NOTE 11—INCOME TAXES

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

Years ended September 30,	2013			2012		2011
	(in thousands)
	(As Restated)			(As Restated)		(As Restated)
Current:
Federal	$	8,198		$	15,448	$	(804	)
State	2,437			1,927		810
Foreign	18,581			21,005		24,531
Total current	29,216			38,380		24,537

Deferred:
Federal	(14,182		)	331		9,356
State	(2,720		)	328		299
Foreign	2,188			1,293		(73		)
Total deferred provision	(14,714		)	1,952		9,582
Total income tax expense	$	14,502		$	40,332	$	34,119

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

September 30,	2013			2012
	(in thousands)
	(As Restated)			(As Restated)
Deferred tax assets:
Accrued employee benefits	$	11,642		$	12,490
Long-term contracts and inventory valuation reductions	14,152			8,343
Allowances for loss contingencies	5,441			6,242
Deferred compensation	4,346			3,756
Property, plant and equipment	1,127			726
Intangible assets	477			—
Retirement benefits	5,678			14,549
State research and development credit carryforward	4,839			3,882
Net operating losses	18,639			11,291
Foreign currency mark-to-market	302			2,192
Other	1,746			313
Subtotal	68,389			63,784
Valuation allowance	(8,801		)	(4,205		)
Deferred tax assets	59,588			59,579

Deferred tax liabilities:
Intangible assets	—			8,608
Deferred revenue	28,865			25,277
State taxes	995			269
Foreign currency mark-to-market	290			146
Other	1,762			946
Deferred tax liabilities	31,912			35,246
Net deferred tax asset	$	27,676		$	24,333

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. Certain items within the 2012 presentation of the components of deferred tax assets and liabilities have been reclassified to conform to the current year presentation. The reclassifications primarily relate to $3.3 million of accrued pension costs reclassified from accrued employee benefits to retirements benefits and $0.7 million of reserves reclassified from long-term contracts and inventory valuation reductions to allowances for loss contingencies.

As of September 30, 2013, we had $60.3 million of foreign operating loss carryforwards and $10.9 million of unused state tax credits that are not subject to expiration.

We are required to assess whether a valuation allowance should be recorded against our deferred tax assets (DTAs) by jurisdiction based on the consideration of all available evidence, with significant weight given to evidence that can be objectively verified and using a “more likely than not” realization standard. As of September 30, 2013, we evaluated our net deferred income tax assets, including an assessment of the cumulative income or loss over the prior three-year and future periods, to determine if a valuation allowance is required. With respect to Australia, a significant negative factor in our assessment at September 30, 2013 was the determination that our Australian operations had a three-year historical cumulative loss as of the end of the year. After considering our recent history of losses and future sources of taxable income in the near-term, we recorded a valuation allowance on our net deferred tax assets related to Australia, with a corresponding charge to our income tax provision, of approximately $4.0 million in the quarter ended September 30, 2013. We will continue to assess the need for a valuation allowance on deferred tax assets by evaluating both positive and negative evidence that may exist.

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,	2013			2012			2011
				(in thousands)
	(As Restated)			(As Restated)			(As Restated)
Tax at U.S. statutory rate	$	13,921		$	48,287		$	42,165
State income taxes, net of federal tax effect	120			1,364			1,297
Nondeductible expenses	1,609			286			893
Change in reserve accrued for tax contingencies	(673		)	(2,752		)	2,154
Impact of goodwill impairment loss	10,046			—			—
Change in valuation allowance	4,044			—			—
Tax effect from foreign earnings repatriation	—			2,773			—
Foreign earnings taxed at less than statutory rate	(7,521		)	(7,847		)	(6,787		)
R&D credits generated in the current year	(3,202		)	(906		)	(2,696		)
Reinstatement of federal research and development credit	(1,937		)	—			(1,406		)
Manufacturing deduction	(1,333		)	(630		)	(1,476		)
Other	(572		)	(243		)	(25		)
	$	14,502		$	40,332		$	34,119

We are subject to ongoing audits from various taxing authorities in the jurisdictions in which we do business. As of September 30, 2013, the fiscal tax years open under the statute of limitations in significant jurisdictions include 2009-2013 in the U.K., 2008-2013 in New Zealand and 2010-2013 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,	2013			2012
	(in thousands)
	(As Restated)			(As Restated)
Balance at October 1	$	8,649		$	10,940
Increase (decrease) related to tax positions in prior years:
Recognition of benefits from expiration of statutes	(575		)	(1,227		)
Settlements with taxing authorities	(2,332		)	(1,257		)
Other	824			(586		)
Tax positions related to the current year	552			567
Currency translation adjustment	(40		)	212
Balance at September 30	$	7,078		$	8,649

At September 30, 2013, the amount of unrecognized tax benefits from permanent tax adjustments that, if recognized, would affect the effective tax rate was $4.8 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 $2.2 million of the unrecognized tax benefits depending on the timing of examinations or 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 2013, 2012 and 2011 was not material. Interest and penalties accrued at September 30, 2013 and 2012 amounted to $2.2 million and $3.7 million, respectively, bringing the total liability for uncertain tax issues to $9.3 million and $12.3 million, respectively, as of September 30, 2013 and 2012.

Cash amounts paid for income taxes, net of refunds received, were $42.1 million, $25.4 million and $42.1 million in 2013, 2012 and 2011, respectively.

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

Years ended September 30,	2013			2012		2011
	(As Restated)			(in thousands) (As Restated)		(As Restated)
United States	$	(31,640	)	$	38,692	$	33,879
Foreign	71,411			99,271		86,594
Total	$	39,771		$	137,963	$	120,473

Undistributed earnings of all our foreign subsidiaries amounted to approximately $292.2 million at September 30, 2013. 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.