Income Taxes

12 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

INCOME TAXES

10. INCOME TAXES

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

	For the years ended September 30,
	2011		2010		2009
United States	$	10,173	$	7,080	$	1,582
International		6,342		3,439		2,700
	$	16,515	$	10,519	$	4,282

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

	For the years ended September 30,
	2011			2010			2009
Current:
Federal	$	3,880		$	3,072		$	1,160
State		342			327			292
Foreign		2,479			1,835			1,461
Deferred:
U.S.		(776	)		(3,052	)		(1,829	)
Foreign		(429	)		(604	)		(885	)
	$	5,496		$	1,578		$	199

The net deferred tax asset at September 30 consists of the following (in thousands):

	2011			2010
Current deferred tax assets	$	2,610		$	3,344
Non-current deferred tax asset		3,771			320
Current deferred tax liability		(137	)		(82	)
Non-current deferred tax liability		(813	)		(1,457	)
Net deferred tax asset	$	5,431		$	2,125
		2011			2010
Uncollectible accounts and other reserves	$	1,454		$	2,387
Depreciation and amortization		183			654
Inventories		913			856
Compensation costs		6,106			3,323
Tax credit carryforwards		417			297
Identifiable intangible assets		(3,642	)		(5,392	)
Net deferred tax asset	$	5,431		$	2,125

As of September 30, 2011, we have tax credit carryforwards in a foreign jurisdiction of $0.2 million, the majority of which will expire in 2015.

We have 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. The amount of the deferred tax assets actually realized, however, 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, a 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. Our valuation allowance as of September 30, 2011 and 2010 was $0.4 million and $0.1 million, respectively. During the fourth quarter of fiscal 2011, we recorded an additional valuation allowance of $0.3 million for our India and Singapore subsidiaries’ net operating losses, based on a lack of historical earnings and an uncertainty about future taxable income.

The reconciliation of the statutory federal income tax rate to our effective income tax rate for the years ended September 30 is as follows:

	2011			2010			2009
Statutory income tax rate		35.0	%		35.0	%		34.0	%
Increase (decrease) resulting from:
State taxes, net of federal benefits		0.9			1.1			1.8
Utilization of tax credits		(1.7	)		(0.9	)		(15.6	)
Manufacturing deduction		(3.1	)		(2.9	)		(2.9	)
Foreign tax rate differential		0.4			(0.2	)		(3.0	)
Research and development credit related to prior years		(0.3	)		—			(13.3	)
Adjustment of tax contingency reserves		(1.1	)		(18.9	)		2.7
Foreign true-up to return		(0.1	)		(0.3	)		(6.0	)
Domestic true-up to return		1.0			0.2			2.4
Non-deductible stock-based compensation		0.6			0.9			3.3
Valuation reserve		1.7			0.7			1.0
Other, net		—			0.3			0.2
		33.3	%		15.0	%		4.6	%

All of our unrecognized tax benefits are classified as a long-term liability as we do not expect significant payments or receipts to occur over the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Fiscal year ended September 30,
	2011			2010			2009
Unrecognized tax benefits at beginning of fiscal year	$	2,265		$	4,146		$	3,652
Increases related to:
Prior year income tax positions		32			36			200
Current year income tax positions		392			195			838
Decreases related to:
Settlements		—			(1,740	)		(94	)
Expiration of the statute of limitations		(628	)		(372	)		(450	)
Unrecognized tax benefits at end of fiscal year	$	2,061		$	2,265		$	4,146

The total amount of unrecognized tax benefits that if recognized would affect the effective tax rate is $2.0 million.

We recognize interest and penalties related to income tax matters in income tax expense. During fiscal years 2011 and 2010 we recorded an immaterial benefit and in fiscal year 2009 we recorded an immaterial expense for interest and penalties related to income tax matters in the provision for income taxes. As of both September 30, 2011 and 2010 we have accrued interest and penalties related to unrecognized tax benefits of $0.6 million included in long-term income taxes payable on our consolidated balance sheet.

We estimate that it is reasonably possible that the total amounts of unrecognized tax benefits will significantly decrease over the next 12 months due to the lapse of the applicable foreign statute of limitations. We estimate the range of this change to be between $0.2 million and $0.4 million in taxes, penalties and interest.

During fiscal 2011, we recorded a tax benefit of $0.7 million primarily related to the release of income tax reserves due to the expiration of the statutes of limitations from various jurisdictions, primarily foreign. The enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provided for the extension of the research and development tax credit that allowed us to record a benefit for tax credits earned during the last three quarters of fiscal 2010 in the first quarter of fiscal 2011. The aforementioned income tax benefits resulting from the reversal of income tax reserves and other discrete tax benefits reduced our effective tax rate by 4 percentage points in fiscal 2011.

During fiscal 2010, we reversed $2.3 million in income tax reserves associated primarily with the closing of prior tax years through statute expiration and the conclusion of a federal tax audit. While the statutes of limitations have not expired, U.S. federal income tax returns for the periods ended September 30, 2007 and September 30, 2008 have been audited by and settled with the Internal Revenue Service. The aforementioned income tax benefits resulting from the reversal of income tax reserves and other discrete tax benefits reduced the effective tax rate by 22 percentage points in fiscal 2010.

During fiscal 2009, we reversed $0.6 million in income tax reserves primarily associated with the statutory closing of a prior U.S. federal and state tax year and settlement of prior liabilities under amnesty programs. We recorded an additional current discrete tax benefit of $0.5 million resulting from the enactment on October 3, 2008 of the retroactive extension of the research and development tax credit for activity from January 1, 2008 to September 30, 2008. We also recorded adjustments to actual for items reported on the tax returns filed for fiscal 2007 and 2008. The aforementioned income tax benefits resulting from the reversal of income tax reserves and other discrete tax benefits reduced the effective tax rate by 27 percentage points in fiscal 2009.

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 financial position and results of operations. We are no longer subject to income tax examination for taxable years prior to fiscal 2009 and 2007 in the case of U.S. federal and non-U.S. income tax authorities, respectively, and for tax years generally before fiscal 2007, in the case of state taxing authorities, consisting primarily of Minnesota and California.

At September 30, 2011, we have approximately $11.9 million of accumulated undistributed earnings of controlled foreign subsidiaries that are considered to be reinvested indefinitely as of such date pursuant to authoritative guidance issued by FASB related to undistributed earnings of subsidiaries and corporate joint ventures. Accordingly, no deferred tax has been provided on such earnings. If the applicable earnings were remitted to us, the earnings would be taxed at the U.S. federal tax rate.