Income before income tax consists of the following (in thousands):

	Year Ended March 31,
	2014		2013		2012
Domestic	$	7,104	$	7,359	$	15,015
International		6,355		7,323		25,526
	$	13,459	$	14,682	$	40,541

Our provision for income taxes consists of the following (in thousands):

	Year Ended March 31,
Current:	2014		2013		2012
Federal	$	4,804	$	1,795	$	3,080
State		73		278		467
Foreign		3,087		2,466		4,992
		7,964		4,539		8,539

Deferred:
Federal		183		1,734		772
State		86		(102)		326
Foreign		(820)		863		598
		(551)		2,495		1,696
Total income tax provision	$	7,413	$	7,034	$	10,235

The reconciliation of our effective tax rate to the U.S. statutory federal income tax rate is as follows:

	Year Ended March 31,
	2014		2013		2012
		(%)		(%)		(%)
Statutory federal income tax rate		35		35		35
State taxes, net of federal tax benefit		1		1		2
Expense (benefit) of lower tax jurisdictions		-		-		(5)
Research and development tax credits		(1)		(4)		(1)
Valuation allowance		2		6		(4)
Permanent items		3		4		3
Tax reserves		2		3		(6)
Share-based compensation		-		2		1
Tax assessment		1		-		-
Foreign income		12		1		-
Effective tax provision rate		55		48		25

The significant components of net deferred income tax assets are as follows (in thousands):

				March 31,
				2014		2013
Deferred tax assets:
	Reserves and allowances			$	6,384	$	6,254
	Other liabilities and accruals				1,591		913
		Total short term deferred tax assets			7,975		7,167
	Other long term liabilities and accruals				2,973		2,583
	Depreciable assets				2,883		1,959
	Net operating loss carryforward				15,216		17,261
	Share-based compensation				4,777		4,431
	Credits carryforward				2,337		2,396
		Total long term deferred tax assets			28,186		28,630
			Total deferred tax assets		36,161		35,797
	Less: Valuation allowance and other reserves				(3,870)		(3,783)
			Net deferred tax asset	$	32,291	$	32,014

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 2014, 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, 2014, we had gross U.S. net operating loss carryforwards of approximately $81.8 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 2015 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, 2014 we had net operating loss carryforwards for foreign income tax purposes of approximately $10.6 million.

From fiscal 2013 to fiscal 2014, the increase in valuation allowance was primarily related to the change in the net operating losses of our foreign subsidiaries.

At the end of fiscal 2014, we had $7.0 million of gross unrecognized tax benefits, all of which would affect our effective tax rate if recognized. The $7.0 million has been classified under “Other Long term liabilities” on our consolidated balance sheet. Our liability for unrecognized tax benefits increased by $242,000 from prior year, principally due to an increase in current year adjustments of $684,000 and an increase of $329,000 in accrued interest and penalties. The liability for unrecognized tax benefits was offset by the lapse of statutes of limitation in respect of certain tax positions. 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 $1.2 million of accrued interest and penalties at March 31, 2014.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):

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
	Lapse of statute of limitations		(941)
	Increases in balances related to tax positions taken during prior periods		499
	Increases in balances related to tax positions taken during the current period		684
Balance as of March 31, 2014		$	6,978

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.