Income Taxes

12 Months Ended

Mar. 31, 2013

Income Tax Expense Benefit [Abstract]

Income Tax Disclosure [Text Block]

16. Income Taxes

Income before income tax consists of the following (in thousands):
	Year Ended March 31,
	2013		2012		2011
Domestic	$	7,359	$	15,015	$	23,546
International		7,323		25,526		19,354
	$	14,682	$	40,541	$	42,900
Our provision for income taxes consists of the following (in thousands):
	Year Ended March 31,
Current:	2013		2012		2011
Federal	$	1,795	$	3,080	$	8,125
State		278		467		836
Foreign		2,466		4,992		2,690
		4,539		8,539		11,651
Deferred:
Federal		1,734		772		(7,253)
State		(102)		326		(1,054)
Foreign		863		598		2,909
		2,495		1,696		(5,398)
Total income tax provision	$	7,034	$	10,235	$	6,253

The reconciliation of our effective tax rate to the U.S. statutory federal income tax rate is as follows:
	Year Ended March 31,
	2013		2012		2011
		(%)		(%)		(%)
Statutory federal income tax rate		35		35		35
State taxes, net of federal tax benefit		1		2		(1)
Expense (benefit) of lower tax jurisdictions		0		(5)		(8)
Research and development tax credits		(4)		(1)		(1)
Valuation allowance		6		(4)		(19)
Permanent items		4		3		3
Tax reserves		3		(6)		5
Share-based compensation		2		1		1
Foreign income		1		-		-
Effective tax provision rate		48		25		15

The significant components of net deferred income tax assets are as follows (in thousands):
				March 31,
				2013		2012
Deferred tax assets:
	Reserves and allowances			$	6,254	$	6,369
	Other liabilities and accruals				913		2,081
		Total short term deferred tax assets			7,167		8,450
	Other long term liabilities and accruals				2,583		1,709
	Depreciable assets				1,959		3,114
	Net operating loss carryforward				17,261		18,469
	Share-based compensation				4,431		3,696
	Credits carryforward				2,396		2,300
		Total long term deferred tax assets			28,630		29,288
			Total deferred tax assets		35,797		37,738
	Less: Valuation allowance and other reserves				(3,783)		(3,659)
			Net deferred tax asset	$	32,014	$	34,079

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 2013, 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, 2013, we had gross U.S. net operating loss carryforwards of approximately $86.8 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 2014 to 2023 for U.S. tax purposes. None of the U.S. net operating loss carryforwards include stock option deductions arising from our stock option plan. As of March 31, 2013, we had net operating loss carryforwards for foreign income tax purposes of approximately $10.5 million.

During fiscal 2013, the $124,000 net increase in the valuation allowance from $3.7 million as of March 31, 2012 to $3.8 million as of March 31, 2013 included an $864,000 increase in valuation allowance. The increase was primarily because our Swiss subsidiary generated a net operating loss in the current year, offset mainly by a decrease in valuation allowance due to a liquidation of a foreign subsidiary

At the end of fiscal 2013, we had $6.7 million of gross unrecognized tax benefits, all of which would affect our effective tax rate if recognized. The $6.7 million has been classified under “Other Long term liabilities” on our consolidated balance sheet. Our liability for unrecognized tax benefits decreased by $827,000 from prior year, principally due to the lapse of statutes of limitation in respect of certain tax positions. The liability for unrecognized tax benefits was offset by an increase in current year adjustments of $964,000 and an increase of $281,000in 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 $828,000 of accrued interest and penalties at March 31, 2013.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):
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
	Lapse of statute of limitations		(827)
	Increases in balances related to tax positions taken during prior periods		281
	Increases in balances related to tax positions taken during the current period		964
Balance as of March 31, 2013		$	6,736

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. Current utilization of carryforwards is restricted by an annual limitation, which results in the expiration of net operating loss carryforwards and credit carryforwards before they can be utilized.