INCOME TAXES

Income tax expense from continuing operations for fiscal years 2012, 2011 and 2010 consisted of the following:



(in thousands)	Fiscal Year Ended March 31,
	2012			2011		2010
Current:
Federal	$	23,844		$	22,601	$	17,761
State	2,719			1,077		2,290
Foreign	5,080			5,888		7,241
Total current provision for income taxes	31,643			29,566		27,292
Deferred:
Federal	2,324			475		(2,841		)
State	(569		)	1,262		(199		)
Foreign	168			110		35
Total deferred benefit for income taxes	1,923			1,847		(3,005		)
Income tax expense from continuing operations	$	33,566		$	31,413	$	24,287

The components of income from continuing operations before income taxes for fiscal years 2012, 2011 and 2010 are as follows:



	Fiscal Year Ended March 31,
(in thousands)	2012		2011		2010
United States	$	79,589	$	75,426	$	51,392
Foreign	63,013		65,230		49,348
Income from continuing operations before income taxes	$	142,602	$	140,656	$	100,740

The following is a reconciliation between statutory federal income taxes and the income tax expense from continuing operations for fiscal years 2012, 2011 and 2010:



(in thousands)	Fiscal Year Ended March 31,
	2012			2011			2010
Tax expense at statutory rate	$	49,911		$	49,229		$	35,259
Foreign operations taxed at different rates	(16,973		)	(16,308		)	(11,166		)
State taxes, net of federal benefit	2,149			2,340			2,091
Research and development credit	(1,392		)	(3,234		)	(1,383		)
Other, net	(129		)	(614		)	(514		)
Income tax expense from continuing operations	$	33,566		$	31,413		$	24,287

The effective tax rate for fiscal years 2012, 2011 and 2010 was 23.5%, 22.3%, and 24.1% respectively. The effective tax rate for fiscal year 2012 is higher than the previous year due primarily to the reduced benefit from the U.S. federal research tax credit in fiscal year 2012 as the credit expired in December 2011; therefore, the effective tax rate for fiscal year 2012 included the benefit of the credit for only three quarters. Because the credit was reinstated in December 2010 retroactively to January 1, 2010, the effective tax rate for fiscal year 2011 includes the impact of credits earned in the fourth quarter of fiscal year 2010.

In comparison to fiscal year 2010, the decrease in the effective tax rate for fiscal year 2011 was due primarily to the increased benefit from the U.S. Federal research tax credit.

The effective tax rate for fiscal years 2012, 2011 and 2010 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 $491.0 million at March 31, 2012. The determination of the tax liability that would be incurred if these amounts were remitted back to the U.S. is not practical but would likely be material. The Company's provision for income taxes does not include provisions for U.S. income taxes and foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign operations that it intends to reinvest indefinitely in the foreign operations. If these earnings were distributed to the U.S. in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes, subject to an adjustment for foreign tax credits, and foreign withholding taxes. The Company's current plans do not require repatriation of earnings from foreign operations to fund the U.S. operations because it generates sufficient domestic operating cash flow and has access to external funding under its line of credit. As a result, the Company does not expect a material impact on its business or financial flexibility with respect to undistributed earnings of its foreign operations.

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, 2012 and 2011 are as follows:



	March 31,
(in thousands)	2012			2011
Accruals and other reserves	$	9,822		$	9,850
Net operating loss carry forward	6,317			5,095
Stock compensation	1,388			5,519
Other deferred tax assets	3,561			4,417
Valuation allowance	(6,088		)	(5,274		)
Total deferred tax assets	15,000			19,607
Deferred gains on sales of properties	(1,881		)	(1,954		)
Purchased intangibles	(143		)	(323		)
Unremitted earnings of certain subsidiaries	(3,064		)	(3,064		)
Fixed asset depreciation	(5,309		)	(4,244		)
Other deferred tax liabilities	(2,186		)	(2,199		)
Total deferred tax liabilities	(12,583		)	(11,784		)
Net deferred tax assets	$	2,417		$	7,823

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.

The valuation allowance of $6.1 million million as of March 31, 2012 was related to the net operating losses of a foreign subsidiary with an insufficient history of earnings to support the realization of the deferred tax asset and for another foreign subsidiary with uncertain utilization of research incentives.

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, 2012, 2011 and 2010, the Company had $11.1 million, $10.5 million and $11.2 million, respectively, of unrecognized tax benefits. The unrecognized tax benefits as of March 31, 2012 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)	2012			2011			2010
Balance at beginning of period	$	10,458		$	11,201		$	11,090
Increase (decrease) of unrecognized tax benefits related to prior years	116			(960		)	100
Increase of unrecognized tax benefits related to the current year	2,074			2,185			2,016
Reductions to unrecognized tax benefits related to lapse of applicable statute of limitations	(1,507		)	(1,968		)	(2,005		)
Balance at end of period	$	11,141		$	10,458		$	11,201

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 was $1.7 million as of March 31, 2012 and 2011. No penalties have been accrued.

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 2009. 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 2006, except for the United Kingdom which has been concluded for tax years prior to fiscal year 2010.

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations; however, the outcome of such examinations cannot be predicted with certainty. If any issues addressed in the tax examinations are resolved in a manner inconsistent with the Company's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. Although timing of any resolution and/or closure of tax examinations is not certain, the Company does not believe it is reasonably possible that its unrecognized tax benefits would materially change in the next twelve months.