Note 6: Income taxes

The U.S. and foreign components of earnings (loss) from continuing operations before income taxes and the income tax expense consisted of the following:

Years ended March 31	2012			2011			2010

Components of earnings (loss) from continuing operations before income taxes:
United States	$	17,188		$	(27,462	)	$	(42,676	)
Foreign		30,723			40,285			29,504
Total earnings (loss) from continuing operations before income taxes	$	47,911		$	12,823		$	(13,172	)
Income tax expense (benefit):
Federal:
Current	$	-		$	(3,701	)	$	(273	)
Deferred		312			2,727			2,240
State:
Current		299			284			(283	)
Deferred		(255	)		(2,626	)		(2,182	)
Foreign:
Current		8,330			12,193			7,344
Deferred		1,245			(4,334	)		2,827
Total income tax expense	$	9,931		$	4,543		$	9,673

The Company allocates income tax expense between continuing operations, discontinued operations, and other comprehensive income. Accounting for income taxes is applied by tax jurisdiction, and in periods in which there is loss from continuing operations before income taxes and pre-tax income in other categories (e.g., discontinued operations or other comprehensive income), income tax expense is first allocated to the other sources of income, with a related tax benefit recorded in continuing operations.

Income tax expense attributable to earnings (loss) from continuing operations before income taxes differed from the amounts computed by applying the statutory U.S. federal income tax rate as a result of the following:

Years ended March 31	2012			2011			2010

Statutory federal tax		35.0	%		35.0	%		(35.0	%)
State taxes, net of federal benefit		(0.1	)		(19.0	)		(16.5	)
Taxes on non-U.S. earnings and losses		(3.1	)		3.2			4.6
Valuation allowance		2.1			84.6			79.7
Tax credits		(19.2	)		(84.3	)		(3.9	)
Deferred tax adjustments		-			-			12.2
Foreign tax rate changes		0.6			(4.5	)		-
Reserve for uncertain tax positions		1.9			4.2			(4.4	)
Brazilian interest on equity		(1.0	)		(7.4	)		-
Dividend repatriation		4.4			23.0			26.1
Other		0.1			0.6			10.6
Effective tax rate		20.7	%		35.4	%		73.4	%

The Other category for the years ended March 31, 2012, 2011 and 2010 includes such items as foreign withholding taxes, state tax refunds, foreign currency and certain incentive awards.

During fiscal 2012, the Company recorded a valuation allowance of $1,027 against net deferred tax assets as a result of a $4,346 increase to the valuation allowance in certain foreign jurisdictions offset by a $3,319 reduction to the valuation allowance in the U.S. The foreign increase in valuation allowance was largely related to cumulative losses in Austria and India based on the determination that it was more likely than not that the net deferred tax assets in these jurisdictions will not be realized. The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until the need for a valuation allowance is eliminated. The need for the valuation allowance will be eliminated when the Company determines it is more likely than not that the deferred tax assets will be realized. During the current fiscal year, the U.S. taxing jurisdiction experienced improved pretax domestic earnings and has for the first time in recent years recorded annual pretax earnings rather than pretax losses. It is possible that by the end of fiscal 2013, the U.S. taxing jurisdiction will no longer be in a cumulative three year loss position, thereby removing significant negative evidence concerning valuation allowance. Throughout fiscal 2013 all positive and negative evidence will be further analyzed in order to determine the propriety of the valuation allowance against the net deferred tax assets of this jurisdiction. Also during fiscal 2012, the Company satisfied requirements under Hungarian regulations necessary to obtain an additional development tax credit in Hungary and as a result, based upon its current capital investment, recorded a $4,408 tax benefit, which significantly impacted its effective tax rate for the year.

During fiscal 2011, the Company satisfied the labor requirement under Hungarian regulations necessary to obtain a development tax credit in Hungary and as a result recorded a $7,774 tax benefit which significantly benefited the change in the effective tax rate from fiscal 2010 to 2011. For the year ended March 31, 2011, the effective tax rate was also favorably impacted by the implementation of a tax planning action, interest on equity, which allows our Brazilian operation to deduct as interest expense, subject to withholding tax, payments based on net equity made by the operation to the Company.

During fiscal 2010, the Company completed restructuring actions in various foreign tax jurisdictions in which distributions were made, characterized as taxable dividends, which affected the effective tax rate by $3,438 or 26.1 percent. In addition, the Company recorded a one-time adjustment of $1,607 to prior year deferred taxes in the U.S. which had a 12.2 percent impact on the effective tax rate. Both the dividends and deferred tax adjustments were fully offset by a valuation allowance.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

March 31	2012			2011

Deferred tax assets:
Accounts receivable	$	494		$	414
Inventories		4,865			5,370
Plant and equipment		18,988			19,472
Employee benefits		77,462			65,446
Net operating loss, capital loss and credit carryforwards		96,894			86,809
Other, principally accrued liabilities		15,286			20,441
Total gross deferred tax assets		213,989			197,952
Less: valuation allowance		146,763			129,604
Net deferred tax assets		67,226			68,348

Deferred tax liabilities:
Pension		31,245			29,003
Goodwill		5,359			5,873
Plant and equipment		24,151			26,391
Other		7,486			6,710
Total gross deferred tax liabilities		68,241			67,977
Net deferred tax (liability) asset	$	(1,015	)	$	371

The valuation allowance increased by $17,159 in fiscal 2012, primarily related to increases in the valuation allowance against the net U.S. deferred tax assets of $12,912; the net deferred tax assets in Austria of $2,821; the net deferred tax assets in India of $2,344, offset by a reduction in the valuation allowance in Germany of $888.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2012			2011

Balance, April 1	$	5,305		$	4,475
Gross increases - tax positions in prior period		3,611			380
Gross decreases - tax positions in prior period		(3,756	)		-
Gross increases - tax positions in current period		510			278
Gross decreases - tax positions in current period		(388	)		-
Settlements		(1,731	)		-
Lapse of statute of limitations		-			(30	)
Foreign currency impact		(292	)		202
Balance, March 31	$	3,259		$	5,305

The Company's total gross liability for unrecognized tax benefits as of March 31, 2012 is $3,259, and if recognized, only $142 of this amount would have an effect on the effective tax rate as $3,117 of the unrecognized tax benefits are offset by a corresponding increase to the valuation allowance and therefore would have no effect on the effective tax rate.

During fiscal 2005, a German lower court ruling disallowed certain deductions for trade tax purposes. Based on this ruling the Company established an uncertain tax position contingency for additional trade tax liability and interest. During fiscal 2012, German Supreme Court affirmed the lower court finding and as a result the uncertain tax position contingency was reversed. The Company filed amended tax returns for the fiscal years 2005 through 2010 resulting in an additional trade tax liability and interest owed of $2,044. In addition, certain years were allowed a corporation income tax deduction for trade tax which results in a refund of corporation income tax and interest receivable of $388.

In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. During fiscal 2012, a benefit of $175 for interest and penalties was included as a component of income tax expense in the consolidated statement of operations. At March 31, 2012, $210 of accrued interest and penalties are included in the consolidated balance sheet.

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. At March 31, 2012, the Company was not engaged in any routine income tax examinations by any federal taxing authority. Notification, however, was received of a tax audit in Germany commencing in fiscal 2013 covering fiscal years 2006 through 2010. The Company does not anticipate the gross liability for unrecognized tax benefits to significantly change in the next twelve months other than that which will result from the expiration of the applicable statute of limitations.

The following tax years remain subject to examination by the respective major tax jurisdictions:

Austria		Fiscal 2007 - 2011
Brazil		Fiscal 2006 - 2011
Germany		Fiscal 2006 - 2011
United States		Fiscal 2009 - 2011

At March 31, 2012, the Company has foreign tax credit carry forwards of $4,990 that, if not utilized against domestic taxes, will expire between 2015 and 2017. The Company also has federal and state research and development tax credits of $13,942 that, if not utilized against domestic taxes, will expire between 2018 and 2031. The Company also has various state and local tax loss carry forwards of $191,471 that, if not utilized against state apportioned taxable income, will expire at various times during the years 2013 through 2032. In addition, the Company has tax loss carry forwards of $267,815 in various tax jurisdictions throughout the world. Certain of these carryforwards, primarily in the U.S. and Germany, are offset by a valuation allowance. If not utilized against taxable income, $182,333of these tax losses will expire at various times during the years 2014 through 2032 and $85,482 will not expire due to an unlimited carry-forward period.

At March 31, 2012, the Company had provided $140 of U.S. tax on undistributed earnings of certain joint equity investment companies considered not permanently reinvested.During the fourth quarter of fiscal year 2012, the Company changed its permanently reinvested assertion in connection with certain European subsidiaries and as a result the undistributed earnings of these subsidiaries is not deemed permanently reinvested and the Company recorded a deferred tax liability of $699 related thereto. Undistributed earnings are considered permanently reinvested in the remaining foreign operations totaling $496,306, and no provision has been made for any taxes that would be payable upon the distribution of such earnings.

As further discussed in Note 12, the loss from discontinued operations has been presented net of income tax expense of $0, $0 and $538 for the fiscal years ended March 31, 2012, 2011 and 2010 respectively.