Income Taxes

12 Months Ended

Jan. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

14. Income Taxes

The components of (loss) income for continuing operations before income taxes are as follows:

	For the Fiscal Years Ended January 31,
	2013			2012			2011
	(Amounts in thousands)
Domestic	$	(13,852	)	$	(13,610	)	$	20,769
Foreign		11,133			11,946			7,408
	$	(2,719	)	$	(1,664	)	$	28,177

The components of the income tax benefit (provisions) from continuing operations are as follows:

	For the Fiscal Years Ended January 31,
	2013			2012			2011
	(Amounts in thousands)
Current:
Federal	$	-		$	(3,428	)	$	2,546
State		231			667			188
Foreign		(1,305	)		1,177			1,111
Total		(1,074	)		(1,584	)		3,845
Deferred:
Federal		-			3,183			(4,677	)
State		(348	)		348			(135	)
Foreign		(133	)		(66	)		(1,260	)
Total		(481	)		3,465			(6,072	)
(Benefit from) provision for income taxes	$	(1,555	)	$	1,881		$	(2,227	)

The income tax benefit (provision) for continuing operations computed using the federal statutory income tax rate differs from our effective tax rate primarily due to the following:

	For the Fiscal Years Ended January 31,
	2013			2012			2011
	(Amounts in thousands)
Statutory U.S. federal tax rate	$	(952	)	$	(582	)	$	9,862
State taxes, net of federal tax benefit		81			660			51
Losses not benefitted		(1,068	)		4,048			(8,559	)
Non-deductible stock compensation expense		142			(68	)		(79	)
Other		858			957			(580	)
Research and development tax credits		-			(291	)		(117	)
Innovation box		(779	)
Foreign tax rate differential		163			(2,843	)		(2,805	)
	$	(1,555	)	$	1,881		$	(2,227	)

Our effective tax rate was 57%, (113%), and (8%) for the fiscal years ended January 31, 2013, 2012 and 2011, respectively. The income tax benefit for fiscal 2013 was primarily due to $1.2 million resulting from the expiration of the statute of limitations for uncertain tax positions in our foreign jurisdictions and $0.8 million tax benefit in the Netherlands from the Innovation Box.

The components of deferred income taxes are as follows:

	January 31,
	2013			2012
	(Amounts in thousands)
Deferred tax assets:
Accruals and reserves	$	1,760		$	2,104
Deferred revenue		2,894			3,255
Stock-based compensation expense		1,892			1,549
U.S. federal, state and foreign tax credits		5,133			4,951
Loss carryforwards		9,561			2,280
Property and equipment		116			-
Other		-			-
Deferred tax assets		21,356			14,139
Less: Valuation allowance		(19,250	)		(10,544	)
Net deferred tax assets		2,106			3,595
Deferred tax liabilities:
Intangible assets		4,336			5,594
Other		77			76
Property and equipment		-			362
Total net deferred tax assets(liabilities)	$	(2,307	)	$	(2,437	)

At January 31, 2013, we had federal, state and foreign net operating loss carryforwards of $15.4 million, $66.4 million and $4.8 million respectively, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2016. Utilization of these net operating loss carryforwards may be limited pursuant to provisions of the respective local jurisdiction. At January 31, 2013, we had a federal capital loss carryforward of $10.6 million. This loss can only be utilized to offset capital gains and it expires in fiscal 2018. At January 31, 2013, we had federal and state research and development credit carryforwards of $7.4 million and $1.5 million respectively, and state investment tax credit carryforwards of $0.2 million. The federal credit carryforwards will expire at various dates beginning in fiscal 2020, if not utilized. Certain state credit carryforwards will expire at various dates beginning in fiscal 2014, while certain other credit carryforwards may be carried forward indefinitely. Utilization of these credit carryforwards may be limited pursuant to provisions of the respective local jurisdiction. We also have alternative minimum tax credit carryforwards of $0.6 million which are available to reduce future federal regular income taxes over an indefinite period. We have foreign tax credit carryforwards of $0.4 million which are available to reduce future federal regular income taxes.

We review quarterly the adequacy of the valuation allowance for deferred tax assets. We have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets and have established a valuation allowance of approximately $19.3 million for such assets, which are comprised principally of net operating loss carryforwards, research and development credits, deferred revenue, inventory and stock-based compensation. If we generate pre-tax income in the future, some portion or all of the valuation allowance could be reversed and a corresponding increase in net income would be reported in future periods. The valuation allowance increased $7.0 million from $12.3 million at January 31, 2012.

At January 31, 2013, we have indefinitely reinvested $69.0 million of the cumulative undistributed earnings of certain foreign subsidiaries. Approximately $58 million of such earnings would be subject to U.S. taxes if repatriated to the United States. Through January 31, 2013, we have not provided deferred income taxes on the undistributed earnings of our foreign subsidiaries because such earnings are considered to be indefinitely reinvested outside the United States. Non-U.S. income taxes are, however, provided on those foreign subsidiaries’ undistributed earnings with the exception of ZQ Interactive, LTD based in the British Virgin Islands. Determination of the potential deferred income tax liability on these undistributed earnings is not practicable because such liability, if any, is dependent on circumstances existing if, and when, remittance occurs.

For the fiscal year ended January 31, 2013, we recognized an additional tax expense for unrecognized tax benefits of $3.6 million. None of the amounts included in the balance of unrecognized tax benefits at January 31, 2013 of $9.4 million are related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. We recognize accrued interest and penalties related to uncertain tax positions in income tax expense. A reconciliation of the beginning and ending balance of the total amounts of gross unrecognized tax benefits, excluding interest of $0.3 million is as follows:

	For the Fiscal Years Ended January 31,
	2013			2012
	(Amounts in thousands)
Balance of gross unrecognized tax benefits, beginning of period	$	6,464		$	7,283
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period		3,616			431
Decrease due to expiration of statute of limitation		(737	)		(319	)
Decrease due to settlement		-			(876	)
Effect of currency translation		21			(55	)
Balance of gross unrecognized tax benefits, end of period	$	9,364		$	6,464

We file income tax returns in U.S. federal jurisdiction, various state jurisdictions, and various foreign jurisdictions. We are no longer subject to U.S. federal examinations before 2009. However, the taxing authorities still have the ability to review the propriety of certain tax attributes created in closed years if such tax attributes are utilized in an open tax year, such as our federal research and development credit carryovers.