8. Income Taxes:



The components of income before income taxes for the fiscal years ended September 28, 2013,
September 29, 2012, and October 1, 2011 were as follows:
		2013		2012		2011
		(expressed in thousands)
Income before income taxes:
Domestic	$	49,921	$	45,152	$	35,243
Foreign		29,333		34,628		38,062
Total	$	79,254	$	79,780	$	73,305


The provision for income taxes for the fiscal years ended September 28, 2013, September 29, 2012,
and October 1, 2011 was as follows:
		2013		2012		2011
		(expressed in thousands)
Current provision (benefit):
Federal	$	13,241	$	16,834	$	5,855
State		781		1,058		553
Foreign		8,618		11,575		10,627
Deferred		(1,192)		(1,243)		5,328
Total provision	$	21,448	$	28,224	$	22,363



A reconciliation from the federal statutory income tax rate to the Company’s effective income tax rate for the fiscal
years ended September 28, 2013, September 29, 2012, and October 1, 2011 is as follows:

	2013		2012		2011

United States federal statutory income tax rate	35	%	35	%	35	%
Impact from foreign operations	(1)		(2)		(2)
State income taxes, net of federal benefit	1		1		1
Research and development tax credits	(5)		(1)		(3)
Domestic production activities deduction	(2)		(2)		(1)
Reversal of valuation allowances against deferred tax assets	-		(1)		-
Nondeductible expense to settle U.S. Government investigation	-		4		-
Nondeductible stock option expense and other permanent items	(1)		1		1
Effective income tax rate	27	%	35	%	31	%



A summary of the deferred tax assets and liabilities for the fiscal years ended September 28, 2013 and
September 29, 2012 is as follows:
		2013		2012
		(expressed in thousands)
Deferred Tax Assets:
Accrued compensation and benefits	$	8,826	$	7,994
Inventory reserves		4,264		3,223
Intangible and other assets		3,081		2,754
Allowance for doubtful accounts		380		458
Foreign net operating loss carryovers		376		470
Unrealized derivative instrument losses		-		255
Other		320		533
Total deferred tax asset before valuation allowance		17,247		15,687
Less valuation allowance		(105)		(180)
Total Deferred Tax Assets	$	17,142	$	15,507

Deferred Tax Liabilities:
Property and equipment	$	10,222	$	10,680
Foreign deferred revenue and other		3,246		2,590
Unrealized derivative instrument gains		670		-
Total Deferred Tax Liabilities	$	14,138	$	13,270
Net Deferred Tax Assets	$	3,004	$	2,237

As of September 28, 2013, the Company’s German, Swiss and Swedish subsidiaries had net operating loss carryovers of $0.7 million, $0.5 million and $0.3 million respectively. These net operating loss carryovers will not expire under local tax law except for Switzerland, which has a seven year limitation. The Company has determined that the benefit of the Swiss subsidiary’s $0.5 million net operating loss is not likely to be realized. Accordingly, as of September 28, 2013, the Company had a full valuation against the carryover in the amount of $0.1 million.

As of September 29, 2012 the company’s Swedish subsidiary had a full valuation allowance against its deferred tax asset in the amount of $0.1 million. During fiscal year 2013, based on current year and forecasted income, it was determined that the benefit was more likely than not to be realized and, therefore, the valuation allowance was reversed.

Prior to fiscal year 2012, the Company had determined that the benefit of the German subsidiary’s net operating loss carryover was not likely to be realized. Accordingly, as of October 1, 2011, the Company had a full valuation allowance against the German subsidiary’s deferred tax asset in the amount of $0.6 million. During fiscal year 2012, it was determined that the benefit was more likely than not to be realized and, therefore, the valuation allowance was reversed.

During fiscal year 2013, the Company repatriated $14.5 million of current earnings from its German and Japanese subsidiaries. The Company recorded $0.5 million tax benefit during fiscal year 2013 related to these repatriations. On January 2, 2013, the American Taxpayer Relief Act of 2012 (Act) was signed into law. The Act included legislation which reinstated the United States (“U.S.”) Research and Development (“R&D”) tax credit retroactively from January 1, 2012 and extended it through December 31, 2013. Also, during the fourth quarter of fiscal year 2013, new favorable guidance was issued related to the U.S. R&D tax credit. As a result of these events, during fiscal year 2013, the Company recognized a retroactive tax benefit of approximately $2.4 million for R&D tax credits associated with prior fiscal years.

During fiscal year 2012, the Company repatriated $20.2 million of current earnings from its German, Japanese and Korean subsidiaries. The Company recorded $0.5 million tax expense during fiscal year 2012 related to these repatriations. Also during fiscal year 2012, the Company was only allowed to recognize research and development credits on applicable spending during the first fiscal quarter, as the provision in the U.S. tax law allowing for these credits expired on December 31, 2011. As was previously disclosed, in the fourth quarter of fiscal year 2012, the Company reached an agreement with the DOC and the USAO, settling for $7.8 million the DOC and USAO’s investigation into the Company’s past disclosures on its government certifications and its government contracting compliance policies, general compliance record and practices in areas including export controls and government contracts. During the third quarter of fiscal year 2012, the Company accrued a loss contingency equal to the settlement amount. The $7.8 million settlement costs were non-deductible for income tax purposes.

During fiscal year 2011, the Company repatriated $14.9 million of current earnings from its German and Japanese subsidiaries. The Company recorded a $0.5 million tax expense during fiscal year 2011 related to these repatriations. Also during fiscal year 2011, U.S. R&D tax credit legislation was extended with an effective date retroactive to January 1, 2010. This legislation allowed the Company to recognize $2.8 million of tax benefits in fiscal year 2011, partly due to tax credits available on applicable research and development spending by the Company during the last three fiscal quarters of fiscal year 2010 and partly due to a full year of credit for fiscal year 2011.

In accordance with ASC 740-30, the Company has not recognized a deferred tax liability for the undistributed earnings of certain of its foreign operations because those subsidiaries have invested or will invest the undistributed earnings indefinitely. At September 28, 2013, undistributed earnings were approximately $82 million. Because of the availability of U.S. foreign tax credits, it is impractical for the Company to determine the amount of U.S. federal tax liability that would be payable if these earnings were not indefinitely reinvested. Deferred taxes are recorded for earnings of foreign operations when the Company determines that such earnings are no longer indefinitely reinvested.

A summary of changes in the Company’s liability for unrecognized tax benefits for the fiscal years ended September 28, 2013 and September 29, 2012 is as follows:



		2013		2012
	(expressed in thousands)
Beginning balance	$	1,666	$	5,106
Increase due to tax positions related to the current year		913		343
Increase (decrease) due to tax positions related to prior years		1,726		(1,398)
Decrease due to lapse of statute of limitations		-		(2,389)
Exchange rate change		6		4
Ending balance	$	4,311	$	1,666

Included in the balance of unrecognized tax benefits at September 28, 2013 are potential benefits of $2.7 million that, if recognized, would affect the effective tax rate.

At both September 28, 2013 and September 29, 2012, the Company had accrued interest related to uncertain income tax positions of approximately $0.1 million. At September 28, 2013 and September 29, 2012, no accrual for penalties related to uncertain tax positions existed. Interest and penalties related to uncertain tax positions are included in Interest Expense, net and General and Administrative Expense, respectively, on the Consolidated Statements of Income.

The Company is subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for fiscal years before 2011 and with limited exceptions, state and foreign income tax examinations for fiscal years before 2008. During 2012, the Internal Revenue Service (“IRS”) completed the audit of the Company’s consolidated income tax returns for fiscal years 2009 and 2010. During 2012, the Minnesota Department of Revenue completed the audit of fiscal years 2006 through 2008. The Company’s German tax returns have been examined by the tax authorities through fiscal year 2008. The Company’s Japanese tax returns have been examined by the tax authorities through fiscal year 2010. The Company’s Chinese tax returns for calendar years 2008 through 2011 have not been examined by the tax authorities. The Company’s Chinese tax return for calendar year 2012 is currently being examined. As of September 28, 2013, the Company does not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

At September 28, 2013 and September 29, 2012, the Company and certain of its foreign subsidiaries were expected to receive income tax refunds within the next fiscal year. As a result, at September 28, 2013 and September 29, 2012, the Company recognized a current income tax receivable of $5.9 million and $2.1 million, respectively, which is included in Prepaid Expenses and Other Current Assets on the Consolidated Balance Sheets.