Income Taxes

The Company’s effective tax rate differs from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside of the U.S., the effects of the debt refinancing, and a change in the tax rates in Switzerland due to Swiss tax ruling.

The Company uses a two-step approach to recognize and measure uncertain tax positions (“UTP”). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before federal impact of state items) is as follows:



(in thousands)	April 27, 2014
Balance as of January 26, 2014	14,414
Reductions for settlements with tax authorities	(3,275	)
Balance as of April 27, 2014	11,139

In the first quarter of fiscal year 2015, the Company released $3.3 million of previously recorded reserves for uncertain tax positions related to its 2009 tax year as a result of a settlement with the Internal Revenue Service. The release of these reserves did not impact to the Company’s effective tax rate during the first quarter of fiscal year 2015 because the release of the reserves resulted in a deferred tax asset and a corresponding increase in the Company’s valuation allowance.

Included in the balance of unrecognized tax benefits at April 27, 2014 and January 26, 2014, is $9.1 million and $12.3 million of net tax benefit (after federal impact of state items), respectively, that, if recognized, would impact the effective tax rate. The liability for uncertain tax positions is reflected on the consolidated condensed balance sheets as follows:



(in thousands)	April 27, 2014		January 26, 2014
Deferred tax assets - non-current	$	8,822	$	12,095
Other long-term liabilities	252		252
Total accrued taxes	$	9,074	$	12,347

The Company’s policy is to include net interest and penalties related to unrecognized tax benefits within the provision for taxes on the unaudited consolidated condensed statements of income. The Company had approximately $293,000 of net interest and penalties accrued at April 27, 2014 and January 26, 2014.

Tax years prior to 2010 (the Company’s fiscal year 2011) are generally not subject to examination by the Internal Revenue Service (“IRS”) except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. The Company is currently under IRS audit for fiscal year 2011 and fiscal year 2013. The Company is also currently under audit by the Canadian Revenue Agency for fiscal years 2010, 2011 and the year ended March 19, 2012. For state returns, the Company is generally not subject to income tax examinations for years prior to 2008 (the Company’s fiscal year 2009). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2013. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates.