Income Taxes

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



	Year Ended
	September 28, 2013		September 29, 2012			October 1, 2011
	(In thousands)
Domestic	$	3,517	$	(7,548	)	$	42,136
Foreign	99,889		57,491			57,402
Total	$	103,406	$	49,943		$	99,538

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



	Year Ended
	September 28, 2013			September 29, 2012			October 1, 2011
	(In thousands)
Federal:
Current	$	—		$	(3,223	)	$	—
Deferred	(6,611		)	(154,292		)	—
State:
Current	1,388			(124		)	1,009
Deferred	(189		)	(4,408		)	—
Foreign:
Current	31,249			28,928			31,749
Deferred	(1,782		)	2,828			(2,137		)
Total provision for (benefit from) income taxes	$	24,055		$	(130,291	)	$	30,621

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



	As of
	September 28, 2013			September 29, 2012
	(In thousands)
Deferred tax assets:
U.S. net operating loss carryforwards	$	473,025		$	472,086
Foreign net operating loss carryforwards	307,404			298,585
Acquisition related intangibles	73,205			91,972
Accruals not currently deductible	50,835			45,102
Property, plant and equipment	20,557			26,906
Tax credit carryforwards	24,330			24,478
Reserves not currently deductible	22,588			24,209
Stock compensation expense	13,970			14,664
Unrealized losses on derivative financial instruments	4,437			14,089
Other	132			550
Valuation allowance	(788,260		)	(819,527		)
Total deferred tax assets	202,223			193,114
Deferred tax liabilities on foreign earnings	(19,873		)	(20,540		)
Other deferred tax liabilities	(1,195		)	—
Net deferred tax assets	$	181,155		$	172,574
Recorded as:
Current deferred tax assets	$	23,276		$	19,721
Non-current deferred tax assets	157,879			152,853
Net deferred tax assets	$	181,155		$	172,574

Certain prior period amounts in the table above have been revised to conform to the current period's presentation. The revisions primarily relate to a reclassification between foreign net operating loss carryforwards and the associated full valuation allowance. This change in presentation only affects the gross deferred tax assets disclosed in the table above and had no effect on net deferred tax assets as of September 29, 2012.

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 had 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 quarters of 2013 and 2012, 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 actions and projections of future operating income. As a result, the Company released $21.5 million and $158.7 million during 2013 and 2012, respectively, of the valuation allowance attributable to certain U.S. and foreign deferred tax assets and net operating losses.

As of September 28, 2013, U.S. income taxes have not been provided for approximately $502.5 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 liabilities on these undistributed earnings is not practicable.

As of September 28, 2013, the Company has cumulative net operating loss carryforwards for federal, state and foreign tax purposes of $1,257.9 million, $923.8 million and $1,201.2 million, respectively. The federal and state net operating loss carryforwards begin expiring in 2023 and 2014, respectively, and expire at various dates through 2029. Certain foreign net operating losses start expiring in 2014. However, the majority of foreign net operating losses carryforward 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 28, 2013, 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 Thailand, China and India. Tax benefits arising from these tax holidays were $1.5 million for 2013 ($0.02 per diluted shares), $3.1 million for 2012 ($0.04 per diluted share) and $3.6 million for 2011 ($0.04 per diluted share). The Company's 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:



	Year Ended
	September 28, 2013		September 29, 2012		October 1, 2011
Federal tax at statutory rate	35.00	%	35.00	%	35.00	%
Effect of foreign operations	(8.17	)	21.73		9.57
Foreign income inclusion	4.08		10.48		0.25
Change in valuation allowance	11.54		(6.74	)	(16.97	)
Permanent items	0.26		3.11		1.90
Change to other comprehensive income	—		(6.64	)	—
Release of valuation allowance	(20.79	)	(317.76	)	—
State income taxes, net of federal benefit	1.34		(0.06	)	1.01
Effective tax rate	23.26	%	(260.88	)%	30.76	%

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



	Year Ended
	September 28, 2013			September 29, 2012
	(In thousands)
Balance, beginning of year	$	54,224		$	41,482
Increase related to prior year tax positions	13,238			10,125
Decrease related to prior year tax positions	(5,672		)	(320		)
Increase related to current year tax positions	3,358			3,133
Settlement	—			(196		)
Balance, end of year	$	65,148		$	54,224

Total unrecognized tax benefits as of September 28, 2013 include $1.9 million that has been netted against deferred tax assets. The remaining $63.2 million unrecognized tax benefit, if recognized, would affect the effective tax rate on income.

As of September 28, 2013, the Company had reserves of $27.1 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 $1.9 million in 2013, $5.6 million in 2012, and $2.7 million in 2011. 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. The Company is currently being audited by the Internal Revenue Service for tax years 2008 through 2010. To the extent the final tax liabilities are different from the amounts accrued, this would result in an increase or decrease in net operating losses and would not have an impact on the consolidated financial statements. Additionally, the Company is being audited by various state tax agencies and certain foreign countries. To the extent the final tax liabilities are different from the amounts accrued, the increases or decreases would be recorded as income tax expense or benefit in the consolidated statements of income. Although the Company believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, the outcome is subject to uncertainty.

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 2003 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.