8. Income Taxes:



The components of income before income taxes for the fiscal years ended September 27, 2014,
September 28, 2013, and September 29, 2012 were as follows:
		2014		2013		2012
		(expressed in thousands)
Income before income taxes:
Domestic	$	32,867	$	49,921	$	45,152
Foreign		25,576		29,333		34,628
Total	$	58,443	$	79,254	$	79,780


The provision for income taxes for the fiscal years ended September 27, 2014, September 28, 2013,
and September 29, 2012 was as follows:
		2014		2013		2012
		(expressed in thousands)
Current provision (benefit):
Federal	$	7,503	$	13,241	$	16,834
State		842		781		1,058
Foreign		13,056		8,618		11,575
Deferred		(4,967)		(1,192)		(1,243)
Total provision	$	16,434	$	21,448	$	28,224


A reconciliation from the federal statutory income tax rate to the Company’s effective income tax rate for the fiscal
years ended September 27, 2014, September 28, 2013, and September 29, 2012 is as follows:

	2014		2013		2012

United States federal statutory income tax rate	35	%	35	%	35	%
Impact from foreign operations	(1)		(1)		(2)
State income taxes, net of federal benefit	1		1		1
Research and development tax credits	(5)		(5)		(1)
Domestic production activities deduction	(2)		(2)		(2)
Foreign tax credits	(2)		-		-
Change in valuation allowances	-		-		(1)
Nondeductible expense to settle U.S. Government investigation	-		-		4
Nondeductible stock option expense and other permanent items	2		(1)		1
Effective income tax rate	28	%	27	%	35	%


A summary of the deferred tax assets and liabilities for the fiscal years ended September 27, 2014 and
September 28, 2013 is as follows:
		2014		2013
		(expressed in thousands)
Deferred Tax Assets:
Accrued compensation and benefits	$	11,604	$	8,826
Inventory reserves		5,060		4,264
Intangible and other assets		2,684		3,081
Allowance for doubtful accounts		644		380
Net operating loss carryovers		277		376
Research and development tax credit carryovers		326		-
Other		314		320
Total deferred tax asset before valuation allowance		20,909		17,247
Less valuation allowance		(442)		(105)
Total Deferred Tax Assets	$	20,467	$	17,142

Deferred Tax Liabilities:
Property and equipment	$	8,557	$	10,222
Foreign deferred revenue and other		2,541		3,246
Unrealized derivative instrument gains		269		670
Total Deferred Tax Liabilities	$	11,367	$	14,138
Net Deferred Tax Assets	$	9,100	$	3,004

As of September 27, 2014, the Company’s German and Swiss subsidiaries had net operating loss carryovers of $0.2 million, and $0.5 million respectively. The German net operating loss carryovers will not expire under local tax law. Switzerland has a seven year net operating loss 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 27, 2014, the Company had a full valuation against the carryover in the amount of $0.1 million.

As of September 27, 2014, the Company had a Minnesota R&D tax credit carryover of $0.3 million which may be carried forward fifteen years. The Company has recorded a full valuation allowance against this carryover based on its expectation that the credits will expire prior to utilization.

During fiscal year 2014, the Company repatriated $9.6 million of current earnings from its German, Japanese and Korean subsidiaries. The Company recorded $0.1 million tax expense during fiscal year 2014 related to these repatriations. Also during fiscal year 2014, the Company recognized additional federal and state research and development tax credit benefits of $2.6 million related to prior fiscal years due to favorable guidance related to the United States Research and Development tax credit that was issued during the fourth quarter of fiscal year 2013. The Company was only allowed to recognize federal 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, 2013.

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 (the “Act”) of 2012 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 a $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.

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 27, 2014, undistributed earnings were approximately $81 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 27, 2014 and September 28, 2013 is as follows:



		2014		2013
	(expressed in thousands)
Beginning balance	$	4,311	$	1,666
Increase due to tax positions related to the current year		659		913
Increase (decrease) due to tax positions related to prior years		1,068		1,726
Decrease due to lapse of statute of limitations		(47)		-
Exchange rate change		(1)		6
Ending balance	$	5,990	$	4,311

Included in the balance of unrecognized tax benefits at September 27, 2014 are potential benefits of $3.8 million that, if recognized, would affect the effective tax rate.

At both September 27, 2014 and September 28, 2013, the Company had accrued interest related to uncertain income tax positions of approximately $0.2 million and $0.1 million, respectively. At September 27, 2014 and September 28, 2013, 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 2009. During 2012, the Internal Revenue Service (“IRS”) completed the audit of the Company’s consolidated income tax returns for fiscal years 2009 and 2010. Also during 2012, the Minnesota Department of Revenue completed the audit of fiscal years 2006 through 2008. The IRS is currently auditing the Company’s fiscal tax years ending October 1, 2011 and September 29, 2012. As of September 27, 2014, the IRS has not proposed any significant adjustments to the company’s tax positions for which the Company is not adequately reserved. The Company believes that it is reasonably possible that its liability for unrecognized tax positions may change upon conclusion of the IRS audit. However, an estimate of the amount or range of the change cannot be made at this time.

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 2009 through 2011 and 2013 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 27, 2014, the Company does not expect significant changes in the amount of unrecognized tax benefits for its foreign subsidiaries during the next twelve months.

At September 27, 2014 and September 28, 2013, 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 27, 2014 and September 28, 2013, the Company recognized a current income tax receivable of $6.5 million and $5.9 million, respectively, which is included in Prepaid Expenses and Other Current Assets on the Consolidated Balance Sheets.