(14) Income Taxes

Income before income taxes for the years ended June 30, 2013, 2012 and 2011, was taxed under the following jurisdictions (in thousands):


	2013		2012		2011
U.S.	$	2,120	$	8,542	$	(1,419)
Non-U.S.		382,999		323,403		305,126
	$	385,119	$	331,945	$	303,707

The provision for income taxes is presented below (in thousands):


		2013		2012		2011
Current:	Federal	$	42,065	$	16,201	$	10,461
	State		888		2,163		1,435
	Non-U.S.		53,713		71,353		61,469
			96,666		89,717		73,365
Deferred:	Federal		(1,345)		(352)		217
	State		(264)		(178)		(226)
	Non-U.S.		(17,071)		(12,092)		3,365
			(18,680)		(12,622)		3,356
Provision for income taxes		$	77,986	$	77,095	$	76,721

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 35% to pretax income as a result of the following (in thousands):


	2013		2012		2011
Taxes computed at statutory U.S. rate	$	134,792	$	116,181	$	106,297
Increase (decrease) in income taxes resulting from:
State income taxes, net of U.S. tax benefit		257		1,206		1,060
Non-deductible expenses		1,667		2,260		1,113
Research and development credit		(4,920)		(4,210)		(7,463)
Tax effect of dividends		72,304		33,656		40,038
Change in valuation allowance		1,852		1,645		(2,748)
Effect of non-U.S. tax rates		(97,420)		(57,252)		(38,269)
Foreign tax credits		(34,729)		(18,179)		(25,738)
Stock-based compensation expense		3,167		2,558		2,027
Other		1,016		(770)		404
	$	77,986	$	77,095	$	76,721

(14) Income Taxes, Continued

We classify deferred tax assets and liabilities as current or non-current according to the related asset or liability’s classification. The components of our deferred tax assets and liabilities at June 30, 2013 and 2012 are as follows (in thousands):


	2013		2012
Deferred tax assets:
Employee liabilities	$	10,602	$	10,748
Inventories		10,398		9,811
Provision for warranties		4,691		4,334
Provision for doubtful debts		2,820		1,960
Net operating loss carryforwards		15,432		8,363
Capital loss carryover		2,015		1,247
Stock-based compensation expense		17,460		17,355
Unrealized foreign exchange losses		1,912		-
Other		4,070		1,337
		69,400		55,155
Less valuation allowance		(9,671)		(5,910)
Deferred tax assets		59,729		49,245
Deferred tax liabilities:
Unrealized foreign exchange gains		-		(5,369)
Property, plant and equipment		(1,560)		(1,573)
Goodwill and other intangibles		(10,086)		(9,129)
Deferred tax liabilities		(11,646)		(16,071)
Net deferred tax asset	$	48,083	$	33,174

We reported the net deferred tax assets and liabilities in our consolidated balance sheets at June 30, 2013 and 2012 as follows (in thousands):


	2013		2012
Current deferred tax asset	$	38,552	$	19,590
Non-current deferred tax asset		20,053		23,500
Current deferred tax liability		(627)		(1,073)
Non-current deferred tax liability		(9,895)		(8,843)
Net deferred tax asset	$	48,083	$	33,174

At June 30, 2013, we had $12.1 million of U.S. state net operating loss carryforwards and $62.6 million of non-U.S. net operating loss carryforwards, which expire in various years through 2033 or carry forward indefinitely.

The valuation allowance at June 30, 2013 relates to a provision for uncertainty as to the utilization of net operating loss carryforwards for certain non-U.S. countries of $7.1 million and U.S. and non-U.S. capital loss and other items of $2.6 million. We believe that it is more likely than not that the benefits of deferred tax assets, net of any valuation allowance, will be realized.

A substantial portion of the Company’s manufacturing operations and administrative functions in Malaysia and Singapore operate under various tax holidays and tax incentive programs that will expire in whole or in part at various dates through June 30, 2020. Certain of the holidays may be extended if specific conditions are met. The net impact of these tax holidays and tax incentives program was to increase the Company’s net earnings by $24.3 million ($0.17 per diluted share) for the year ended June 30, 2013 and $3.9 million ($0.03 per diluted share) for the year ended June 30, 2012.

(14) Income Taxes, Continued

At June 30, 2013, applicable U.S. federal income taxes and foreign withholding taxes have not been provided on the accumulated earnings of foreign subsidiaries that are expected to be permanently reinvested. The total amount of these undistributed earnings at June 30, 2013 amounted to approximately $1.6 billion. If these earnings had not been permanently reinvested, deferred taxes of approximately $409 million would have been recognized in the consolidated financial statements.

In accounting for uncertainty in income taxes, we recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater

than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for annual periods.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.

The following table indicates the changes to our unrecognized tax benefits for the year ended June 30, 2013 and June 30, 2012 (in thousands). The term “unrecognized tax benefits”, or UTB, refers to the differences between a tax position taken or expected to be taken in a tax return and the benefit measured and recognized in the consolidated financial statements.


	2013		2012
Gross UTB balance at beginning of period	$	3,868	$	4,284
Additions for tax positions of prior years		163		138
Reductions due to lapse of applicable statute of limitations		-		-
Foreign exchange movement		74		(554)
Gross UTB balance at end of period	$	4,105	$	3,868

Included in the balance at June 30, 2013, are tax positions of $3.5 million that, if recognized, would affect our effective tax rate. As of June 30, 2013, we have accrued approximately $1.8 million ($1.3 million, net of tax benefit) for interest and penalties related to uncertain tax positions in the income taxes payable balance on the consolidated balance sheet.

We file numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. We are no longer subject to U.S. federal income tax examination for tax years prior to fiscal year 2010, and no longer subject to state income tax examinations for the tax years prior to fiscal year 2009. With few exceptions, we are no longer subject to foreign income tax examinations for fiscal years before 2006.

Within the next 12 months, we do not anticipate a decrease in the unrecognized tax benefit or any other significant changes within our tax reserves.