INCOME TAXES

Income tax expense for fiscal years 2013, 2012, and 2011 consisted of the following:



(in thousands)	Fiscal Year Ended March 31,
	2013			2012			2011
Current:
Federal	$	25,530		$	23,844		$	22,601
State	2,452			2,719			1,077
Foreign	4,777			5,080			5,888
Total current provision for income taxes	32,759			31,643			29,566
Deferred:
Federal	(586		)	2,324			475
State	(474		)	(569		)	1,262
Foreign	324			168			110
Total deferred benefit for income taxes	(736		)	1,923			1,847
Income tax expense	$	32,023		$	33,566		$	31,413

The components of income before income taxes for fiscal years 2013, 2012, and 2011 are as follows:



	Fiscal Year Ended March 31,
(in thousands)	2013		2012		2011
United States	$	80,875	$	79,589	$	75,426
Foreign	57,550		63,013		65,230
Income before income taxes	$	138,425	$	142,602	$	140,656

The following is a reconciliation between statutory federal income taxes and the income tax expense for fiscal years 2013, 2012, and 2011:



(in thousands)	Fiscal Year Ended March 31,
	2013			2012			2011
Tax expense at statutory rate	$	48,449		$	49,911		$	49,229
Foreign operations taxed at different rates	(15,244		)	(16,973		)	(16,308		)
State taxes, net of federal benefit	1,978			2,149			2,340
Research and development credit	(3,380		)	(1,392		)	(3,234		)
Other, net	220			(129		)	(614		)
Income tax expense	$	32,023		$	33,566		$	31,413

The effective tax rate for fiscal years 2013, 2012, and 2011 was 23.1%, 23.5%, and 22.3% respectively. The effective tax rate for fiscal year 2013 is lower than the previous year due primarily to the increased benefit from the U.S. federal research tax credit in fiscal year 2013, offset by a smaller proportion of income earned in foreign jurisdictions that is taxed at lower rates. The U.S. federal research credit was reinstated in January 2013 retroactively to January 2012; therefore, the effective tax rate for fiscal year 2013 includes the benefit of the credit earned in the fourth quarter of fiscal 2012 compared to the benefit of the credit for only three quarters in fiscal 2012.

In comparison to fiscal year 2011, the increase in the effective tax rate for fiscal year 2012 was due primarily to the reduced benefit from the U.S. federal research tax credit because the credit expired in December 2011; therefore, the effective tax rate in fiscal year 2012 included the benefit of the credit for only three quarters.

The effective tax rate for fiscal years 2013, 2012, and 2011 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.

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. Permanently reinvested foreign earnings were approximately $545.6 million at March 31, 2013. 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. 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 the Company's deferred tax assets and liabilities as of March 31, 2013 and 2012 are as follows:



	March 31,
(in thousands)	2013			2012
Accruals and other reserves	$	7,983		$	9,822
Net operating loss carry forward	5,956			6,317
Stock compensation	8,199			1,388
Other deferred tax assets	3,643			3,561
Valuation allowance	(5,984		)	(6,088		)
Total deferred tax assets	19,797			15,000
Deferred gains on sales of properties	(1,756		)	(1,881		)
Purchased intangibles	(11		)	(143		)
Unremitted earnings of certain subsidiaries	(3,064		)	(3,064		)
Fixed asset depreciation	(4,402		)	(5,309		)
Other deferred tax liabilities	(2,186		)	(2,186		)
Total deferred tax liabilities	(11,419		)	(12,583		)
Net deferred tax assets	$	8,378		$	2,417

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 no valuation allowance is required, except for the specific items discussed below.

The valuation allowance of $6.0 million as of March 31, 2013 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, 2013, 2012, and 2011, the Company had $11.1 million, $11.1 million, and $10.5 million, respectively, of unrecognized tax benefits. The unrecognized tax benefits as of March 31, 2013 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)	2013			2012			2011
Balance at beginning of period	$	11,141		$	10,458		$	11,201
Increase (decrease) of unrecognized tax benefits related to prior years	(117		)	116			(960		)
Increase of unrecognized tax benefits related to the current year	2,430			2,074			2,185
Reductions to unrecognized tax benefits related to lapse of applicable statute of limitations	(2,382		)	(1,507		)	(1,968		)
Balance at end of period	$	11,072		$	11,141		$	10,458

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 $2.0 million and $1.7 million as of March 31, 2013 and 2012, respectively. No penalties have been accrued.

The Company and its subsidiaries are subject to taxation in various foreign and state jurisdictions, including the U.S. The Company is under examination by the Internal Revenue Service for its 2010 tax year and 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 2012.

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.