INCOME TAXES

6 Months Ended

Sep. 30, 2012

INCOME TAXES

INCOME TAXES

NOTE 8 — INCOME TAXES

Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We establish valuation allowances when, based on an evaluation of objective evidence, there is a likelihood that some portion or all of the deferred tax assets will not be realized. This evidence may include, but is not limited to, our historical operating results, the nature of the deferred tax assets, our projected future operating results, and any unusual expenses that are not expected to recur. We had no material changes in our valuation allowances during the six month period ended September 30, 2012.

Our effective tax rates for the periods presented differ from the U.S. statutory rate of 35% due to a number of factors including the mix of profit and loss between various taxing jurisdictions and the impact of permanent items that affect book income but do not affect taxable income.  For example, our results of operations during the three and six month periods ended September 30, 2012 include certain strategic assessment costs incurred in connection with the Agreement and Plan of Merger with LFP Broadcasting, LLC and Flynt Broadcast, Inc.  These transaction costs are not expected to be deductible for income tax purposes because we expect to complete the merger. If the merger is not completed, the transaction costs are expected to be deductible.

We account for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon effective settlement. During the fiscal year ended March 31, 2012, the Internal Revenue Service (IRS) initiated an audit of our fiscal year 2010 tax returns and expanded its audit to also include certain deductions included in the fiscal year 2011 returns. Based on recent discussions and correspondence, the IRS has proposed adjustments to our previously filed fiscal year 2011 and 2010 tax returns to disallow the acceleration of certain film cost deductions. We have agreed to settle the amounts with the IRS, which represent approximately $48,000 of deductions. The adjustment did not have a material impact on our consolidated statements of operations.

We file U.S. federal, state and foreign income tax returns. With few exceptions, we are no longer subject to examination of our federal income tax returns for the years prior to the fiscal year ended March 31, 2009, and we are no longer subject to examination of our state income tax returns for years prior to the fiscal year ended March 31, 2008.