Note 12—Income taxes

Significant components of the provision for income taxes are as follows:

	Years ended September 30,


(in thousands)	2012		2011			2010			2009

			(As restated)			(As restated)			(As restated)
Current:
Federal	$	15,190	$	(999	)	$	14,891		$	9,006
State		1,927		810			4,392			3,207
Foreign		19,323		22,740			17,960			16,078

Total current		36,440		22,551			37,243			28,291

Deferred:
Federal		331		9,356			992			3,714
State		328		299			340			591
Foreign		1,085		167			(564	)		420

Total deferred provision		1,743		9,822			768			4,725

Total income tax expense	$	38,183	$	32,373		$	38,011		$	33,016

We calculate deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, and measure them using the enacted tax rates and laws that we expect will be in effect when the differences reverse.

Significant components of our deferred tax assets and liabilities are as follows:

	September 30,


(in thousands)	2012			2011			2010			2009

				(As restated)			(As restated)			(As restated)
Deferred tax assets:
Accrued employee benefits	$	9,153		$	9,303		$	9,112		$	8,064
Long-term contracts and inventory valuation reductions		9,062			8,215			7,115			7,580
Allowances for loss contingencies		5,339			6,883			6,223			5,316
Deferred compensation		3,756			3,444			3,246			3,306
Book over tax depreciation		471			709			1,373			1,357
Adjustment to pension liability		17,886			15,226			12,925			11,716
California research and development credit carryforward		3,882			2,750			3,484			2,529
Net operating losses		10,909			2,424			1,457			638
Foreign currency mark-to-market		2,192			2,177			1,529			—
Other		395			2,199			513			5,419

Subtotal		63,045			53,330			46,977			45,925
Valuation allowance		(4,205	)		(2,750	)		(3,484	)		(2,529	)

Deferred tax assets		58,840			50,580			43,493			43,396

Deferred tax liabilities:
Amortization of goodwill and intangibles		8,608			12,344			1,964			4,839
Deferred revenue		25,277			14,408			1,761			414
Foreign currency mark-to-market		269			284			673			630
State taxes		146			—			3,421			60
Other		589			1,237			2,096			2,758

Deferred tax liabilities		34,889			28,273			9,915			8,701

Net deferred tax asset	$	23,951		$	22,307		$	33,578		$	34,695

As of September 30, 2012, we had $33.8 million of foreign operating loss carryforwards and $8.9 million of unused state tax credits that are not subject to expiration.

The reconciliation of income tax computed at the U.S. federal statutory tax rate to income tax expense is as follows:

	Years ended September 30,


(in thousands)	2012			2011			2010			2009

				(As restated)			(As restated)			(As restated)
Tax at U.S. statutory rate	$	45,601		$	40,697		$	38,536		$	33,656
State income taxes, net of federal tax effect		1,364			1,297			3,042			2,672
Nondeductible expenses		286			893			1,366			107
Change in reserve for uncertain tax positions		(2,909	)		1,504			(832	)		430
Tax effect from foreign dividend		2,773			—			—			3,063
Foreign earnings taxed at less than statutory rate		(7,153	)		(6,415	)		(2,548	)		(3,760	)
R&D credits generated in the current year		(906	)		(2,696	)		(491	)		(3,395	)
Reinstatement of federal research and development credit		—			(1,406	)		—			—
Other		(873	)		(1,501	)		(1,062	)		243

	$	38,183		$	32,373		$	38,011		$	33,016

We are subject to ongoing audits from various taxing authorities in the jurisdictions in which we do business. As of September 30, 2012, the tax years open under the statute of limitations in significant jurisdictions include 2007-2011 in the U.K., 2006-2011 in New Zealand and 2008-2011 in the U.S. We have effectively settled all tax matters with the IRS for fiscal years prior to and including fiscal year 2010. We believe we have adequately provided for uncertain tax issues we have not yet resolved with federal, state and foreign tax authorities. Although not more likely than not, the most adverse resolution of these issues could result in additional charges to earnings in future periods. Based upon a consideration of all relevant facts and circumstances, we do not believe the ultimate resolution of uncertain tax issues for all open tax periods will have a material adverse effect upon our financial condition or results of operations.

We have recorded liabilities for unrecognized tax benefits related to permanent and temporary tax adjustments as set forth below. The net changes in the liability were as follows:

	Years ended September 30,


(in thousands)	2012			2011			2010			2009

				(As restated)			(As restated)			(As restated)
Balance at October 1	$	10,715		$	8,958		$	9,958		$	8,881
Decrease related to tax positions in prior years:
Recognition of benefits from expiration of statutes		(1,227	)		(1,172	)		(1,747	)		(1,555	)
Recognition of benefits from settlement with tax authorities		(1,257	)		—			—			(259	)
Other		(585	)		—			—			—
Tax positions related to the current year		409			2,452			778			3,142
Tax positions related to current year acquisitions		—			484			—			—
Currency translation adjustment		212			(7	)		(31	)		(251	)

Balance at September 30	$	8,267		$	10,715		$	8,958		$	9,958

At September 30, 2012, the amount of unrecognized tax benefits from permanent tax adjustments that, if recognized, would affect the effective tax rate was $6.3 million. During the next 12 months, it is reasonably possible that resolution of reviews by taxing authorities, both domestic and international, could be reached with respect to approximately $4.5 million of the unrecognized tax benefits depending on the timing of examinations, expiration of statute of limitations, either because the Company's tax positions are sustained or because the Company agrees to their disallowance and pays the related income tax. The amount of net interest and penalties recognized as a component of income tax expense during 2012, 2011, 2010 and 2009 was not material. Interest and penalties accrued at September 30, 2012, 2011, 2010 and 2009 amounted to $3.1 million, $3.0 million, $2.3 million and $2.0 million, respectively, bringing the total liability for uncertain tax issues to $11.3 million, $13.7 million, $11.2 million and $11.9 million, respectively, as of September 30, 2012, 2011, 2010 and 2009 respectively.

We made income tax payments, net of refunds, totaling $25.4 million, $42.1 million, $30.0 million and $28.8 million in 2012, 2011, 2010 and 2009, respectively.

Income before income taxes includes the following components (in thousands):

	Years ended September 30,


	2012		2011		2010		2009

			(As restated)		(As restated)		(As restated)
United States	$	38,428	$	33,955	$	59,984	$	38,729
Foreign		91,859		82,322		50,121		57,432

Total	$	130,287	$	116,277	$	110,105	$	96,161

We evaluate our capital requirements in our foreign subsidiaries on an annual basis to determine what level of capital is needed for the long-term operations of the businesses. We provide U.S. taxes on the amount of capital that is determined to be in excess of the long-term requirements of the business and is, therefore, available for distribution. During 2012, we determined that 40 million New Zealand was excess capital in New Zealand and paid a dividend of that amount in 2012 to the U.S. parent company. Additional U.S. taxes provided on this dividend amounted to approximately $2.8 million in 2012.

Undistributed earnings of all our foreign subsidiaries amounted to approximately $272.2 million at September 30, 2012. We consider those earnings to be indefinitely reinvested and, accordingly, we have not provided for U.S. federal and state income taxes thereon and have determined that no amounts of undistributed earnings are available for distribution. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes and withholding taxes payable to the foreign countries, but would also be able to offset unrecognized foreign tax credit carryforwards. It is not practicable for us to determine the total amount of unrecognized deferred U.S. income tax liability because of the complexities associated with its hypothetical calculation.