13. Income Taxes

Income tax expense is composed of the following:


	Fiscal year ended March 31,
	2013			2012			2011
Current:
Federal	$	38,480		$	30,459		$	24,232
State		5,684			3,778			2,736
Foreign		19,438			16,282			14,114

Total current		63,602			50,519			41,082
Deferred:
Federal		3,915			(1,609	)		(1,358	)
State		214			(962	)		2,010
Foreign		(2,456	)		(656	)		(3,716	)

Total deferred		1,673			(3,227	)		(3,064	)

Income tax expense	$	65,275		$	47,292		$	38,018

Earnings before income taxes consists of the following:


	Fiscal year ended March 31,
	2013		2012		2011
United States	$	107,191	$	87,597	$	57,710
Foreign		123,042		103,662		93,734

Earnings before income taxes	$	230,233	$	191,259	$	151,444

Income taxes paid by the Company for the fiscal years ended March 31, 2013, 2012 and 2011 were $64,210, $38,482 and $41,800, respectively.

The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:


	March 31,
	2013			2012
Deferred tax assets:
Accounts receivable	$	660		$	1,111
Inventories		4,345			6,707
Net operating loss carryforwards		67,834			71,773
Accrued expenses		32,773			26,997
Other assets		9,703			10,228

Gross deferred tax assets		115,315			116,816
Less valuation allowance		(54,542	)		(56,359	)

Total deferred tax assets		60,773			60,457
Deferred tax liabilities:
Property, plant and equipment		28,985			30,957
Other intangible assets		48,142			46,628
Convertible Notes		22,386			21,616
Other liabilities		865			2,400

Total deferred tax liabilities		100,378			101,601

Net deferred tax liabilities	$	(39,605	)	$	(41,144	)

The Company has approximately $3,213 in United States federal net operating loss carryforwards, all of which are limited by Section 382 of the Internal Revenue Code, that begin to expire in the year ending 2023. The Company has approximately $235,623 of net operating loss carryforwards at March 31, 2013 that relate to the Company’s foreign subsidiaries. Some of these net operating loss carryforwards have an unlimited life, while others expire at various times over the next 20 years. In addition, the Company also had approximately $35,751 of net operating loss carryforwards for state tax purposes that expire at various times over the next 20 years.

During the current fiscal year, the Company reversed a valuation allowance against certain federal net operating losses that were limited by Section 382. The amount of the valuation allowance reversal was $793. The Company has also recorded a valuation allowance for net deferred tax assets in certain foreign and state tax jurisdictions, primarily related to net operating loss carryforwards, due to the significant losses incurred in these tax jurisdictions. As of March 31, 2013 and 2012 the valuation allowance associated with certain foreign tax jurisdictions was $52,781 and $53,206, respectively. As of March 31, 2013 and 2012 the valuation allowance associated with the state tax jurisdictions was $1,761 and $2,360, respectively. During the fiscal years ended March 31, 2013 and 2012, the Company recorded tax benefits of $1,866 and $2,940, respectively, due to the utilization of net operating loss carryforwards in certain foreign subsidiaries.

A reconciliation of income taxes at the statutory rate to the income tax provision is as follows:


	Fiscal year ended March 31,
	2013			2012			2011
United States statutory income tax expense (at 35%)	$	80,581		$	66,962		$	53,005
Increase (decrease) resulting from:
State income taxes, net of federal effect		3,742			1,592			3,035
Nondeductible expenses, domestic manufacturing deduction and other		7,664			1,587			(1,848	)
Effect of foreign operations		(27,883	)		(20,028	)		(14,841	)
Valuation allowance		1,171			(2,821	)		(1,333	)

Income tax expense	$	65,275		$	47,292		$	38,018

The effective income tax rate was 28.4% in fiscal 2013, compared to 24.7% in fiscal 2012 and 25.1% in fiscal 2011.

At March 31, 2013, the Company has not recorded United States income or foreign withholding taxes on approximately $598,500 of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the United States because the Company currently plans to keep these amounts permanently invested overseas. It is not practical to calculate the income tax expense that would result upon repatriation of these earnings.

The Company recognizes and measures uncertain tax positions taken, or expected to be taken, in a tax return in accordance with FASB guidance on accounting for uncertainty in income taxes.

A reconciliation of the beginning and ending amount of unrecognized tax benefits under FASB guidance is as follows:


March 31, 2010	$	10,750
Increases related to current year tax positions		2,896
Increases related to prior year tax positions		324
Increases related to prior year tax positions due to foreign currency translation		122
Decreases related to prior year tax position settled		(3,145	)
Lapse of statute of limitations		(302	)

March 31, 2011		10,645
Increases related to current year tax positions		5,032
Increases related to prior year tax positions		182
Decreases related to prior year tax positions due to foreign currency translation		(28	)
Lapse of statute of limitations		(2,886	)

March 31, 2012		12,945
Increases related to current year tax positions		6,296
Increases related to prior year tax positions		969
Increases related to prior year tax positions due to foreign currency translation		245
Lapse of statute of limitations		(3,970	)

March 31, 2013	$	16,485

All of the balance of unrecognized tax benefits at March 31, 2013 and 2012, if recognized, would be included in the Company’s Consolidated Statements of Income and have a favorable impact on both the Company’s net earnings and effective tax rate.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2009.

The Company anticipates that it is reasonably possible that a portion of the March 31, 2013 balance of the unrecognized tax benefits could be recognized within the next twelve months due to the expiration of the relevant statutes of limitations. An estimate of the range of the adjustments cannot be made at this time.

The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statements of Income. As of March 31, 2013 and 2012, the Company had an accrual of $680 and $575, respectively, for interest and penalties.