10. INCOME TAXES

Income tax expense (benefit) is summarized as follows:

	Years Ended January 31,
	2013			2012			2011
	(in thousands)
Current:
Federal	$	684		$	1,669		$	679
State		25			376			268
Foreign		2,569			3,231			2,663
Subtotal		3,278			5,276			3,610
Deferred:
Federal		942			889			(1,206	)
State		220			21			35
Foreign		(929	)		(175	)		(317	)
Subtotal		233			735			(1,488	)
Equity adjustment		140			5			721
Total	$	3,651		$	6,016		$	2,843

Actual income tax expense (benefit) differs from that obtained by applying the statutory federal income tax rate of 34% to income before income taxes as follows:

	Years Ended January 31,
	2013			2012			2011
	(in thousands)
Computed expected tax expense	$	3,499		$	5,712		$	1,888
State income taxes, net of federal income tax expense		208			580			491
Incremental tax benefit from foreign operations		(1,355	)		(1,945	)		(1,474	)
Non-deductible equity compensation		913			898			335
Foreign withholding taxes		928			981			776
Net change in valuation allowance		(826	)		(336	)		99
Net change in contingency reserve		(68	)		147			91
Non-deductible expenses		296			354			969
Benefit of tax credits		(446	)		(1,437	)		(456	)
Subpart F Income		313			784			383
Rate change impact		164			(61	)		20
Other		25			339			(279	)
	$	3,651		$	6,016		$	2,843

Consolidated U.S. income (loss) before income taxes was $2.3 million, $4.4 million, and $(2.8) million for the fiscal years ended January 31, 2013, 2012 and 2011, respectively. The corresponding income before income taxes for foreign operations was $8.0 million, $12.4 million and $8.4 million for the fiscal years ended January 31, 2013, 2012 and 2011, respectively.

The Company files U.S. federal, state, and foreign tax returns that are subject to audit by various tax authorities. The Company is currently under audit in India for fiscal years ended March 31, 1998, 1999, 2008, 2009, 2010, and 2011, in Thailand for fiscal year ended 2012, in South Africa for fiscal years ended 2008, 2010 and 2012, in Switzerland for the fiscal year ended 2011 and in California for fiscal years ended 2004 and 2005.

U.S. income and foreign withholding taxes have not been recorded on permanently reinvested earnings of our foreign subsidiaries. These permanently reinvested earnings are approximately $61.7 million at January 31, 2013. It is not practicable for the Company to determine the amount of the related unrecognized deferred income tax liability. Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends.

Deferred income taxes reflect the net effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company's deferred tax assets and liabilities are as follows:

	January 31,
	2013			2012
	(in thousands)
Deferred tax assets:
Allowance for doubtful accounts and sales adjustments	$	689		$	713
Accrued vacation		1,946			1,850
Tax credits		8,417			7,455
Deferred revenue		4,135			5,607
Net operating loss carry forwards		12,011			12,066
Accrued expenses - other		1,906			1,751
Section 263(a) interest capitalization		385			395
Equity compensation		4,856			5,338
Other		1,176			1,165
Total deferred tax assets		35,521			36,340
Less valuation allowance		(10,417	)		(11,008	)
Deferred tax assets, net of valuation allowance	$	25,104		$	25,332
Deferred tax liabilities:
Unrecognized capital gain		944			914
Depreciation and amortization		1,352			(352	)
Other comprehensive income		1,507			2,823
Other		456			307
Total deferred tax liabilities		4,259			3,692
Total net deferred tax assets	$	20,845		$	21,640
Recorded as:
Current portion of deferred tax assets		4,426			4,430
Non-current portion of deferred tax assets		17,301			17,969
Current portion of deferred tax liabilities (in current deferred tax assets)		(12	)		(75	)
Non-current portion of deferred tax liabilities (in non-current deferred tax assets)		(870	)		(684	)
Total net deferred tax assets	$	20,845		$	21,640

The Company reviews its net deferred tax assets by jurisdiction on a quarterly basis to determine whether a valuation allowance is necessary based on the more-likely-than-not standard. If and when the Company's operating performance improves on a sustained basis, the conclusion regarding the need for a valuation allowance could change, resulting in the reversal of some or all of the valuation allowance in the future. At January 31, 2013 and 2012, the valuation allowance attributable to deferred tax assets was $10.4 million and $11.0 million, respectively.

Deferred tax assets at January 31, 2013 and 2012 do not include $1.1 million and $1.0 million, respectively, of excess tax benefits from employee stock exercises. During fiscal 2013, the Company was able to recognize $0.1 million of excess tax benefits. Equity will be increased by an additional $1.1 million when such excess tax benefits are ultimately realized.

The Company has net operating loss carryforwards of $44.5 million and tax credit carryforwards of $10.4 million as of January 31, 2013. The majority of the Company's net operating loss carryforwards do not expire, the remaining begin to expire in fiscal year 2014. The majority of the Company's tax credit carryforwards do not expire, the remaining begin to expire in fiscal year 2018.

During the fiscal year ended January 31, 2013, the Company decreased its reserves for uncertain tax positions by $0.1 million. Interest and penalties on accrued but unpaid taxes are classified in the Consolidated Statements of Income and Comprehensive Income as income tax expense. The liability for unrecognized tax benefits that may be recognized in the next twelve months is classified as short-term in the Company's Consolidated Balance Sheet while the remainder is classified as long-term.

The following table reconciles the gross amounts of unrecognized tax benefits at the beginning and end of the period:

	Years Ended January 31,
	2013			2012
	(in thousands)
Unrecognized tax benefits at beginning of the year	$	2,649		$	2,502
Increases as a result of tax positions taken in a prior period		42			258
Increases as a result of tax positions taken in the current period		39			69
Reduction as a result of a lapse of the statute of limitations		(130	)		(180	)
Decreases as a result of tax settlements		(19	)		¾
Unrecognized tax benefit at end of year	$	2,581		$	2,649

All of the unrecognized tax benefits included in the balance sheet at January 31, 2013 would impact the effective tax rate on income from continuing operations, if recognized.

The total amount of interest expense recognized in the Consolidated Statement of Income and Comprehensive Income for unpaid taxes was $33,000 for the year ended January 31, 2013. The total amount of interest and penalties recognized in the Consolidated Balance Sheet at January 31, 2013 was $0.3 million.

In the next twelve months, due to a potential tax credit settlement an estimated $0.2 million of gross unrecognized tax benefits may be recognized.

The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statute of limitations. The years that may be subject to examination will vary by jurisdiction. Below is a list of our material jurisdictions and the years open for audit as of fiscal 2013:

Jurisdiction	Years Open for Audit
U.S. Federal	FY10 and beyond
California	FY09 and beyond
Michigan	FY09 and beyond
New Jersey	FY09 and beyond
Australia	FY09 and beyond
France	FY10 and beyond
India	FY98 and beyond
Ireland	FY09 and beyond
United Kingdom	FY10 and beyond