INCOME TAXES

The components of income before income taxes are as follows (in thousands):



	Fiscal years ended September 30,
	2013			2012		2011
United States	$	(395	)	$	2,808	$	10,173
International	8,633			8,089		6,342
Total income before income taxes	$	8,238		$	10,897	$	16,515

The components of the income tax provision are as follows (in thousands):



	Fiscal years ended September 30,
	2013			2012			2011
Current:
Federal	$	1,418		$	2,203		$	3,880
State	263			400			342
Foreign	3,148			3,131			2,479
Deferred:
U.S.	(2,270		)	(2,229		)	(776		)
Foreign	(126		)	(223		)	(429		)
Total income tax provision	$	2,433		$	3,282		$	5,496

The net deferred tax asset consists of the following (in thousands):



	As of September 30,
	2013			2012
Current deferred tax asset	$	3,174		$	3,389
Non-current deferred tax asset	5,832			5,010
Current deferred tax liability	(60		)	(16		)
Non-current deferred tax liability	(415		)	(630		)
Net deferred tax asset	$	8,531		$	7,753

Uncollectible accounts and other reserves	$	1,138		$	1,820
Depreciation and amortization	255			13
Inventories	1,530			1,263
Compensation costs	8,025			7,034
Tax carryforwards	705			679
Valuation allowance	(515		)	(499		)
Identifiable intangible assets	(2,607		)	(2,557		)
Net deferred tax asset	$	8,531		$	7,753

As of September 30, 2013, we have tax credit carryforwards in a foreign jurisdiction of $0.2 million, the majority of which will expire in 2027. We have generally concluded that it is more likely than not that our deferred tax assets will be realized based on future projected taxable income and the anticipated future reversal of deferred tax liabilities. Our valuation allowance for certain foreign locations at both September 30, 2013 and 2012 was $0.5 million. The amount of the deferred tax assets actually realized could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities or changes in the amounts of future taxable income. If our future taxable income projections are not realized, an additional valuation allowance may be required, and would be reflected as income tax expense at the time that any such change in future taxable income is determined.

10. INCOME TAXES (CONTINUED)

The reconciliation of the statutory federal income tax rate to our effective income tax rate is as follows:



	Fiscal years ended September 30,
	2013		2012		2011
Statutory income tax rate	34.0	%	35.0	%	35.0	%
Increase (decrease) resulting from:
State taxes, net of federal benefits	(0.4	)%	0.7	%	0.5	%
Utilization of tax credits	(7.3	)%	(2.2	)%	(1.4	)%
Manufacturing deduction	(0.8	)%	0.2	%	(3.1	)%
Discrete tax benefits	(9.2	)%	(14.1	)%	(4.4	)%
Foreign operations	2.0	%	3.7	%	1.1	%
Adjustment of tax contingency reserves	9.7	%	4.9	%	2.6	%
Other, net	1.5	%	1.9	%	3.0	%
Effective income tax rate	29.5	%	30.1	%	33.3	%

During fiscal 2013, we recorded a discrete tax benefit of $0.8 million, related to the January 2, 2013 enactment of the American Taxpayers Relief Act of 2012 extending the research and development tax credit for the last three quarters of fiscal 2012 and the release of income tax reserves due to the expiration of the statute of limitations from various U.S. and foreign tax jurisdictions. These discrete tax benefits reduced our effective tax rate by 9.2 percentage points for the twelve month period ended September 30, 2013. During fiscal 2013, the income tax provision before discrete tax benefits was higher than the federal statutory rate primarily due to an increase in certain reserves for unrecognized tax benefits and a reduction in domestic tax benefits.

During fiscal 2012, we recorded a discrete tax benefit of $1.5 million, related to additional research and development tax credits identified for fiscal years ended September 30, 2009, 2010 and 2011, reversal of tax reserves for closure of various jurisdictions' tax matters and tax rate reductions in foreign jurisdictions. These discrete tax benefits reduced our effective tax rate by 14.1 percentage points for the twelve month period ended September 30, 2012. During fiscal 2012, the income tax provision before discrete tax benefits was higher than the statutory rate primarily due to an increase in certain reserves for unrecognized tax benefits, an adjustment for foreign income taxed at the U.S. rate, partially offset by an adjustment in domestic tax benefits.

During fiscal 2011, we recorded a discrete tax benefit of $0.7 million. This benefit primarily resulted from the reversal of tax reserves from various jurisdictions, primarily foreign, related to the expiration of the statute of limitations. It also resulted 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 4.4 percentage points for the twelve month period ended September 30, 2011.

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



	Fiscal years ended September 30,
	2013			2012			2011
Unrecognized tax benefits at beginning of fiscal year	$	2,720		$	2,061		$	2,265
Increases related to:
Prior year income tax positions	162			631			32
Current year income tax positions	733			441			392
Decreases related to:
Prior year income tax positions	—			(94		)	—
Expiration of statute of limitations	(283		)	(319		)	(628		)
Unrecognized tax benefits at end of fiscal year	$	3,332		$	2,720		$	2,061

10. INCOME TAXES (CONTINUED)

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $3.4 million. We expect that it is reasonably possible that the total amounts of unrecognized tax benefits will decrease $0.2 million to $0.3 million over the next 12 months due to the expiration of the statute of limitations.

We recognize interest and penalties related to income tax matters in income tax expense. During the fiscal years ended September 30, 2013, 2012 and 2011, there were insignificant amounts of interest and penalties related to income tax matters in income tax expense. We had accrued interest and penalties related to unrecognized tax benefits as of both September 30, 2013 and September 30, 2012, of $0.6 million. Our long-term income taxes payable on our consolidated balance sheets includes these accrued interest and penalties in addition to the unrecognized tax benefits in the table above.

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 2008 for foreign 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 2009.

At September 30, 2013, we had approximately $24.4 million of accumulated undistributed foreign earnings, for which we have not accrued additional U.S. tax. Our policy is to reinvest earnings of our foreign subsidiaries indefinitely to fund current operations and provide for future international expansion opportunities, and only repatriate earnings to the extent that U.S. taxes have already been recorded. Although we have no current need or intention to repatriate historical earnings in the form of cash in the United States, if we change our assertion from indefinitely reinvesting undistributed foreign earnings, we would have to accrue applicable taxes. 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. Under current tax laws, we estimate the unrecognized deferred tax liability to be in the range of $1.5 million to $2.5 million, which could have a material impact on our current consolidated balance sheet, results of operations and cash flows.