INCOME TAXES

Income taxes have been provided at an overall effective rate of 37.2% and 26.1% for the six month periods ended March 31, 2012 and 2011, respectively. Our effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and related statutory tax rate in each jurisdiction, and discrete events, such as settlements of audits.

In the first quarter of fiscal 2012, we recorded a discrete tax benefit of $0.1 million. This benefit primarily resulted from the release of income tax reserves due to the expiration of the statutes of limitations from various U.S. tax jurisdictions. This benefit reduced our effective tax rate by 2.7 percentage points for the six month period ended March 31, 2012 to 37.2%. Our income tax rate is higher than the U.S. statutory rate for the six months ended March 31, 2012 primarily due to expiration of the research and development credit on December 31, 2011 and a reduction in domestic tax benefits.

In the first quarter of fiscal 2011, we recorded a discrete tax benefit of $0.6 million. This benefit primarily resulted from the reversal of tax reserves from various jurisdictions related to the expiration of the statutes of limitations as well as from the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extending the research and development tax credit that allowed us to record tax credits earned during the last three quarters of fiscal 2010 in the first quarter of fiscal 2011. This benefit reduced our effective tax rate by 9.3 percentage points for the six month period ended March 31, 2011 to 26.1%.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):




Unrecognized tax benefits as of September 30, 2011	$	2,061
Decreases related to:
Prior year income tax positions	(67		)
Expiration of statute of limitations	(83		)
Unrecognized tax benefits as of March 31, 2012	$	1,911

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $1.8 million.

We recognize interest and penalties related to income tax matters in income tax expense. During the six months ended March 31, 2012 and March 31, 2011, we recognized a minimal benefit and a $0.1 million benefit, respectively. This was primarily due to the reversal of reserves related to the expiration of the statutes of limitations. We had accrued interest and penalties related to unrecognized tax benefits as of March 31, 2012 and September 30, 2011, of $0.5 million and $0.6 million, respectively. Our long-term income taxes payable on our condensed consolidated balance sheets includes these accrued interest and penalties in addition to the unrecognized tax benefits in the table above.

There are no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will increase or decrease significantly over the next 12 months.

At March 31, 2012, we had approximately $11.6 million of accumulated undistributed foreign earnings. Although we have no current need to do so, if we change our unremitted assertion to repatriate undistributed foreign earnings for cash requirements in the United States, we would have to accrue and pay applicable taxes. Since the amount of any taxes and the application of any tax credits would be determined based on the income tax laws at the time of such repatriation, it is not practicable to determine the unrecognized deferred tax liability; however, based on current tax laws and structures, we do not believe this would have a material impact on our current consolidated financial position and cash flows.

We operate in multiple tax jurisdictions both in the U.S. and outside of the U.S. Accordingly, we must determine the appropriate allocation of income to each of these jurisdictions. This determination requires us to make several estimates and assumptions. Tax audits associated with the allocation of this income, and other complex issues, may require an extended period of time to resolve and may result in adjustments to our income tax balances in those years that are material to our consolidated balance sheet and results of operations. We are no longer subject to income tax examination for tax years prior to fiscal 2009 in the case of U.S. federal tax authorities and prior to fiscal 2007 for non-U.S. income tax authorities. For state taxing authorities, consisting primarily of Minnesota and California, we are no longer subject to income tax examination for tax years generally before fiscal 2007.