INCOME TAXES

Income tax expense from continuing operations for fiscal years 2011, 2010 and 2009 consisted of the following:



(in thousands)	Fiscal Year Ended March 31,
	2011		2010			2009
Current:
Federal	$	22,601	$	17,761		$	6,140
State	1,077		2,290			2,452
Foreign	5,888		7,241			4,739
Total current provision for income taxes	29,566		27,292			13,331
Deferred:
Federal	475		(2,841		)	1,323
State	1,262		(199		)	(1,603		)
Foreign	110		35			(476		)
Total deferred benefit for income taxes	1,847		(3,005		)	(756		)
Income tax expense from continuing operations	$	31,413	$	24,287		$	12,575

The components of income from continuing operations before income taxes for fiscal years 2011, 2010 and 2009 are as follows:



	Fiscal Year Ended March 31,
(in thousands)	2011		2010		2009
United States	$	75,426	$	51,392	$	32,671
Foreign	65,230		49,348		25,246
Income from continuing operations before income taxes	$	140,656	$	100,740	$	57,917

The following is a reconciliation between statutory federal income taxes and the income tax expense from continuing operations for fiscal years 2011, 2010 and 2009:



(in thousands)	Fiscal Year Ended March 31,
	2011			2010			2009
Tax expense at statutory rate	$	49,229		$	35,259		$	20,272
Foreign operations taxed at different rates	(16,308		)	(11,166		)	(4,546		)
State taxes, net of federal benefit	2,340			2,091			849
Research and development credit	(3,234		)	(1,383		)	(3,117		)
Other, net	(614		)	(514		)	(883		)
Income tax expense from continuing operations	$	31,413		$	24,287		$	12,575

The effective tax rate for fiscal years 2011, 2010 and 2009 was 22.3%, 24.1%, and 21.7% respectively. The effective tax rate for fiscal 2011 is lower than the previous year due primarily to the increased benefit from the U.S. federal research tax credit in fiscal 2011 as the credit was reinstated in December 2010 retroactively to January 1, 2010; the effective tax rate for fiscal 2011 includes the impacts of credits earned in the fourth quarter of fiscal 2010.

In comparison to fiscal 2009, the increase in the effective tax rate for fiscal 2010 was due primarily to the incremental benefit associated with the release of a higher amount of tax reserves resulting from the lapse of the statute of limitations in certain jurisdictions in fiscal 2009. In addition, the effective tax rate for fiscal 2009 included the impact of credits earned in the fourth quarter of fiscal 2008 because the U.S. federal research tax credit was reinstated in October 2008 retroactively to January 1, 2008.

The effective tax rate for fiscal years 2011, 2010 and 2009 differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates, income tax credits, state taxes, and other factors. The future tax rate could be impacted by a shift in the mix of domestic and foreign income, tax treaties with foreign jurisdictions, changes in tax laws in the U.S. or internationally or a change in estimate of future taxable income which could result in a valuation allowance being required.

Permanently reinvested foreign earnings were approximately $433.4 million at March 31, 2011. The determination of the tax liability that would be incurred if these amounts were remitted back to the U.S. is not practical.

Deferred tax assets and liabilities represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of our deferred tax assets and liabilities as of March 31, 2011 and 2010 are as follows:



	March 31,
(in thousands)	2011			2010
Accruals and other reserves	$	9,850		$	8,316
Net operating loss carry forward	5,095			2,833
Stock compensation	5,519			7,946
Other deferred tax assets	4,417			4,553
Valuation allowance	(5,274		)	(1,399		)
Total deferred tax assets	19,607			22,249
Deferred gains on sales of properties	(1,954		)	(2,033		)
Purchased intangibles	(323		)	(1,288		)
Unremitted earnings of certain subsidiaries	(3,064		)	(2,486		)
Fixed asset depreciation	(4,244		)	(3,619		)
Other deferred tax liabilities	(2,199		)	(2,463		)
Total deferred tax liabilities	(11,784		)	(11,889		)
Net deferred tax assets	$	7,823		$	10,360

The Company evaluates its deferred tax assets including a determination of whether a valuation allowance is necessary based upon its ability to utilize the assets using a more likely than not analysis. Deferred tax assets are only recorded to the extent that they are realizable based upon past and future income. The Company has a long established earnings history with taxable income in its carryback years and forecasted future earnings. The Company has concluded that except for the specific items discussed below, no valuation allowance is required.

In fiscal 2010, the Company established a valuation allowance of $1.4 million. Of this allowance, $0.8 million was established due to a change in position for permanently reinvesting accumulated earnings of certain foreign subsidiaries where recognition of the tax benefit is uncertain; this allowance was subsequently released in fiscal 2011. The remaining $0.6 million of the 2010 valuation allowance was attributable to the net operating losses of two foreign subsidiaries where there is an insufficient history of earnings to support realization of the deferred tax asset; in fiscal 2011, this valuation allowance was increased to $2.5 million. Also in fiscal 2011, the Company recorded a valuation allowance of $2.8 million which is attributable to research incentives of a foreign subsidiary where utilization of the incentive is uncertain.

The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of being sustained. As of March 31, 2011, 2010 and 2009, the Company had $10.5 million, $11.2 million and $11.1 million, respectively, of unrecognized tax benefits. The unrecognized tax benefits as of the end of fiscal 2011 would favorably impact the effective tax rate in future periods if recognized.

A reconciliation of the change in the amount of gross unrecognized income tax benefits for the periods is as follows:



	March 31,
(in thousands)	2011			2010			2009
Balance at beginning of period	$	11,201		$	11,090		$	12,436
Increase (decrease) of unrecognized tax benefits related to prior years	(960		)	100			(155		)
Increase of unrecognized tax benefits related to the current year	2,185			2,016			2,205
Reductions to unrecognized tax benefits related to lapse of applicable statute of limitations	(1,968		)	(2,005		)	(3,396		)
Balance at end of period	$	10,458		$	11,201		$	11,090

The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The interest related to unrecognized tax benefits as of March 31, 2011 and 2010 is approximately $1.7 million, compared to $1.6 million as of fiscal 2009. No penalties have been accrued.

Although the timing and outcome of income tax audits is highly uncertain, it is possible that certain unrecognized tax benefits may be reduced as a result of the lapse of the applicable statutes of limitations in federal, state, and foreign jurisdictions within the next twelve months. Currently, the Company cannot reasonably estimate the amount of reductions, if any, during the next twelve months. Any such reduction could be impacted by other changes in unrecognized tax benefits.

The Company and its subsidiaries are subject to taxation in various foreign and state jurisdictions as well as in the U.S. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years prior to 2008. The Company is under examination by the California Franchise Tax Board for its 2007 and 2008 tax years. Foreign income tax matters for material tax jurisdictions have been concluded for tax years prior to fiscal 2005, except for the United Kingdom which has been concluded for tax years prior to fiscal 2009.