INCOME TAXES

Domestic and foreign income before income taxes for the three-year period ended September 30, 2012, is as follows (in thousands):



	Fiscal 2012			Fiscal 2011			Fiscal 2010
Domestic loss	$	(35,685	)	$	(22,954	)	$	(24,550	)
Foreign income	348,989			347,801			344,529
	$	313,304		$	324,847		$	319,979

The provision (benefit) for domestic and foreign taxes on income consists of the following (in thousands):



	Fiscal 2012			Fiscal 2011			Fiscal 2010
Current—domestic	$	(1,048	)	$	29		$	(34	)
Deferred—domestic	(980		)	(980		)	6,813
Current—foreign	43,169			54,209			58,218
Deferred—foreign	(8		)	(85		)	(2,014		)
	$	41,133		$	53,173		$	62,983

Deferred Taxes

The components of the deferred income tax assets (liabilities) as of September 30, 2012 and 2011 are as follows (in thousands):



	September 30,
	2012			2011
Deferred tax assets—
Net operating loss carryforwards	$	26,067		$	16,014
Tax credit carryforwards	1,246			1,618
Stock option compensation expense	8,047			7,105
Book accruals	4,859			3,273
	40,219			28,010
Deferred tax liabilities—
Difference in book and tax basis of equipment	(10,572		)	(12,222		)
	(10,572		)	(12,222		)
Net deferred tax assets (liabilities) before valuation allowance	29,648			15,788
Valuation allowance	(38,439		)	(25,568		)
	$	(8,791	)	$	(9,780	)
Net current deferred tax assets	$	—		$	—
Net noncurrent deferred tax liabilities	(8,791		)	(9,780		)
	$	(8,791	)	$	(9,780	)

For fiscal year 2012, we recorded a valuation allowance of $12.9 million on net deferred tax assets primarily related to our United States net operating loss carry forward. The gross amount of federal net operating loss carry forwards as of September 30, 2012 is estimated to be $116.7 million, which will begin to expire in 2025. Management does not expect that our tax credit carry forward of $1.2 million will be utilized to offset future tax obligations before the credits begin to expire in 2013. Thus, a corresponding valuation allowance of $1.2 million is recorded as of September 30, 2012.

We have approximately $14.6 million of windfall tax benefits from previous stock option exercises that have not been recognized as of September 30, 2012. This amount will not be recognized until the deduction would reduce our United States income taxes payable. At such time, the amount will be recorded as an increase to paid-in-capital. We apply the “with-and-without” approach when utilizing certain tax attributes whereby windfall tax benefits are used last to offset taxable income.

We do not record federal income taxes on the undistributed earnings of our foreign subsidiaries that we consider to be permanently reinvested in foreign operations. The cumulative amount of such undistributed earnings was approximately $1.6 billion at September 30, 2012. If these earnings were distributed, we estimate approximately $270 million in additional taxes would be incurred. These earnings could also become subject to additional taxes under the anti-deferral provisions within the U.S. Internal Revenue Code. However, we believe this is highly unlikely given our current structure and have not provided deferred income taxes on these foreign earnings as we consider them to be permanently invested abroad.

We record estimated accrued interest and penalties related to uncertain tax positions in income tax expense. At September 30, 2012, we had approximately $8.2 million of reserves for uncertain tax positions, including estimated accrued interest and penalties of $2.5 million, which are included in Other Long Term Liabilities in the Consolidated Balance Sheet. All $8.2 million of the net uncertain tax liabilities would affect the effective tax rate if recognized. A summary of activity related to the net uncertain tax positions including penalties and interest for fiscal year 2012 is as follows:



	Liability for Uncertain
	Tax Positions
Balance at October 1, 2011	$	16,804
Decreases due to the resolution of prior period tax examinations	(8,640		)
Balance at September 30, 2012	$	8,164

Our United States tax returns for fiscal year 2009 and subsequent years remain subject to examination by tax authorities. As we conduct business globally, we have various tax years remaining open to examination in our international tax jurisdictions, including tax returns in Australia for fiscal years 2007 through 2012, as well as returns in Equatorial Guinea for calendar years 2008 through 2011. Although we cannot predict the outcome of ongoing or future tax examinations, we do not anticipate that the ultimate resolution of these examinations will have a material impact on our consolidated financial position, results of operations or cash flows.

As a result of working in foreign jurisdictions, we earned a high level of operating income in certain nontaxable and deemed profit tax jurisdictions, which significantly reduced our effective tax rate for fiscal years 2012, 2011 and 2010 when compared to the United States statutory rate. There were no significant transactions that materially impacted our effective tax for fiscal years 2012, 2011 or 2010. The differences between the United States statutory and our effective income tax rate are as follows:



	Fiscal 2012		Fiscal 2011		Fiscal 2010
Statutory income tax rate	35	%	35	%	35	%
Resolution of prior period tax items	(3	)	—		1
Increase in tax rate resulting from—
Valuation allowance	4		2		2
Increases to the reserve for uncertain tax positions	—		2		1
Decrease in tax rate resulting from—
Foreign tax rate differentials, net of foreign tax credit utilization	(23	)	(23	)	(19	)
Effective income tax rate	13	%	16	%	20	%