Income Taxes

12 Months Ended

Mar. 31, 2012

Income Tax Expense Benefit [Abstract]

Income Tax Disclosure [Text Block]

17. Income Taxes

Income (loss) before income tax consists of the following (in thousands):
	Year Ended March 31,
	2012		2011		2010
Domestic	$	15,015	$	23,546	$	4,418
International		25,526		19,354		(2,084)
	$	40,541	$	42,900	$	2,334
Our provision for income taxes consists of the following (in thousands):
	Year Ended March 31,
Current:	2012		2011		2010
Federal	$	3,080	$	8,125	$	2,415
State		467		836		124
Foreign		4,992		2,690		1,830
		8,539		11,651		4,369
Deferred:
Federal		772		(7,253)		(1,290)
State		326		(1,054)		946
Foreign		598		2,909		(1,014)
		1,696		(5,398)		(1,358)
Total income tax provision	$	10,235	$	6,253	$	3,011

The reconciliation of our effective tax rate to the U.S. statutory federal income tax rate is as follows:
	Year Ended March 31,
	2012		2011		2010
		(%)		(%)		(%)
Statutory federal income tax rate		35		35		35
State taxes, net of federal tax benefit		2		(1)		30
Expense (benefit) of lower tax jurisdictions		(5)		(8)		94
Research and development tax credits		(1)		(1)		-
Valuation allowance		(4)		(19)		(82)
Permanent items		3		3		-
Tax reserves		(6)		5		22
Share-based compensation		1		1		3
Capitalized expenses		-		-		19
Foreign income		-		-		8
Effective tax provision rate		25		15		129

The significant components of net deferred income tax assets are as follows (in thousands):
				March 31,
				2012		2011
Deferred tax assets:
	Reserves and allowances			$	6,369	$	7,607
	Other liabilities and accruals				2,081		3,053
		Total short term deferred tax assets			8,450		10,660
	Other long term liabilities and accruals				1,709		1,144
	Depreciable assets				3,114		1,996
	Net operating loss carryforward				18,469		21,039
	Share-based compensation				3,696		2,984
	Credits carryforward				2,300		2,489
		Total long term deferred tax assets			29,288		29,652
			Total deferred tax assets		37,738		40,312
	Less: Valuation allowance and other reserves				(3,659)		(4,878)
			Net deferred tax asset	$	34,079	$	35,434

The authoritative guidance provided by FASB requires deferred tax assets and liabilities to be recognized for temporary differences between the tax basis and financial reporting basis of assets and liabilities, computed at the expected tax rates for the periods in which the assets or liabilities will be realized, as well as for the expected tax benefit of net operating loss and tax credit carryforwards. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. Our management evaluates the recoverability of these net deferred tax assets in accordance with the authoritative guidance provided by FASB. Our ability to utilize the deferred tax assets and the continuing need for a related valuation allowance are being monitored on an ongoing basis. During fiscal 2012, we recorded certain adjustments on the valuation allowance, tax contingency reserves and other temporary items. The impact of these adjustments is discussed further in this note.

At March 31, 2012, we had gross U.S. net operating loss carryforwards of approximately $91.8 million, all of which are subject to the limitations under Section 382 of the U.S. tax code resulting from a change in ownership. These carryforwards will expire, if not utilized, from fiscal 2013 to 2023 for U.S. tax purposes. None of the U.S. net operating loss carryforwards represent the stock option deduction arising from activity under our stock option plan. As of March 31, 2012, we had net operating loss carryforwards for foreign income tax purposes of approximately $8.1 million.

During fiscal 2012, the $1.2 million decrease in the valuation allowance and other reserves from $4.9 million as of March 31, 2011 to $3.7 million as of March 31, 2012 included a $1.7 million change in valuation allowance. This is primarily because the tax holiday in Switzerland ended, and our Swiss subsidiary utilized some of its net operating losses. This utilization reduced the Swiss subsidiary's deferred tax assets, which consequently lowered the valuation allowance balance.

At the end of fiscal 2012, we had $6.3 million of gross unrecognized tax benefits, all of which would affect our effective tax rate if recognized. The $6.3 million has been classified under “Other Long term liabilities” on our consolidated balance sheets. Our liability for unrecognized tax benefits decreased by $3.6 million from last year,principally due to the lapse of statutes of limitation in respect of certain tax positions and the completion of an audit conducted by German tax authorities. The liability for unrecognized tax benefits was offset by an $803,000 income in current year adjustments and by an increase of $285,000 in accrued interest and penalties. We do not anticipate any unrecognized tax benefits in the next 12 months that would result in a material change to our financial position.

We include interest and penalties in the financial statements as a component of income tax expense. We had $703,000 of accrued interest and penalties at March 31, 2012.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):
Balance as of March 31, 2009		$	5,295
	Lapse of statute of limitations		(1,143)
	Increases in balances related to tax positions taken during prior periods		254
	Increases in balances related to tax positions taken during the current period		1,827
Balance as of March 31, 2010			6,233
	Lapse of statute of limitations		(1,492)
	Increases in balances related to tax positions taken during prior periods		362
	Increases in balances related to tax positions taken during the current period		3,682
Balance as of March 31, 2011			8,785
	Lapse of statute of limitations and close of foreign audit		(3,555)
	Increases in balances related to tax positions taken during prior periods		285
	Increases in balances related to tax positions taken during the current period		803
Balance as of March 31, 2012		$	6,318

We have made no provision for U.S. income taxes on undistributed earnings of certain foreign subsidiaries because it is our intention to permanently reinvest such earnings in our foreign subsidiaries. If such earnings were distributed, we would be subject to additional U.S. income tax expense. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practical.

Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards and tax credit carryforwards may be impaired or limited in certain circumstances. Events that may restrict utilization of net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations and continuity of business requirements, as defined in Internal Revenue Code Section 382 and similar state provisions. In the event we had a change of ownership, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards and credit carryforwards before they can be utilized.