NOTE 8 INCOME TAXES

The components of net income (loss) before income taxes consist of the following:


	2011			2010			2009
Domestic	$	(4,742	)	$	(9,682	)	$	(3,824	)
Foreign		134			1,502			477

	$	(4,608	)	$	(8,180	)	$	(3,347	)

The following table summarizes the provision (benefit) for U.S. federal, state and foreign taxes on income:


	2011			2010			2009
Current:
Federal	$	(34	)	$	450		$	(291	)
State		96			241			(27	)
Foreign		542			1,103			183

		604			1,794			(135	)
Deferred:
Federal		—			(2,707	)		(71	)
State		—			(251	)		(7	)
Foreign		(506	)		(1,911	)		290

		(506	)		(4,869	)		212

	$	98		$	(3,075	)	$	77

A reconciliation of the differences between the U.S. and federal statutory tax rate and the Company’s effective rate are as follows:


	2011			2010			2009
Computed statutory rate		(35.0	)%		(35.0	)%		(35.0	)%
State income taxes, net of federal tax benefits		(3.3	)		(3.3	)		(3.3	)
Non-U.S. income taxed at different rates		(7.3	)		(1.9	)		(1.0	)
Permanent differences resulting from goodwill adjustments		—			(10.0	)		—
Effect foreign income distributions		—			9.1			(9.3	)
Benefit of net operating losses		—			(41.9	)		—
Change in valuation allowance		47.2			36.9			58.8
Tax contingencies and settlements		—			6.6			(8.2	)
Other items, net		0.5			1.9			0.3

Effective tax rate		2.1	%		(37.6	)%		2.3	%

The tax effects of temporary differences and carryforwards which gave rise to significant portions of the deferred tax assets and liabilities as of September 30, 2011 and September 24, 2010 were as follows:


	2011			2010
Deferred tax assets:
Inventories	$	4,886		$	4,643
Deferred revenue		1,123			1,493
Warranty reserve		1,261			1,284
Payroll and severance related		785			885
Other reserves		2,742			5,423
Intangibles		9,627			9,953
Accumulated depreciation		1,014			907
Capital losses		6,030			6,030
Net operating losses		10,528			7,502
Tax credits		9,536			9,082

Gross deferred tax assets		47,352			47,202
Valuation allowance		(44,968	)		(45,096	)

Deferred tax assets		2,564			2,106
Deferred tax liabilities:
Accumulated depreciation		(358	)		(411	)

Deferred tax liabilities		(358	)		(411	)

Net deferred tax asset	$	2,206		$	1,695

The deferred tax assets and liabilities are recorded in the following balance sheet accounts:


	2011		2010
Other current assets	$	1,687	$	1,520
Other long-term assets		519		292
Other current liabilities		—		(117	)

	$	2,206	$	1,695

During fiscal years 2011, 2010 and 2009 the Company recognized no tax benefits related to differences between financial and tax reporting of share based compensation transactions.

The Company establishes a valuation allowance for deferred tax assets, when it is more likely than not that such deferred tax assets will not be realized. During fiscal 2011 a decrease of $128 in the valuation allowance was due to the Company’s continued inability to benefit from its U.S. tax assets which was offset by a reduction of the valuation allowance required for other deferred tax assets. During fiscal 2010 the valuation allowance decreased $2,683 primarily due to the utilization of portions of its U.S. and Foreign net operating losses (“NOLs”). The Company continues to provide a full valuation allowance against all of its U.S. tax assets as the recent three year cumulative loss is given more weight than projected future income when determining the need for a valuation allowance.

As of September 30, 2011 the Company had $26,094 in tax assets (tax-effected) resulting from NOLs, capital losses, and tax credits carryforwards. A detailed breakdown of these assets as of September 30, 2011 and September 24, 2010 are as follows:


	2011		2010
Federal net operating losses	$	7,287	$	5,075
State net operating losses and credits		2,170		1,757
Foreign net operating losses		1,450		1,048
Federal capital losses		6,030		6,030
Federal research credits		3,827		3,422
Federal minimum tax credits		249		249
Federal foreign tax credits		5,081		5,033

	$	26,094	$	22,614

The Federal NOLs expire on various dates through 2031, while the Federal capital loss expires in fiscal 2013. State NOLs expire on various dates through 2027. The Federal research credits expire on various dates through 2031. Foreign NOLs, state research credits and federal minimum tax credits are available indefinitely. The Foreign Tax Credits expire on various dates through 2021. Pursuant to Internal Revenue Code Sections 382 and 383, the utilization of NOLs and other tax attributes may be substantially limited due to cumulative changes in ownership greater than 50% that may have occurred or could occur during applicable testing periods. The Company has not performed a Section 382 analysis to determine the possible limitation of its NOLs. The Company has not provided for additional U.S. federal income and foreign withholding taxes on its undistributed earnings from non-U.S. operations as of September 30, 2011 because such earnings are intended to be reinvested indefinitely outside of the United States. As of September 30, 2011 the cumulative undistributed earnings of these foreign operations were approximately $2,700 and the unrecognized deferred tax liability related to these undistributed earnings was $331.

The Company’s major U.S. jurisdictions under which it operated in fiscal 2011 included Oregon, California, and Texas while major international jurisdictions included Finland and France. The following table summarized the activity related to the Company’s world-wide unrecognized tax benefits:


Balance at September 24, 2010	$	1,993
Increase related to current year tax positions		—
Increase related to prior year tax positions		—
Decrease related to current year tax positions		—
Decrease related to prior year tax positions		—

Balance at September 30, 2011	$	1,993

The Company classifies interest and penalties related to uncertain tax positions in income tax expense. The total $1,993 of unrecognized tax benefits, if recognized, would impact the tax rate. For the year ended September 30, 2011 the Company had $134 of accrued interest related to uncertain tax positions. It is reasonably possible that the Company’s uncertain tax positions could decrease by approximately $578 in the next twelve months due to utilization of credits in tax years in which the statue of limitations may expire.

In December 2006 the United States Internal Revenue Service (“IRS”) began an audit of the Company’s U.S. federal tax returns for fiscal years ending 2003 through 2005. During the course of the examination the Company also filed its fiscal 2006 tax return, which was included in the audit cycle. In fiscal 2009 the Company and the IRS reached an agreement on the tax return years under review and settled all tax years through fiscal 2006. The Company’s largest foreign subsidiary, located in Finland, effectively settled in 2009 with the Finnish Tax authorities the audit of its tax returns ending up to and including fiscal year 2007. In 2011 the French Tax authorities commenced an examination of tax returns for fiscal years 2009 and 2010. Additionally, the Company is subject to numerous ongoing state and foreign tax audits. Although the final outcome of these audits are uncertain, based on currently available information, the Company believes the ultimate resolutions will not have a material adverse effect on the Company’s financial position or results of operations.