12. Income Taxes

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


	Year Ended September 30,
	2012			2011			2010
Current income tax provision (benefit):
Federal	$	15		$	16		$	(3,883	)
State		213			1,356			616
Foreign		(1,374	)		858			521

Total current income tax provision (benefit)		(1,146	)		2,230			(2,746	)

Deferred income tax (benefit):
Federal		(118,432	)		—			—
State		(291	)		—			—
Foreign		(3,413	)		(276	)		—

Total deferred income tax (benefit)		(122,136	)		(276	)		—

Income tax provision (benefit)	$	(123,282	)	$	1,954		$	(2,746	)

The components of income before income taxes and equity in earnings of joint ventures are as follows (in thousands):


	Year Ended September 30,
	2012		2011		2010
Domestic	$	2,204	$	111,053	$	44,956
Foreign		9,216		16,523		11,108

	$	11,420	$	127,576	$	56,064

The differences between the income tax provision (benefit) and income taxes computed using the applicable U.S. statutory federal tax rate is as follows (in thousands):


	Year Ended September 30,
	2012			2011			2010
Income tax provision computed at federal statutory rate	$	4,728		$	45,736		$	19,622
State income taxes, net of federal benefit		260			1,848			699
Net operating loss carryback refund		—			—			(3,899	)
Foreign income taxed at different rates		(832	)		(1,546	)		(1,650	)
Dividends		956			(219	)		1,006
Change in deferred tax asset valuation allowance		(125,479	)		(42,608	)		(18,423	)
Reduction in uncertain tax positions		(3,732	)		(3,719	)		(609	)
Nondeductible compensation		1,339			295			379
Tax credits generated		(1,195	)		(1,179	)		(414	)
Other		673			3,346			543

Income tax provision (benefit)	$	(123,282	)	$	1,954		$	(2,746	)

As of September 30, 2012, a deferred tax liability has not been established for any earnings of the foreign subsidiaries since the Company plans to indefinitely re-invest these earnings in overseas operations. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

The significant components of the net deferred tax assets and liabilities are as follows (in thousands):


	September 30,
	2012			2011
Accruals and reserves not currently deductible	$	10,489		$	10,357
Federal, state and foreign tax credits		18,963			22,673
Other assets		1,655			3,304
Net operating loss carryforwards		101,713			119,167
Inventory reserves and valuation		8,790			11,650

Deferred tax assets		141,610			167,151

Depreciation and intangible amortization		5,418			6,851

Deferred tax liabilities		5,418			6,851

Valuation allowance		(16,035	)		(162,208	)

Net deferred tax asset (liability)	$	120,157		$	(1,908	)

Management has considered the weight of all available evidence in determining whether a valuation allowance remains to be required against its deferred tax assets at September 30, 2012. 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 to be considered is the volatile semiconductor industry that the Company operates in. The Company recorded a tax benefit of $121.8 million resulting from the reduction in the valuation allowance. The Company has continued to maintain a valuation allowance in the U.S. 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 significantly exceed expectations it is reasonably possible that there could be a further reduction in the valuation allowance in the future. Further reduction of the valuation allowance, in whole or in part, would result in a non-cash income tax benefit during the period of reduction.

As of September 30, 2012, the Company had federal, state and foreign net operating loss carryforwards of approximately $378.8 million and federal and state research and development tax credit carryforwards of approximately $23.1 million available to reduce future tax liabilities, which expire at various dates through 2031. The net operating loss carryforward includes excess deductions related to stock compensation in the amount of $12.5 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, 2012, 2011 and 2010 is as follows (in thousands):


	Unrecognized Tax Benefit			Interest and Penalties			Total
Balance at October 1, 2009	$	9,794		$	1,669		$	11,463
Additions for tax positions of prior years		3,287			506			3,793
Additions for tax positions related to current year		468			—			468
Reductions for tax positions of prior years		(40	)		(19	)		(59	)
Reductions from lapses in statutes of limitations		(413	)		—			(413	)
Reductions from settlements with taxing authorities		(193	)		(4	)		(197	)
Foreign exchange rate adjustment		(87	)		—			(87	)

Balance at September 30, 2010		12,816			2,152			14,968
Additions for tax positions of prior years		184			447			631
Additions for tax positions related to current year		242			—			242
Reductions from lapses in statutes of limitations		(961	)		—			(961	)
Reductions from settlements with taxing authorities		(3,392	)		(610	)		(4,002	)
Foreign exchange rate adjustment		122			—			122

Balance at September 30, 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

As of September 30, 2012 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 $0.2 million, $0.4 million and $0.4 million was recognized for the years ended September 30, 2012, 2011 and 2010, 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 related to transfer pricing and income tax withholding during fiscal year 2012 that resulted in a $3.7 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 2007. 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 approximately $1.1 million during the next twelve months primarily as the result of statutes of limitations expiring.