7. Income Taxes:



The components of income before income taxes for the fiscal years ended September 29, 2012,
October 1, 2011, and October 2, 2010 were as follows:
		2012		2011		2010
		(expressed in thousands)
Income before income taxes:
Domestic	$	45,152	$	35,243	$	10,659
Foreign		34,628		38,062		16,553
Total	$	79,780	$	73,305	$	27,212


The provision for income taxes for the fiscal years ended September 29, 2012, October 1, 2011,
and October 2, 2010 was as follows:
		2012		2011		2010
		(expressed in thousands)
Current provision (benefit):
Federal	$	16,834	$	5,855	$	357
State		1,058		553		65
Foreign		11,575		10,627		6,046
Deferred		(1,243)		5,328		2,168
Total provision	$	28,224	$	22,363	$	8,636



A reconciliation from the federal statutory income tax rate to the Company’s effective income tax
rate for the fiscal years ended September 29, 2012, October 1, 2011, and October 2, 2010
is as follows:

	2012		2011		2010

United States federal statutory income tax rate	35	%	35	%	35	%
Impact from foreign operations	(2)		(2)		(4)
Settlement of audits, favorable resolution of accrued tax matters	-		-		(2)
State income taxes, net of federal benefit	1		1		1
Research and development tax credits	(1)		(3)		(1)
Domestic production activities deduction	(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		3
Effective income tax rate	35	%	31	%	32	%



A summary of the deferred tax assets and liabilities for the fiscal years ended September 29, 2012 and
October 1, 2011 is as follows:
		2012		2011
		(expressed in thousands)
Deferred Tax Assets:
Accrued compensation and benefits	$	7,994	$	7,584
Inventory reserves		3,223		3,299
Intangible and other assets		2,754		4,851
Allowance for doubtful accounts		458		216
Foreign net operating loss carryovers		470		758
Unrealized derivative instrument losses		255		495
Other		533		621
Total deferred tax asset before valuation allowance		15,687		17,824
Less valuation allowance		(180)		(643)
Total Deferred Tax Assets	$	15,507	$	17,181

Deferred Tax Liabilities:
Property and equipment	$	10,680	$	12,221
Foreign deferred revenue and other		2,590		2,766
Total Deferred Tax Liabilities	$	13,270	$	14,987
Net Deferred Tax Assets	$	2,237	$	2,194

As of September 29, 2012, one of the Company’s German subsidiaries had a net operating loss carryover of $1.1 million. This net operating loss carryover will not expire under local tax law. The Company has determined that it is more likely than not that it will realize its deferred tax asset associated with this net operating loss. 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, 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.

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 benefit 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.

During fiscal year 2011, the Company repatriated $14.9 million of current earnings from its German and Japanese subsidiaries. The Company recorded $0.5 million tax expense during fiscal year 2011 related to these repatriations. Also during fiscal year 2011, U.S. research and development 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.

During fiscal year 2010, the Company repatriated $51.0 million of historic earnings from its German, Japanese, Korean and Canadian subsidiaries, a portion of which constituted previously taxed income. The Company recorded a $0.3 million tax benefit during fiscal year 2010 related to these dividends. Also during fiscal year 2010, 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, 2009.

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 29, 2012, undistributed earnings were approximately $74 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 29, 2012 and October 1, 2011 is as follows:



		2012		2011
	(expressed in thousands)
Beginning balance	$	5,106	$	4,181
Increase due to tax positions related to the current year		343		1,408
Decrease due to tax positions related to prior years		(1,398)		(240)
Decrease due to lapse of statute of limitations		(2,389)		(232)
Exchange rate change		4		(11)
Ending balance	$	1,666	$	5,106

Included in the balance of unrecognized tax benefits at September 29, 2012 are potential benefits of $0.5 million that, if recognized, would affect the effective tax rate. Included in the balance of unrecognized tax benefits at October 1, 2011 are potential benefits of $1.5 million that, if recognized, would affect the effective tax rate.

At September 29, 2012 and October 1, 2011, the Company had accrued interest related to uncertain income tax positions of approximately $0.1 million and $0.4 million, respectively. At September 29, 2012 and October 1, 2011, no accrual for penalties related to uncertain tax positions existed. Interest and penalties related to uncertain tax positions are included in Interest Expense 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 French tax returns have been examined by the tax authorities through fiscal year 2010. 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. As of September 29, 2012, the Company does not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

At September 29, 2012 and October 1, 2011, 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 29, 2012 and October 1, 2011, the Company recognized a current income tax receivable of $2.1 million and $0.1 million, respectively, which is included in Prepaid Expenses and Other Current Assets on the Consolidated Balance Sheets.