that after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, it is more likely than not that these assets will not be realized.

 

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future.

 

This excerpt taken from the CSPI 10-Q filed Aug 15, 2005.

Income Taxes

 

We recorded a provision for income tax expense of $557,000 for the nine months ended June 30, 2005 compared to $267,000 for the nine months ended June 30, 2004. The tax expense recorded in the nine month periods is primarily due to the income generated by our foreign subsidiaries in Germany and the U.K. which accounted for approximately 65% of the expense. The balance is for US Alternative Minimum Tax (AMT) and tax related to goodwill, not amortizable for financial statement purposes, and state tax expense. We record a valuation allowance for our deferred tax assets. This valuation allowance was determined in accordance with the provisions of SFAS No. 109 (SFAS 109), “Accounting for Income Taxes” which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable. Such assessment is required on a jurisdiction-by-jurisdiction basis. Cumulative losses incurred in recent years represented sufficient negative evidence under SFAS 109 to record a valuation allowance against the deferred tax assets in the U.S. and the U.K. Our U.S. tax expense for fiscal year 2005 and 2004 has been reduced by decreasing our valuation allowance.

 

We have maintained the valuation allowances for the deferred tax assets for our U.S. and U.K. operations due to the losses sustained over the last three years. Management believes that it is more likely than not the deferred tax assets will not be realized.

 

We reinvest our foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for the unremitted earnings of our international subsidiaries. Due to various methods by which such earnings could be repatriated in the future, it is not currently practicable to determine the amount of applicable taxes that would result from such repatriation, if any.

 

On October 22, 2004, the American Jobs Creation Act of 2004 (“the Act”) was enacted into law. We are not yet in a position to decide on whether, and to what extent, we might repatriate foreign earnings. We cannot reasonably estimate the tax liability if we elect to repatriate any accumulated foreign earnings. We expect to finalize our assessment after further guidance is published.

 

Discontinued Operations

 

In June 2005, the Company sold the operating assets and liabilities of Scanalytics for net proceeds of approximately $446,000. Accordingly, the Company has classified the Scanalytics business as a “Discontinued Operation” in accordance with the guidance provided in FAS 144. The sale of the Company’s net investment of approximately $332,000 in Scanalytics created a gain of $114,000, which is included in the operating results of discontinued operations. The assets, liabilities and operating results of this business have been segregated from continuing operations and reported as discontinued operations in the accompanying consolidated balance sheets, statements of operations, and cash flows and related notes to the consolidated financial statements for all periods presented. This business made up 100% of what we previously reported as the Other software segment.

 

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Revenues generated by Scanalytics for the three months ended June 30, 2005 and 2004 were $232,000 and $270,000, respectively. Revenues generated for the nine months ended June 30, 2005 and 2004 were $753,000 and $1,074,000, respectively.

 

Income (loss) generated by Scanalytics for the three months ended June 30, 2005 and 2004 was $46,000 and $(19,000), respectively. Income (loss) for the nine months ended June 30, 2005 and 2004 was ($19,000) and ($81,000), respectively.

 

This excerpt taken from the CSPI 10-Q filed May 16, 2005.

Income Taxes

 

We recorded a provision for income tax expense of $0.5 million for the six months ended March 31, 2005 compared to $0.1 million for the six months ended March 31, 2004. The tax expense recorded in the six month periods is primarily due to the income generated by our foreign subsidiary in Germany, U.K. income not offset by carryforward losses, and U.S. state tax expense. In fiscal year 2002, we began to record a valuation allowance for our deferred tax assets. This valuation allowance was determined in accordance with the provisions of SFAS No. 109 (SFAS 109), “Accounting for Income Taxes” which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable. Such assessment is required on a jurisdiction-by-jurisdiction basis. Cumulative losses incurred in recent years represented sufficient negative evidence under SFAS 109 to record a valuation allowance against the deferred tax assets in the U.S. and the U.K. Our U.S. tax expense for fiscal year 2005 and 2004 has been reduced by decreasing our valuation allowance.

 

We have maintained the valuation allowances for the deferred tax assets for our U.S. and U.K. operations due to the losses sustained over the last three years. Management believes that it is more likely than not the deferred tax assets will not be realized.

 

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This excerpt taken from the CSPI 10-Q filed Feb 22, 2005.

Income Taxes

 

We recorded a provision for income tax expense of $0.2 million for the three months ended December 31, 2004 compared to $0.1 million for the three months ended December 31, 2003. The tax expense in the quarters ended December 31, 2004 and 2003 is primarily due to the income generated by our foreign subsidiary in Germany. In fiscal year 2002, we began to record a valuation allowance for our deferred tax assets. This valuation allowance was determined in accordance with the provisions of SFAS No. 109 (SFAS 109), “Accounting for Income Taxes” which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable. Such assessment is required on a jurisdiction-by-jurisdiction basis. Cumulative losses incurred in recent years represented sufficient negative evidence under SFAS 109 to record a valuation allowance against the deferred tax assets in the U.S. and the U.K. Our U.S. tax expense for fiscal year 2004 has been reduced by decreasing our valuation allowance, thus reducing our recorded U.S. tax expense.

 

We recorded a valuation allowance for the deferred tax assets for our U.S. and U.K. operations due to the continued losses sustained over the last three years. Management believes that it is more likely than not the deferred tax assets will not be realized.

 

This excerpt taken from the CSPI 10-K filed Jan 21, 2005.

Income Taxes

 

Income taxes are accounted for under the provisions of SFAS No. 109, “Accounting for Income Taxes,” using the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. SFAS No. 109 also requires that the deferred tax assets be reduced by a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This methodology requires estimates and judgments in the determination of the recoverability of deferred tax assets and in the calculation of certain tax liabilities. At September 30, 2004 and 2003, respectively, a full valuation has been recorded against the gross deferred tax assets in the U.S. and U.K. since management believes that after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, it is more likely than not that these assets will not be realized.

 

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CSP INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002

 

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future.

 

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