NOTE 8INCOME TAXES



The components of income before income taxes for fiscal years 2015, 2014 and 2013 were as follows:

(in thousands)		2015		2014		2013
Domestic	$	31,827	$	32,867	$	49,921
Foreign		27,345		25,576		29,333
Total income before income taxes	$	59,172	$	58,443	$	79,254


The provision for income taxes for fiscal years 2015, 2014 and 2013 were as follows:

(in thousands)		2015		2014		2013
Current
Federal	$	4,588	$	7,503	$	13,241
State		527		842		781
Foreign		8,025		13,056		8,618
Deferred		570		(4,967)		(1,192)
Total provision for income taxes	$	13,710	$	16,434	$	21,448


A reconciliation from the federal statutory income tax rate to our effective income tax rate for
fiscal years 2015, 2014 and 2013 is as follows:

(in thousands)	2015		2014		2013
United States federal statutory income tax rate	35	%	35	%	35	%
Impact from foreign operations	(4)		(1)		(1)
State income taxes, net of federal benefit	1		1		1
Research and development tax credits	(8)		(5)		(5)
Domestic production activities deduction	(2)		(2)		(2)
Foreign tax credits	-		(2)		-
Nondeductible stock option expense and other permanent items	1		2		(1)
Effective income tax rate	23	%	28	%	27	%


A summary of the deferred tax assets and liabilities for fiscal years 2015 and 2014 are as follows:

(in thousands)		2015		2014
Deferred tax assets
Accrued compensation and benefits	$	11,723	$	11,604
Inventory reserves		5,198		5,060
Other assets		4,389		2,935
Allowance for doubtful accounts		866		644
Net operating loss carryovers		84		277
Research and development tax credit carryovers		993		326
Intangible assets		-		63
Total deferred tax asset before valuation allowance		23,253		20,909
Less valuation allowance		(921)		(442)
Total deferred tax assets	$	22,332	$	20,467

Deferred tax liabilities
Property and equipment	$	9,775	$	8,557
Foreign deferred revenue and other		1,738		2,541
Intangible assets		1,303		-
Unrealized derivative instrument gains		1,199		269
Total deferred tax liabilities	$	14,015	$	11,367
Net deferred tax assets	$	8,317	$	9,100

As of October 3, 2015, our Swiss subsidiary had a net operating loss carryover of $383. Switzerland has a seven year net operating loss limitation. We have determined that the benefit of the Swiss subsidiary’s net operating loss is not likely to be realized. Accordingly, as of October 3, 2015, we have a full valuation against the carryover in the amount of $84.

As of October 3, 2015, we had a Minnesota Research and Development (R&D) tax credit carryover of $992 which may be carried forward fifteen years. We have recorded a valuation allowance against the portion of this carryover that is expected to expire prior to utilization.

During fiscal year 2015, we repatriated $9,194 of current earnings from our German and Japanese subsidiaries. We recorded a $1,057 tax benefit during fiscal year 2015 related to these repatriations. Also, during fiscal year 2015, we recognized additional federal research and development tax credit benefits of $2,098 due to the enactment of tax legislation in the first quarter of fiscal year 2015 that retroactively extended the United States (U.S.) R&D tax credit from January 1, 2014 through December 31, 2014. In addition, we recognized a tax benefit of $1,836 associated with the favorable resolution of audit matters in connection with the IRS examination of tax years ending October 1, 2011 and September 29, 2012.

During fiscal year 2014, we repatriated $9,587 of current earnings from our German, Japanese and Korean subsidiaries. We recorded a $98 tax expense during fiscal year 2014 related to these repatriations. Also, during fiscal year 2014, we recognized additional federal and state research and development tax credit benefits of $2,563 related to prior fiscal years due to favorable guidance related to the U.S. R&D tax credit that was issued during the fourth quarter of fiscal year 2013. We were only allowed to recognize federal research and development credits on applicable spending during the first fiscal quarter of 2014, as the provision in the U.S. tax law allowing for these credits expired on December 31, 2013.

During fiscal year 2013, we repatriated $14,493 of current earnings from our German and Japanese subsidiaries. We recorded a $517 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 U.S. 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, we recognized a retroactive tax benefit of approximately $2,430 for R&D tax credits associated with prior fiscal years.

We have not recognized a deferred tax liability for the undistributed earnings of certain foreign operations because those subsidiaries have invested or will invest the undistributed earnings indefinitely. At October 3, 2015 and September 27, 2014, undistributed earnings were approximately $78,957 and $81,325, respectively. Because of the availability of U.S. foreign tax credits, it is impractical for us 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 we determine that such earnings are no longer indefinitely reinvested.

A summary of changes to our liability for unrecognized tax benefits for the fiscal years ended October 3, 2015 and September 27, 2014 is as follows:



(in thousands)		2015		2014
Beginning balance	$	5,990	$	4,311
Increase due to tax positions related to the current year		1,631		659
Increase (decrease) due to tax positions related to prior years		(1,596)		1,068
Decrease due to settlements with tax authorities		(332)		-
Decrease due to lapse of statute of limitations		(43)		(47)
Exchange rate change		(1)		(1)
Ending balance	$	5,649	$	5,990

Included in the balance of unrecognized tax benefits at October 3, 2015 and September 27, 2014 are potential benefits of $2,265 and $3,833, respectively, that, if recognized, would affect the effective tax rate.

As of October 3, 2015 and September 27, 2014, we have accrued interest related to uncertain income tax positions of approximately $274 and $248, respectively. At October 3, 2015 and September 27, 2014, 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.

We are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are no longer subject to U.S. federal tax examinations for fiscal years before 2013 and with limited exceptions, state and foreign income tax examinations for fiscal years before 2010. During 2015, the Internal Revenue Service (IRS) completed the audit of our consolidated income tax returns for fiscal years 2011 and 2012. As of October 3, 2015, we do not expect significant changes in the amount of unrecognized tax benefits for our U.S. or foreign subsidiaries during the next twelve months.

At October 3, 2015 and September 27, 2014, we and certain foreign subsidiaries were expected to receive income tax refunds within the next fiscal year. As a result, we recognized a current income tax receivable of $876 and $6,507 at October 3, 2015 and September 27, 2014, respectively, which is included in prepaid expenses and other current assets on the Consolidated Balance Sheets.