Income Taxes

12 Months Ended

Jan. 31, 2013

Income Taxes [Abstract]

Income Taxes

11.    Income Taxes

Income before income taxes related to foreign operations was $8.4 million, $12.7 million and $9.3 million in fiscal 2013, 2012 and 2011, respectively.

The provision (benefit) for income taxes consisted of the following (in thousands):

	Fiscal Years Ended January 31,
	2013			2012			2011
Current:
Federal	$	5,731		$	12,488		$	10,102
State		238			1,777			923
Foreign		2,273			2,776			1,881
		8,242			17,041			12,906
Deferred:
Federal		(10,832	)		(14,916	)		(21,348	)
State		(1,057	)		(1,583	)		(3,890	)
Foreign		(334	)		376			(105	)
		(12,223	)		(16,123	)		(25,343	)
Total income tax (benefit) provision	$	(3,981	)	$	918		$	(12,437	)

The (benefit) provision for income taxes differs from the amount computed by applying the federal statutory rate to (loss) income before (benefit) provision for income taxes as follows (in thousands):

	Fiscal Years Ended January 31,
	2013			2012			2011
Tax (benefit) expense at federal statutory rate	$	(524	)	$	3,452		$	(7,698	)
Research and experimentation credit		(303	)		(316	)		(571	)
State tax, net of federal effect		(489	)		(251	)		(1,550	)
Foreign rate differential		(1,376	)		(1,400	)		706
Change in reserves for uncertain tax positions		(680	)		259			(2,493	)
Impairment of goodwill and other intangibles		—			—			502
Domestic manufacturing deduction		(737	)		(1,267	)		(1,083	)
Other		128			441			(250	)
Total income tax (benefit) provision	$	(3,981	)	$	918		$	(12,437	)

The cumulative amount of unremitted foreign earnings that are considered to be permanently invested outside the United States and on which no U.S. taxes have been provided were approximately $46.5 million, $39.5 million and $32.8 million as of January 31, 2013, 2012 and 2011, respectively. If the Company was to remit these earnings, foreign tax credits may become available under current law to reduce the resulting U.S. income tax liability. However, determination of the U.S. income tax liability if such amounts were remitted is not practicable.

The Company’s net deferred tax assets (liabilities) are summarized as follows (in thousands):

	Fiscal Years Ended January 31,
	2013			2012
Deferred tax assets:
Allowance for doubtful accounts	$	299		$	290
Accrued expenses		1,348			1,282
Deferred revenue		4,128			3,333
State taxes		225			675
Long-lived assets acquired in a business combination, net		861			1,041
Net operating losses and tax credits carryforward		5,987			5,893
Stock-based compensation		3,285			3,709
Other		245			291
Gross deferred tax assets		16,378			16,514
Valuation allowance		(1,779	)		(846	)
Net deferred tax assets		14,599			15,668
Deferred tax liabilities:
Long-lived assets acquired in a business combination, net		(14,119	)		(27,758	)
Property and equipment, net		(520	)		(176	)
Income from discharge of indebtedness		(2,850	)		(2,843	)
Unremitted foreign earnings		(483	)		(725	)
Other		(229	)		14
Total deferred tax liabilities		(18,201	)		(31,488	)
Net deferred tax liabilities	$	(3,602	)	$	(15,820	)

As the Company has future reversing taxable temporary differences sufficient to recover most deductible temporary differences, a valuation allowance has only been necessary in certain instances. The Company recorded a valuation allowance of $1.8 million and $0.8 million at January 31, 2013 and 2012, respectively. The valuation allowance increased $0.2 million for the year ended January 31, 2011 for certain net operating loss carryforwards whose realizability is limited by change of ownership rules. The valuation allowance increased $1.0 million and $0.5 million for the years ended January 31, 2013 and 2012, respectively, due to changes in income apportioned to California. The income apportioned to California impacts the future taxable income for the years in which the deferred tax assets are expected to be realized or settled.

At January 31, 2013, the Company had U.S. federal and state net operating loss carryforwards of approximately $10.5 million and $3.9 million, respectively. The U.S. federal and state losses will begin expiring in 2020 and 2015, respectively, if not utilized. The Company’s net operating losses are limited by the annual limitations described in Section 382 of the Internal Revenue Code. At January 31, 2013, the Company had no U.S. federal tax credit carryforwards and it had state tax credit carryforwards of approximately $1.8 million. The state research and development credit carryforwards will carryforward indefinitely.

The Company had total federal, state and foreign unrecognized tax benefits of $3.5 million and $4.6 million, including interest of $0.8 million and $1.0 million at January 31, 2013 and January 31, 2012, respectively. Of the total unrecognized tax benefits, $2.4 million and $3.6 million as of January 31, 2013 and 2012, respectively, if recognized, would reduce the Company’s effective tax rate in the period of recognition.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

	Fiscal Years Ended January 31,
	2013			2012
Balance at beginning of fiscal year	$	3,590		$	2,883
Increases related to current year tax positions		114			107
Increase related to prior year tax positions		199			631
Decreases related to prior year tax positions		—			(31	)
Decreases related to lapsing of statute of limitations		(640	)		—
Decreases related to settlements with taxing authorities		(496	)		—
Balance at end of fiscal year	$	2,767		$	3,590

The statute of limitations on the Company’s federal tax return filings remains open for the years ended January 31, 2010 through January 31, 2012. The statute of limitations on the Company’s major state tax return filings remains open for the years ended January 31, 2009 through January 31, 2012. The statute of limitations on the Company’s U.K. income tax filings remains open for the years ended January 31, 1999 through January 31, 2012. Over the next twelve months, the Company expects a decrease of $0.5 million in its unrecognized tax benefits primarily as a result of expiring statutes of limitation and settlements with certain state taxing authorities.