14. INCOME TAXES

Income tax provision

Income before income taxes and the income tax provision include the following (in thousands):

	Year Ended March 31,
	2011			2010			2009
Income before income taxes:
U.S.	$	133,239		$	192,030		$	195,943
Foreign		21,537			17,090			16,778
Total income before income taxes	$	154,776		$	209,120		$	212,721

Income tax provision
Current:
U.S. Federal	$	22,734		$	54,217		$	47,917
Foreign		10,193			11,521			5,937
U.S. State		1,096			2,957			2,299
Total current tax provision		34,023			68,695			56,153
Deferred:
U.S. Federal		12,184			7,278			7,213
Foreign		(527	)		(2,234	)		1,568
U.S. State		1,655			(5,425	)		8,140
Total deferred tax provision (benefit)		13,312			(381	)		16,921
Total income tax provision	$	47,335		$	68,314		$	73,074

The Company's income tax expense differed from the amount computed on pre-tax income at the U.S. federal income tax rate of 35% for the following reasons (in thousands):

	Year Ended March 31,
	2011			2010			2009

Federal income tax at statutory rates	$	54,172		$	73,192		$	74,452
Increase (decrease) in taxes:
State income taxes, net		1,690			2,747			1,273
Settlement of prior year tax matters		(2,463	)					(1,024	)
Taxes relating to foreign operations		1,597			1,361			(3,446	)
Tax credits (1)		(4,569	)		(1,662	)		(3,995	)
Foreign reorganization (2)		2,076			(32,319	)
Valuation allowance (3)		(1,483	)		28,360			6,049
Other, net (4)		(3,685	)		(3,365	)		(235	)
Provision for income taxes	$	47,335		$	68,314		$	73,074

(1)

During fiscal 2011, our tax credits primarily relate to (1) the U.S. Research and Experimentation tax credit (“R&D credit”) including the impact of retroactively reinstating the credit to January 1, 2010; and (2) settlement of R&D credits related to fiscal 2007 through fiscal 2009 tax periods with the Internal Revenue Service.

(2)

A deferred tax benefit of $32.3 million was recorded in fiscal 2010 due to capital loss carryforwards generated from a foreign tax reorganization that occurred during fiscal 2010. These capital loss carryforwards can only be offset by capital gains within the foreign jurisdiction, which the Company believes is less than more likely than not to occur. Therefore, the Company recorded a valuation allowance equal to the deferred tax benefit.

(3)

During fiscal 2010, the Company recorded a $32.3 million valuation allowance against the capital gains carryforward deferred tax asset that was created from the tax reorganization as noted above; partially offset by the release of valuation allowances related to Brownfield Redevelopment tax credit carryforward deferred tax assets (“Brownfield tax credit carryforward asset”) in the amount of $4.1 million. Due to certain events and circumstances that occurred during these periods, including the acquisition of Gomez, the Company adjusted the carrying value of the Brownfield tax credit carryforward asset to its more likely than not realizable value.

During fiscal 2009, the Company recorded a $6.0 million valuation allowance against its Brownfield tax credit carryforward asset. On January 9, 2009, the State of Michigan amended the MBT with an effective date of January 1, 2008. The amendment impacts future taxable income under the MBT, therefore the Company evaluated its ability to realize the Brownfield tax credit carryforward asset before the expiration date and adjusted the carrying value of the asset to its more likely than not realizable value.

(4)

During the fourth quarter of fiscal 2010, the Company identified a carryforward component of an income tax receivable that existed at March 31, 2009 resulting in a $3.0 million benefit which was corrected during the fourth quarter of fiscal 2010. The Company has considered both the qualitative and quantitative effects of this error on the financial statements for the fiscal year ended March 31, 2009, as well as the qualitative and quantitative effects of including the error correction in the fourth quarter of fiscal 2010 and fiscal year ended March 31, 2010 and has concluded that the effects on the financial statements are not material.

Deferred tax assets and liabilities

Temporary differences and carryforwards that give rise to a significant portion of deferred tax assets and liabilities were as follows (in thousands):

	March 31,
	2011		2010
Deferred tax assets:
Deferred revenue	$	38,081	$	35,030
Amortization of intangible assets		17,032		19,584
Accrued expenses		30,564		29,540
Net operating loss carryforwards		15,356		19,870
Other tax carryforwards		48,736		51,445
Other		11,973		14,028
		161,742		169,497
Less valuation allowance		39,312		40,793
Net deferred tax assets		122,430		128,704
Current portion		43,515		48,060
Long term portion	$	78,915	$	80,644

Deferred tax liabilities:
Amortization of intangible assets	$	56,148	$	53,643
Capitalized research and development costs		16,639		12,811
Depreciation		29,340		28,056
Other		8,927		4,150
Total deferred tax liabilities		111,054		98,660
Current portion		2,759		1,774
Long term portion	$	108,295	$	96,886

At March 31, 2011, the Company had net operating losses, capital losses and tax credit carryforwards for income tax purposes of $64.1 million that expire in the tax years as follows (in thousands):

	March 31,
	2011		Expiration
U.S. federal net operating losses	$	1,841	2012 - 2030
Non-U.S. net operating losses		12,339	Indefinite
Non-U.S. net operating losses		1,175	2016 - 2031
Non-U.S. capital loss carryforwards		30,243	Indefinite
U.S. state & local tax credit carryforwards		18,493	2012 - 2022
	$	64,091

Uncertain tax positions

The amount of gross unrecognized tax benefits was $21.1 million, $22.1 million and $16.1 million as of March 31, 2011, 2010 and 2009, respectively, of which $16.1 million, $17.3 million and $12.4 million, respectively, net of federal benefit, would favorably affect the Company's effective tax rate if recognized in future periods.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended March 31, 2011, 2010 and 2009 (in thousands):

	March 31,
	2011			2010			2009
Gross unrecognized tax benefit at April 1,	$	22,057		$	16,184		$	14,956
Gross increases to tax positions for prior periods		5,045			2,717			3,230
Gross increases to tax positions for prior periods related to acquired entities during fiscal 2010					1,260
Gross decreases to tax positions for prior periods		(6,441	)		(2,805	)		(2,267	)
Gross increases to tax positions for current period		3,365			5,258			3,789
Foreign tax rate differential for prior period		10			(7	)		(2	)
Settlements		(1,896	)					(3,060	)
Lapse of statute of limitations		(1,026	)		(550	)		(462	)
Gross unrecognized tax benefit at March 31,	$	21,114		$	22,057		$	16,184

Our interest payable associated with uncertain tax positions that were unfavorable to the Company as of March 31, 2011, 2010 and 2009 was $1.8 million, $8.9 million and $9.3 million, respectively. Our interest receivable associated with uncertain tax positions that were favorable to the Company was $2.1 million, $7.1 million and $7.8 million, respectively. The March 31, 2009 balances include a $6.4 million balance sheet reclassification that increased the interest receivable and payable. The Company recognized $1.3 million of net interest income during fiscal 2011 and net interest expense of $248,000 and $313,000, respectively, during fiscal 2010 and 2009.

The Company has open tax years from 1999 and forward, with various taxing jurisdictions, including the U.S., Brazil and Canada. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations due to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. During fiscal 2012, it is reasonably possible that the Company will settle income tax examinations in the amount of approximately $122,000.

Cash paid for income taxes

Cash paid for income taxes was $38.1 million, $66.1 million and $31.7 million during fiscal 2011, 2010 and 2009, respectively.