Income Taxes

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



	Year Ended
	September 29, 2012			October 1, 2011		October 2, 2010
	(In thousands)
Domestic	$	(7,548	)	$	42,136	$	60,668
Foreign	57,491			57,402		78,574
Total	$	49,943		$	99,538	$	139,242

The provision for (benefit from) income taxes consists of the following:



	Year Ended
	September 29, 2012			October 1, 2011			October 2, 2010
	(In thousands)
Federal:
Current	$	(3,223	)	$	—		$	—
Deferred	(154,292		)	—			—
State:
Current	(124		)	1,009			1,656
Deferred	(4,408		)	—			—
Foreign:
Current	28,928			31,749			11,766
Deferred	2,828			(2,137		)	3,385
Total provision (benefit from) for income taxes	$	(130,291	)	$	30,621		$	16,807

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



	As of
	September 29, 2012			October 1, 2011
	(In thousands)
Deferred tax assets:
U.S. net operating loss carryforwards	$	472,086		$	476,802
Foreign net operating loss carryforwards	152,462			131,174
Acquisition related intangibles	91,972			101,661
Accruals not currently deductible	45,102			41,027
Property, plant and equipment	26,906			30,704
Tax credit carryforwards	24,478			25,846
Reserves not currently deductible	24,209			26,256
Stock compensation expense	14,664			8,874
Unrealized losses on derivative financial instruments	14,089			14,238
Other	550			439
Valuation allowance	(671,891		)	(818,266		)
Total deferred tax assets	194,627			38,755
Deferred tax liabilities on foreign earnings	(22,053		)	(22,053		)
Net deferred tax assets	$	172,574		$	16,702
Recorded as:
Current deferred tax assets	$	19,721		$	8,516
Non-current deferred tax assets	152,853			11,155
Non-current deferred tax liabilities	—			(2,969		)
Net deferred tax assets	$	172,574		$	16,702

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

Prior to 2012, based on historical evidence (primarily cumulative losses), the Company has a valuation allowance against certain deferred tax assets in the U.S. and foreign jurisdictions. A valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company assesses its valuation allowance against deferred tax assets on a regular and periodic basis. The Company considers all available positive and negative evidence, including future reversals of temporary differences, projected future taxable income, tax planning strategies and recent financial results. During the fourth quarter of this year, the Company concluded that it was more likely than not that it would be able to realize the benefit of a portion of its deferred tax assets in the future. The Company based this conclusion on recent historical book and taxable income, recent global restructuring and projections of future operating income. As a result, the Company released $158.7 million of the valuation allowance attributable to certain US deferred tax assets.

As of September 29, 2012, U.S. income taxes have not been provided for approximately $446.1 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 liabilities on these undistributed earnings is not practicable.

As of September 29, 2012, the Company has cumulative net operating loss carryforwards for federal, state and foreign tax purposes of $1,252.0 million, $999.2 million and $501.4 million, respectively. The federal and state net operating loss carryforwards begin expiring in 2023 and 2012, 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 September 29, 2012, the Company had $6.8 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. Additionally, the utilization of certain foreign net operating losses may be restricted due to changes in ownership and business operations.

The Company has been granted tax holidays for certain of its subsidiaries in Singapore, Thailand, China and India. Tax benefits arising from these tax holidays were $3.1 million for 2012 ($0.04 per diluted shares), $3.6 million for 2011 ($0.04 per diluted share) and $3.8 million for 2010 ($0.05 per diluted share). The tax holiday in Singapore expired in 2012 and 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
	September 29, 2012		October 1, 2011		October 2, 2010
Federal tax at statutory rate	35.00	%	35.00	%	35.00	%
Effect of foreign operations	21.73		9.57		(8.87	)
Foreign income inclusion	10.48		0.25		1.11
Change in valuation allowance	(6.74	)	(16.97	)	(17.16	)
Permanent items	3.11		1.90		0.80
Change to other comprehensive income	(6.64	)	—		—
Release of valuation allowance	(317.76	)	—		—
State income taxes, net of federal benefit	(0.06	)	1.01		1.19
Provision for income taxes	(260.88	)%	30.76	%	12.07	%

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



	Year Ended
	September 29, 2012			October 1, 2011
	(In thousands)
Balance, beginning of year	$	41,482		$	34,997
Increase related to prior year tax positions	10,125			4,324
Decrease related to prior year tax positions	(320		)	(2,811		)
Increase related to current year tax positions	3,133			5,337
Settlement	(196		)	—
Decrease related to lapse of statute of limitations	—			(365		)
Balance, end of year	$	54,224		$	41,482

The total balance of unrecognized tax benefits at September 29, 2012, if recognized, would affect the effective tax rate on income.

As of September 29, 2012, the Company had reserves of $25.2 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 $5.6 million in 2012, $2.7 million in 2011, and $3.9 million in 2010. 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. During this current year, the Company was informed by the Internal Revenue Service that its returns for tax years 2008 through 2010 were being examined.

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.