Income Taxes

9 Months Ended

Jun. 30, 2011

Income Taxes [Abstract]

INCOME TAXES

9. INCOME TAXES

Income taxes have been provided at an overall effective rate of 31.8% and 4.1% for the nine month periods ended June 30, 2011 and 2010, 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 nine month period ended June 30, 2011, we recorded a discrete tax benefit of $0.6 million. This benefit primarily resulted from the reversal of tax reserves from various jurisdictions, primarily foreign, 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. This law extended 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 4.8 percentage points for the nine month period ended June 30, 2011 to 31.8%.

In the third quarter of fiscal 2010, we recorded a discrete tax benefit of $2.2 million due to the reversal of domestic tax reserves associated with the statutory closing of a prior tax year and the conclusion of an audit of prior tax years. Further, in the first quarter of fiscal 2010, we recorded a discrete tax benefit of $0.1 million related to an expiration of statutes of limitations. These discrete tax benefits reduced our effective tax rate by 32.5 percentage points for the nine months ended June 30, 2010 to 4.1%.

A reconciliation of the beginning and ending amount of uncertain tax positions is (in thousands):

Uncertain tax positions as of September 30, 2010	$	2,265
Increases related to:
Prior year income tax positions		32
Decreases related to:
Expiration of the statutes of limitations		(466	)
Uncertain tax positions as of June 30, 2011	$	1,831

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $1.7 million.

We recognize interest and penalties related to income tax matters in income tax expense. During the nine months ended June 30, 2011, we recognized a minimal benefit primarily due to the reversal of reserves related to the expiration of the statutes of limitations. During the nine months ended June 30, 2010 we recognized a net benefit of $0.1 million of interest and penalties related to uncertain tax positions in the provision for income taxes. As of June 30, 2011 and September 30, 2010, we had accrued interest and penalties related to unrecognized tax benefits of $0.5 million and $0.6 million, respectively, included in long-term income taxes payable on our condensed consolidated balance sheets.

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.

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 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 financial position and results of operations. We are no longer subject to income tax examination for tax years prior to fiscal 2009 with respect to U.S. federal income tax authorities and fiscal 2007 with respect to foreign income tax authorities. Further, we are no longer subject to income tax examination for tax years generally before fiscal 2006 with respect to U.S. state taxing authorities, consisting primarily of Minnesota and California.