Income Taxes

Domestic and foreign components of income (loss) before income taxes were as follows:



	Year Ended
	October 1, 2011		October 2, 2010		October 3, 2009
	(In thousands)
Domestic	$	42,136	$	60,668	$	(122,013	)
Foreign	57,402		78,574		9,443
Total	$	99,538	$	139,242	$	(112,570	)

The provision for income taxes consists of the following:



	Year Ended
	October 1, 2011			October 2, 2010		October 3, 2009
	(In thousands)
State-current	$	1,009		$	1,656	$	250
Foreign:
Current	31,749			11,766		24,303
Deferred	(2,137		)	3,385		699
	29,612			15,151		25,002
Total provision for income taxes	$	30,621		$	16,807	$	25,252

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:



	As of
	October 1, 2011			October 2, 2010
	(In thousands)
Deferred tax assets:
Reserves not currently deductible	$	26,256		$	32,200
Accruals not currently deductible	41,027			51,889
U.S. net operating loss carryforwards	476,802			471,942
Foreign net operating loss carryforwards	131,174			132,572
Acquisition related intangibles	101,661			113,590
Depreciation differences and property, plant and equipment impairment reserves	30,704			34,651
Tax credit carryforwards	25,846			6,042
Unrealized losses on derivative financial instruments	14,238			19,141
Stock compensation expense	8,874			5,791
Other	439			826
Valuation allowance	(818,266		)	(832,290		)
Total deferred tax assets	38,755			36,354
Deferred tax liabilities on foreign earnings	(22,053		)	(21,789		)
Net deferred tax assets	$	16,702		$	14,565
Recorded as:
Current deferred tax assets	$	8,516		$	5,742
Non-current deferred tax assets	11,155			23,254
Non-current deferred tax liabilities	(2,969		)	(14,431		)
Net deferred tax assets	$	16,702		$	14,565

The Company offsets current deferred tax assets and liabilities and noncurrent deferred tax assets and liabilities by tax-paying jurisdiction. The resulting net amounts by tax jurisdiction are then aggregated without further offset.

Based on historical evidence (primarily cumulative losses), the Company has a valuation allowance against its deferred tax assets in the U.S. and certain foreign jurisdictions. Net operating loss carryforwards are available to the Company to offset future taxable income in the U.S., subject to applicable tax laws and regulations. Although U.S. taxable income in 2010 and 2011 represents positive evidence regarding the realizability of net operating losses, the Company will continue to maintain a full valuation allowance on its net U.S. deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. Until such time that some or all of the valuation allowance is reversed, future income tax expense (benefit) in the U.S. will be offset by adjustments to the valuation allowance to effectively eliminate any income tax expense or benefit in the U.S. Income taxes will continue to be recorded for other tax jurisdictions subject to the need for valuation allowance in those jurisdictions. The Company's valuation allowance decreased by $14.0 million in 2011.

As of October 1, 2011, U.S. income taxes have not been provided for approximately $364.5 million of cumulative undistributed earnings of several non-U.S. subsidiaries. The Company intends to reinvest these earnings indefinitely in operations outside of the U.S. Determination of the amount of unrecognized deferred tax liability on these undistributed earnings is not practicable.

As of October 1, 2011, the Company has cumulative net operating loss carryforwards for federal, state and foreign tax purposes of $1,218.6 million, $1,008.3 million and $436.8 million, respectively. The federal and state net operating loss carryforwards begin expiring in 2023 and 2011, respectively, and expire at various dates through 2029. Substantially all of the foreign net operating loss carryforwards may be carried forward indefinitely. The Tax Reform Act of 1986 and similar state provisions impose restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an “ownership change” as defined in the Internal Revenue Code. As of October 1, 2011, the Company had $20.7 million of federal net operating losses subject to an annual limitation and may utilize approximately $1.7 million of these net operating losses each year.

The Company has been granted tax holidays for certain of its subsidiaries in Singapore, Malaysia, Thailand, China and India. The tax benefit arising from these tax holidays was $3.6 million for 2011 ($0.04 per diluted share), $3.8 million for 2010 ($0.05 per diluted share), and $3.0 million for 2009 ($0.04 per diluted share). The tax holiday in Malaysia expired in 2009, and the tax holidays in the other countries expire through 2019, excluding potential renewals, and are subject to certain conditions with which the Company expects to comply.

Following is a reconciliation of the statutory federal tax rate to the Company's effective tax rate:



	As of
	October 1, 2011		October 2, 2010		October 3, 2009
Federal tax at statutory rate	35.00	%	35.00	%	(35.00	)%
Effect of foreign operations	9.57		(8.87	)	17.85
Foreign income inclusion	0.25		1.11		24.72
Change in valuation allowance	(16.97	)	(17.16	)	4.65
Permanent items	1.90		0.80		9.99
State income taxes, net of federal benefit	1.01		1.19		0.22
Provision for income taxes	30.76	%	12.07	%	22.43	%

A reconciliation of the beginning and ending amount of total unrecognized tax benefits, excluding accrued penalties and interest, is as follows:



	Year Ended
	October 1, 2011			October 2, 2010
	(In thousands)
Balance, beginning of year	$	34,997		$	42,315
Increase related to prior year tax positions	4,324			1,296
Decrease related to prior year tax positions	(2,811		)	(13,972		)
Increase related to current year tax positions	5,337			5,405
Decrease related to lapse of statute of limitations	(365		)	(47		)
Balance, end of year	$	41,482		$	34,997

The total balance of unrecognized tax benefits at October 1, 2011, if recognized, would affect the effective tax rate on income.

As of October 1, 2011, the Company had reserves of $19.5 million for the payment of interest and penalties relating to unrecognized tax benefits. The Company accrued interest and penalties related to unrecognized tax benefits of $2.7 million in 2011, $3.9 million in 2010, and $0.3 million in 2009. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The Company conducts business globally and, as a result, files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. In general, the Company is no longer subject to United States federal or state income tax examinations for years before 2003, and to foreign examinations for years prior to 2002 in its major foreign jurisdictions. Although the timing of the resolution of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years subject to audit and the number of matters being examined, the Company is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.