Income Taxes

The components of the income tax benefit, excluding amounts related to the discontinued operations, for the fiscal years ended September 30, 2014, 2013 and 2012 are as follows (in thousands):



	Year Ended September 30,
	2014			2013			2012
Current income tax provision (benefit):
Federal	$	15		$	15		$	15
State	177			70			213
Foreign	1,417			681			(1,374		)
Total current income tax provision (benefit)	1,609			766			(1,146		)
Deferred income tax benefit:
Federal	(2,276		)	(5,245		)	(121,203		)
State	(35		)	(183		)	(439		)
Foreign	(1,278		)	(323		)	(3,413		)
Total deferred income tax benefit	(3,589		)	(5,751		)	(125,055		)
Income tax benefit	$	(1,980	)	$	(4,985	)	$	(126,201	)

The components of income (loss) before income taxes and equity in earnings of equity method investments for the fiscal years ended September 30, 2014, 2013 and 2012 are as follows (in thousands):



	Year Ended September 30,
	2014			2013			2012
Domestic	$	(7,338	)	$	(14,747	)	$	(5,715	)
Foreign	5,643			206			9,216
	$	(1,695	)	$	(14,541	)	$	3,501

The differences between the income tax benefit and income taxes computed using the applicable U.S. statutory federal tax rate for the fiscal years ended September 30, 2014, 2013 and 2012 are as follows (in thousands):



	Year Ended September 30,
	2014			2013			2012
Income tax provision (benefit) computed at federal statutory rate	$	(217	)	$	(4,257	)	$	1,957
State income taxes, net of federal benefit	(12		)	(101		)	112
Foreign income taxed at different rates	(596		)	493			(832		)
Dividends	(1,373		)	115			956
Change in deferred tax asset valuation allowance	453			523			(125,479		)
Reduction in uncertain tax positions	(1,236		)	(1,022		)	(3,732		)
Nondeductible compensation	1,064			474			1,339
Tax credits	(704		)	(2,002		)	(1,195		)
Travel and entertainment	220			124			139
Merger costs	187			251			—
Other	234			417			534
Income tax benefit	$	(1,980	)	$	(4,985	)	$	(126,201	)

The Company has not provided for U.S. income taxes on the unremitted earnings of certain foreign subsidiaries as these earnings are considered to be indefinitely reinvested. These earnings amounted to approximately $25.2 million at September 30, 2014. It is not practicable to compute the estimated deferred tax liability on these earnings as they vary with a high dependence on numerous factors including the timing of such future remittance and the future results of various foreign operations.

The significant components of the net deferred tax assets and liabilities as of September 30, 2014 and 2013 are as follows (in thousands):



	September 30,
	2014			2013
Accruals and reserves not currently deductible	$	12,456		$	11,050
Federal, state and foreign tax credits	20,434			20,084
Other assets	3,523			1,859
Net operating loss carryforwards	67,380			101,717
Inventory reserves and valuation	9,956			9,052
Deferred tax assets	113,749			143,762
Depreciation and intangible amortization	12,198			12,208
Deferred tax liabilities	12,198			12,208
Valuation allowance	(18,354		)	(16,509		)
Net deferred tax asset	$	83,197		$	115,045

The net deferred tax assets, including current and noncurrent, decreased from $115.0 million to $83.2 million during the fiscal year ended September 30, 2014. The decrease of $31.8 million was primarily driven by a tax provision of $29.9 million related to the taxable gain on the sale of discontinued operations. When the business was sold, the Company realized a higher gain on a tax basis than the gain reported on a GAAP basis. The higher taxable gain resulted in an effective tax rate on the sale of 52.6% when calculated on GAAP results. The gain on sale of discontinued operations was reported net of the tax effect in the Consolidated Statements of Operations.

Management has considered the weight of all available evidence in determining whether a valuation allowance is required against its deferred tax assets at September 30, 2014. After consideration of both positive and negative evidence management has concluded that it is more likely than not that a substantial portion of its deferred tax assets will be realized. The positive evidence considered was three year U.S. historical cumulative profitability, projected future taxable income and length of carry-forward periods of net operating losses and tax credits. The primary negative evidence considered is the volatile semiconductor industry in which the Company operates.

The Company recorded a tax benefit of $121.8 million resulting from the reduction in the valuation allowance during the fiscal year ended September 30, 2012. The Company has continued to maintain a valuation allowance in the United States against certain tax credits and state net operating losses due to the uncertainty of their realization based on long-term Company forecasts and the expiration dates on these attributes. The Company has also continued to maintain a valuation allowance in certain jurisdictions that have not generated historical cumulative profitability.

If future operating results of the U.S. or these foreign jurisdictions deviate from expectations, it is reasonably possible that there could be a further change in the valuation allowance in the future. A change in the valuation allowance, in whole or in part, would result in a non-cash income tax expense or benefit during the period of change.

As of September 30, 2014, the Company had federal, state and foreign net operating loss carryforwards of approximately $143.5 million, $97.9 million and $29.5 million, respectively, and federal and state research and development tax credit carryforwards of approximately $24.4 million available to reduce future tax liabilities, which expire at various dates through 2034. The net operating loss carryforward includes excess deductions related to stock compensation in the amount of $11.7 million which have not been recognized for financial statement purposes. The benefits of these tax deductions will be credited to additional paid-in capital upon being realized.

The Company has performed studies to determine if there are any annual limitations on the federal net operating losses under section 382 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As a result of these studies, the Company has determined that ownership changes have occurred primarily in connection with acquisitions when the Company has issued stock to the sellers, as well as ownership changes in the subsidiaries acquired by the Company. Certain limitations have been calculated and the benefits of the net operating losses that will expire before utilization have not been recorded as deferred tax assets in the financial statements. The Company's U.S. net operating losses expire at various dates through 2030.

A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the fiscal years ended September 30, 2014, 2013 and 2012 is as follows (in thousands):



	Unrecognized Tax Benefit			Interest and Penalties			Total
Balance at October 1, 2011	$	9,011		$	1,989		$	11,000
Additions for tax positions of prior years	242			247			489
Reductions from lapses in statutes of limitations	(3,125		)	(607		)	(3,732		)
Foreign exchange rate adjustment	(167		)	15			(152		)
Balance at September 30, 2012	5,961			1,644			7,605
Additions for tax positions of prior years	—			228			228
Additions for tax positions related to acquired entities	116			—			116
Reductions from lapses in statutes of limitations	(944		)	(78		)	(1,022		)
Foreign exchange rate adjustment	14			—			14
Balance at September 30, 2013	5,147			1,794			6,941
Additions for tax positions of prior years	—			286			286
Reductions from lapses in statutes of limitations	(861		)	(375		)	(1,236		)
Foreign exchange rate adjustment	(24		)	—			(24		)
Balance at September 30, 2014	$	4,262		$	1,705		$	5,967

As of September 30, 2014, all of the Company's unrecognized tax benefits, if recognized, would affect the effective tax rate. The Company recognizes interest related to unrecognized benefits as a component of tax expense, of which $0.3 million, $0.2 million and $0.2 million was recognized for the fiscal years ended September 30, 2014, 2013 and 2012, respectively.

The Company is subject to U.S. federal income tax and various state, local and international income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company's interpretation of applicable tax laws in the jurisdictions in which it files. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The statute of limitations lapsed on several uncertain tax positions in the foreign jurisdictions during fiscal year 2014 that resulted in a $1.2 million reduction in gross unrecognized tax benefits that impacted the effective tax rate. The Company is subject to income tax audits in various global jurisdictions in which it operates. In the Company's U.S. and international jurisdictions, the years that may be examined vary, with the earliest tax year being 2008. Based on the outcome of these examinations, or the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Company's statement of financial position. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefit will be reduced by an amount in the range between $1.2 million and $2.3 million during the next twelve months primarily as the result of statutes of limitations expiring.