4.	Income Taxes

Provision for Income Taxes

Income (loss) before income taxes and noncontrolling interests is summarized below (in thousands):


	Fiscal Year Ended August 31,
	2012			2011			2010
U.S.	$	(147,567	)	$	(112,705	)	$	(115,657	)
Non-U.S.		656,467			593,892			362,924

	$	508,900		$	481,187		$	247,267

Income tax expense (benefit) is summarized below (in thousands):


Fiscal Year Ended August 31,	Current			Deferred			Total
2012: U.S. — Federal	$	2,240		$	2,172		$	4,412
U.S. — State		279			462			741
Non-U.S.		125,646			(17,988	)		107,658

	$	128,165		$	(15,354	)	$	112,811

2011: U.S. — Federal	$	(8,937	)	$	4,123		$	(4,814	)
U.S. — State		1,103			97			1,200
Non-U.S.		102,826			(983	)		101,843

	$	94,992		$	3,237		$	98,229

2010: U.S. — Federal	$	5,845		$	(2,273	)	$	3,572
U.S. — State		2,040			97			2,137
Non-U.S.		66,285			4,507			70,792

	$	74,170		$	2,331		$	76,501

Reconciliations of the income tax expense at the U.S. federal statutory income tax rate compared to the actual income tax expense are summarized below (in thousands):


	Fiscal Year Ended August 31,
	2012			2011			2010
Tax at U.S. federal statutory income tax rate (35%)	$	178,115		$	168,416		$	86,543
State income taxes, net of federal tax benefit		(4,013	)		(2,688	)		(1,342	)
Impact of foreign tax rates		(116,198	)		(94,392	)		(63,450	)
Permanent impact of non-deductible cost		2,147			4,639			9,116
Income tax credits		(13,125	)		(38,707	)		(7,863	)
Changes in tax rates on deferred tax assets and liabilities		(9,048	)		10,147			5,020
Valuation allowance		57,743			17,277			19,474
Non-deductible equity compensation		6,655			7,581			9,317
Impact of intercompany charges		1,742			12,658			25,748
Other, net		8,793			13,298			(6,062	)

Total income tax expense	$	112,811		$	98,229		$	76,501

The Company has been granted tax incentives for its Brazilian, Chinese, Hungarian, Malaysian, Polish, Singaporean and Vietnamese subsidiaries. The Hungarian incentive and the majority of the Chinese incentives expired during fiscal year 2012. The remaining material tax incentives expire through 2020 and are subject to certain conditions with which the Company expects to comply. These subsidiaries generated income during the fiscal years ended August 31, 2012, 2011 and 2010, resulting in a tax benefit of approximately $42.1 million ($0.20 per basic share), $59.0 million ($0.28 per basic share) and $48.3 million ($0.23 per basic share), respectively.

Deferred Tax Assets and Liabilities

The current and noncurrent net deferred tax assets are summarized below (in thousands):


	Fiscal Year Ended August 31,
	2012			2011
Current deferred tax assets	$	27,833		$	15,737
Current deferred tax liabilities		(3,955	)		(5,182	)
Noncurrent deferred tax assets		73,411			74,989
Noncurrent deferred tax liabilities		(24,245	)		(15,761	)

Total net deferred tax assets	$	73,044		$	69,783

The significant components of the deferred tax assets and liabilities are summarized below (in thousands):


	Fiscal Year Ended August 31,
	2012			2011
Deferred tax assets:
Net operating loss carry forward	$	280,196		$	269,686
Receivables		3,275			5,584
Inventories		10,909			5,798
Compensated absences		7,957			6,566
Accrued expenses		49,318			24,858
Property, plant and equipment, principally due to differences in depreciation and amortization		12,644			12,932
U.S. foreign tax credits		18,708			10,394
Foreign jurisdiction tax credits		13,587			20,044
Equity compensation — U.S.		65,800			60,634
Equity compensation — Non-U.S.		8,807			8,187
Cash flow hedges		8,616			10,165
Intangible assets		69,885			101,783
Other		21,207			17,884

Total deferred tax assets before valuation allowances		570,909			554,515
Less valuation allowances		(487,745	)		(469,067	)

Net deferred tax assets	$	83,164		$	85,448

Deferred tax liabilities:
Other		10,120			15,665

Total deferred tax liabilities	$	10,120		$	15,665

Net deferred tax assets	$	73,044		$	69,783

As of August 31, 2012, the Company had federal, state and foreign income tax net operating loss carry forwards of approximately $495.8 million, $31.6 million, and $411.0 million, respectively, which are available to reduce future taxes, if any. These net operating loss carry forwards expire through the year 2032. The Company has U.S. state tax credits and U.S. foreign tax credits of $0.7 million and $18.7 million, respectively, for state and federal carry forwards, which are available to reduce future taxes, if any. The U.S. state tax credits expire through the year 2017. Of the U.S. foreign tax credits, $11.3 million expire through 2022, and the years of expiration for the remaining $7.4 million cannot yet be determined. As of August 31, 2012, the foreign jurisdiction tax credits include foreign investment tax credits of $11.2 million that expire in 2017 and are based on the deferral method.

Based on the Company’s historical operating income, projection of future taxable income, scheduled reversal of taxable temporary differences, and tax planning strategies, management believes that it is more likely than not that the Company will realize the benefit of its deferred tax assets, net of valuation allowances recorded. The net increase in the total valuation allowance for the fiscal years ended August 31, 2012 and 2011 was $18.7 million and $93.8 million, respectively.

The Company intends to indefinitely reinvest income from all of its foreign subsidiaries. The aggregate undistributed earnings of the Company’s foreign subsidiaries for which no deferred tax liability has been recorded is approximately $1.8 billion as of August 31, 2012. Determination of the amount of unrecognized deferred tax liability on these undistributed earnings is not practicable.

Unrecognized Tax Benefits

Reconciliations of the unrecognized tax benefits are summarized below (in thousands):


	Fiscal Year Ended August 31,
	2012			2011			2010
Beginning balance	$	84,942		$	78,140		$	79,576
Additions for tax positions of prior years		48,986			2,979			4,931
Reductions for tax positions of prior years		(10,446	)		(12,631	)		(11,669	)
Additions for tax positions related to current year		12,316			18,431			18,249
Additions for tax positions related to acquired entities		3,275			3,648			—
Cash settlements		(7,880	)		(1,667	)		(3,103	)
Reductions from lapses in statutes of limitations		(2,521	)		(2,840	)		(4,184	)
Reductions from settlements with taxing authorities		(9,680	)		(5,349	)		(4,450	)
Foreign exchange rate adjustment		(2,331	)		4,231			(1,210	)

Ending balance	$	116,661		$	84,942		$	78,140

Unrecognized tax benefits that would affect the effective tax rate (if recognized)	$	68,924		$	68,859		$	71,456

It is reasonably possible that the August 31, 2012 unrecognized tax benefits could decrease during the next 12 months by $6.9 million from cash payments and by $2.8 million related to the settlement of audits or expiration of applicable statutes of limitations. These amounts primarily relate to possible adjustments for transfer pricing, tax holidays, and certain inclusions in taxable income.

The Company’s continuing practice is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. The Company’s accrued interest and penalties were approximately $9.2 million and $23.7 million at August 31, 2012 and August 31, 2011, respectively. The Company recognized interest and penalties of approximately $(14.5) million primarily related to the settlement of a non-U.S. governmental tax audit during the fiscal year ended August 31, 2012. The Company recognized interest and penalties of approximately $5.2 million and $0.9 million during the fiscal years ended August 31, 2011 and 2010, respectively. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for fiscal years before August 31, 2003.

The Internal Revenue Service (“IRS”) completed its field examination of the Company’s tax returns for the fiscal years 2003 through 2005 and issued a Revenue Agent’s Report (“RAR”) on April 30, 2010 proposing adjustments primarily related to the IRS contentions that (1) certain corporate expenses relate to services provided to foreign affiliates and therefore must be charged to those affiliates, and (2) valuable intangible property was transferred to certain foreign affiliates without charge. If the IRS ultimately prevails in its positions, the Company’s income tax payment due for the fiscal years 2003 through 2005 would be approximately an additional $69.3 million before utilization of any tax attributes arising in periods subsequent to fiscal year 2005. Also, the IRS has proposed interest and penalties with respect to fiscal years 2003 through 2005.

The IRS also completed its field examination for fiscal years 2006 through 2008 and issued a RAR on April 25, 2012. The proposed adjustments primarily related to the carryforward impact of the adjustments proposed by the IRS for fiscal years 2003 through 2005 related to valuable intangible property transferred to certain foreign affiliates without charge in prior years. Due to the utilization of tax attributes, including net operating loss (“NOL”) carryforwards and NOL carrybacks, there is no proposed additional tax payment, interest, or penalties contained in the RAR with respect to fiscal years 2006 through 2008. In addition, the IRS will likely make similar claims in future audits with respect to these types of transactions (at this time, determination of the additional income tax due for these later years is not practicable). The Company also anticipates that the IRS may seek to impose interest and penalties in subsequent years with respect to the same types of issues.

The Company disagrees with the proposed adjustments and is vigorously contesting this matter through applicable IRS and judicial procedures, as appropriate. As the final resolution of the proposed adjustments remains uncertain, the Company continues to provide for the uncertain tax position based on the more likely than not standards. While the resolution of the issues may result in tax liabilities, interest and penalties, which are significantly higher than the amounts provided for this matter, management currently believes that the resolution will not have a material effect on the Company’s financial position, results of operations or cash flows. Despite this belief, an unfavorable resolution, particularly if the IRS successfully asserts similar claims for later years, could have a material effect on the Company’s results of operations and financial condition (particularly during the quarter in which any adjustment is recorded or any tax is due or paid).