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settled. To the extent recovery of deferred tax assets is not likely based on our estimates of future taxable
income in each jurisdiction, a valuation allowance is established. As part of the process of preparing our
consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions
in which we operate. This process involves: (i) estimating our current tax exposure in each jurisdiction
including the impact, if any, of changes or interpretations to applicable tax laws and regulations,
(ii) estimating additional taxes resulting from tax examinations and (iii) making judgments regarding the
recoverability of deferred tax assets.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax
regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions
based on our estimate of whether, and the extent to which, additional taxes will be due. Our estimate for
the potential outcome for any uncertain tax issue, including our claims for research and development
income tax credits, requires judgment. We believe we have adequately provided for any reasonably
foreseeable outcome related to these matters. However, our future results may include favorable or
unfavorable adjustments to our estimated tax liabilities in the period in which they are resolved or when
statutes of limitation on potential assessments expire.
As of April 1, 2007, we adopted the provisions of FIN No. 48, ‘‘Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109’’ (‘‘FIN 48’’). Previously, we had accounted for
income tax contingencies in accordance with SFAS No. 5, ‘‘Accounting for Contingencies.’’ As required by
FIN 48, we recognize the financial statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position following an audit. For tax positions
meeting the ‘‘more likely than not’’ threshold, the amount recognized in the financial statements is the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the
relevant tax authority. At the adoption date, we applied FIN 48 to all income tax positions for which the
statute of limitations remained open. Our adoption of FIN 48 on April 1, 2007 had no impact on our
April 1, 2007 beginning retained earnings balance. The amount of unrecognized tax benefits as of
March 31, 2009 and 2008 was $10.9 million and $11.6 million, respectively. The contingent tax liability
relates to tax positions taken in previously filed tax returns and similar positions expected to be taken in
our current year income tax returns. A portion of the contingent tax liability relates to fiscal years under
examination. On May 24, 2007 we received notification from the IRS that the Joint Committee on Taxation
had completed its review of our file and took no exception to the conclusions reached by the IRS. We have
evaluated the impact of the conclusions reached in the IRS examination in the FIN 48 measurement and
recognition process. We are currently under routine examination by the IRS for our income tax returns for
fiscal years 2004 through 2007 and by various state jurisdictions for fiscal years subsequent to 2003. We
expect some of these examinations to be concluded and settled in the next 12 months, however, we are
currently unable to estimate the potential impact to the liability for unrecognized tax benefits or the timing
of such changes. We do not anticipate any significant changes in the unrecognized tax benefits in fiscal
2010 related to the expiration of the statutes of limitations.
Basic and Diluted Earnings Per Share. Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares outstanding for the
period, increased by common stock equivalents. Common stock equivalents are calculated using the
treasury stock method and represent incremental shares issuable upon exercise of our outstanding options,
warrants, the employee stock purchase plan, and other stock unit awards. However, potential common
shares are not included in the denominator of the diluted earnings per share calculation when inclusion of
such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
Recently Issued Accounting Pronouncements. In September 2006, the FASB issued SFAS No. 157, ‘‘Fair
Value Measurements’’ (‘‘FAS 157’’). FAS 157 provides a single definition of fair value, together with a
framework for measuring it, and requires additional disclosure about the use of fair value to measure
assets and liabilities. In February 2008, the FASB issued FASB Staff Position (‘‘FSP’’) FAS 157-2,
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