12. Income Taxes

The components of the provision for income taxes of continuing operations are as follows:

	Year ended September 30,

	2013			2012			2011
	(in thousands)
Current tax provision:
U.S. Federal	$	27,611		$	28,124		$	13,019
State		5,035			5,129			2,374
Foreign		1,757			118			—

		34,403			33,371			15,393
Deferred tax (benefit) expense:
U.S. Federal		(6,012	)		(1,454	)		(194	)
State		(1,096	)		(265	)		260
Foreign		256			—			—

		(6,852	)		(1,719	)		66

Total provision	$	27,551		$	31,652		$	15,459

Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

	September 30,

	2013			2012
	(in thousands)
Deferred tax assets:
Net operating losses—Foreign	$	4,572		$	3,170
Net operating losses—US		2,107			2,541
Accrued vacation and bonus		2,342			1,360
Inventory capitalization		4,048			2,815
Inventory reserves		565			—
Allowance for doubtful accounts		252			336
Stock compensation expense		8,036			5,134
Amortization of intangibles		6,609			3,560
Foreign deferred tax assets		909			1,389
Other		352			282

Total deferred tax assets before valuation allowance		29,792			20,587
Less: valuation allowance		(5,424	)		(4,558	)

Net deferred tax assets		24,368			16,029
Deferred tax liabilities:
Amortization of goodwill and intangibles		7,025			2,644
Depreciation		1,235			1,936
Foreign deferred tax liabilities		314			—

Total deferred tax liabilities	$	8,574		$	4,580

Net deferred taxes	$	15,794		$	11,449

The reconciliation of the U.S. federal statutory rate to the effective rate for continuing operations is as follows:

	Year ended September 30,

	2013			2012			2011
U.S. statutory rate		35.0	%		35.0	%		35.0	%
Permanent items		0.6			—			3.5
State taxes		3.9			3.9			4.3
Net foreign rate differential		0.6			0.7			—

Provision for income taxes		40.1	%		39.6	%		42.8	%

At September 30, 2013 and 2012, the Company had deferred tax assets related to available foreign net operating loss (NOL) carryforwards of approximately $4,572,000 and $3,170,000, which do not expire. Due to historic losses of those foreign entities, the Company does not believe that it is more likely than not that the related deferred tax assets will be realized and a full valuation allowance has been recorded. In addition, the Company also recorded a deferred tax asset of $3,753,000 related to NOL carryforwards related to its acquisition of Network International, Inc. in 2010. These NOL carryforwards expire in 2023. The Company will adjust these NOL carryforwards and the related valuation allowance as the related tax returns are filed.

The Company has not recorded a provision for deferred U.S. tax expense on the undistributed earnings of foreign subsidiaries since the Company intends to indefinitely reinvest the earnings of these foreign subsidiaries outside the U.S. The amount of such undistributed foreign earnings was approximately $6.6 million as of September 30, 2013.

The Company applies the authoritative guidance related to uncertainty in income taxes. The Company has concluded that there were no uncertain tax positions identified during its analysis. The Company's policy is to recognize interest and penalties in the period in which they occur in the income tax provision. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the U.K. Currently, the Company is subject to income tax examinations for fiscal 2010 and 2011. The Company anticipates no material tax liability to arise from this examination. The statute of limitations for years prior to fiscal 2010 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal 2010 may be adjusted upon examination by tax authorities if they are utilized.