7 INCOME TAXES

The U.S. and foreign income before income taxes for the respective years consisted of the following:

	2011		2010
United States	$	11,133	$	7,873
Foreign		1,117		1,319
	$	12,250	$	9,192

Income tax expense for the respective years consisted of the following:

	2011			2010
Current:
Federal (net of tax benefit from operating loss carryforward of $2,505 and $5,260, respectively)	$	-		$	-
State		642			483
Foreign		2,000			1,164
Deferred		(23,036	)		1,006
	$	(20,394	)	$	2,653

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at the end of the respective years are presented below:

	2011		2010
Deferred tax assets:
Inventories	$	3,902	$	4,049
Compensation		10,258		10,042
Tax credit carryforwards		8,519		8,684
Goodwill and other intangibles		3,639		2,440
Net operating loss carryforwards		11,109		11,069
Depreciation and amortization		751		2,267
Other		5,385		5,791
Total gross deferred tax assets		43,563		44,342
Less valuation allowance		14,300		39,178
Deferred tax assets		29,263		5,164
Deferred tax liabilities:
Foreign statutory reserves		348		601
Net deferred tax assets	$	28,915	$	4,563

The net deferred tax assets are recorded in the Consolidated Balance Sheet as follows:

	2011		2010
Current assets	$	9,732	$	1,844
Non-current assets		19,531		3,320
Non-current liabilities		348		601
Net deferred tax assets	$	28,915	$	4,563

The significant differences between the statutory federal tax rate and the effective income tax rates for the Company for the respective years shown below are as follows:

	2011			2010
Statutory U.S. federal income tax rate		35.0	%		35.0	%
Foreign rate differential		-0.9	%		-3.6	%
State income tax, net of federal benefit		4.2	%		5.3	%
Decrease in valuation reserve for deferred assets		-211.0	%		-8.1	%
Other		6.2	%		0.3	%
		-166.5	%		28.9	%

Under generally accepted accounting principles, the Company considers at each reporting period all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed to reduce its deferred tax asset to an amount that is more likely than not to be realized. That determination of the need for a valuation allowance for the deferred tax assets is dependent upon management's evaluation of both positive and negative evidence. Positive evidence includes the probability of achieving forecasted future taxable income, applicable tax strategies and assessments of the current and future economic and business conditions. Negative evidence includes the Company's cumulative losses and expiring tax carryforwards.

At September 30, 2011, the Company's federal and state deferred tax assets were comprised of future tax benefits associated with net operating loss carryforwards and future deductions and credits and, prior to a valuation allowance, totaled $34,814 million. Based upon future projections and the fact that the Company's U.S. operations generated cumulative profits over the three year period ended September 30, 2011, the Company believes it will generate sufficient taxable income before most tax assets will expire. It therefore concluded that a valuation allowance was no longer required for the majority of the federal deferred tax assets.

The decrease in the valuation allowance in 2011, due to usage during the year and the year end reversal, provided a benefit of $25,305 to the effective tax expense. This was partially offset by the increase in foreign valuation allowances of $2,419. In fiscal 2011 the Company established a valuation allowance of $903 against the net deferred tax assets in French tax jurisdictions based upon cumulative earnings deficit. Additional operating losses in Japan, Italy, Spain and United Kingdom also increased the valuation allowance by $1,516 in fiscal 2011.

In 2010, the valuation allowance positive impact of $744 to the effective tax expense was primarily the result of the U.S. usage of tax benefits related to net operating losses and the corresponding reversal of valuation allowances of $2,539 partially offset by the increase in foreign valuation allowances of $1,795. In fiscal 2010 the Company established a valuation allowance of $1,020 against the net deferred tax assets in an Italian tax jurisdiction based on cumulative earnings deficit and eliminated the valuation allowance of $75 against the net deferred tax assets in the New Zealand tax jurisdiction based on positive cumulative earnings. Continual net operating losses in Japan, Spain and United Kingdom also increased the valuation allowance by $810.

The foreign rate differential of (0.9)% and (3.6)%, for 2011 and 2010, respectively, is comprised of several foreign tax related items including the statutory rate differential in each year, foreign provincial or local income taxes and additional contingency reserves.

At September 30, 2011, the Company has federal operating loss carry forwards of $10,650 which begin to expire in 2029, as well as various state net operating loss carry forwards of $16,816 which expire from 2012 to 2029. In addition, certain of the Company's foreign subsidiaries have operating loss carry forwards totaling $15,154. These operating loss carry forwards are available to offset future taxable income over the next 2 to approximately 20 years.

Given the uncertain conditions in the outdoor recreation equipment market in the France, Japan, Italy, Spain, and United Kingdom tax jurisdictions, the Company will maintain a valuation allowance against the net deferred tax assets in these jurisdictions that are anticipated to expire unused. Based on projections for these tax jurisdictions, the Company determined that it was more likely than not that certain deferred tax assets will not be realized and a valuation allowance balance of $903, $2,729, $2,061, $586, and $465 was reported against the net deferred tax assets for France, Japan, Italy, Spain, and United Kingdom tax jurisdictions respectively, as of September 30, 2011. In addition, there is a remaining valuation allowance of $7,556 related to various state and federal US deferred tax assets where it is more likely than not that the asset will not be realized due to a lack of apportioned income and limited carryforward periods.

As of October 1, 2010, the Company's valuation allowance was comprised of $34,853, $2,404, $1,020, $467, and $434 and was recorded against the net deferred tax assets for the U.S., Japan, Italy, Spain, and United Kingdom tax jurisdictions respectively.

Taxes paid were $878 and $835 for 2011 and 2010, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at October 2, 2009	$	1,290
Lapse of statute of limitations		(240	)
Gross increases - tax positions in current period		205
Balance at October 1, 2010		1,255
Settlement		(168	)
Lapse of statute of limitations		(122	)
Gross increases - tax positions in current period		719
Balance at September 30, 2011	$	1,684

Unrecognized tax benefits are included in accrued taxes in the consolidated balance sheet.

The Company's total gross liability for unrecognized tax benefits was $1,684 and $1,255 for the years ended September 30, 2011 and October 1, 2010, respectively. In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The total accrued interest with respect to income taxes was approximately $248 and $256 for the years ended September 30, 2011 and October 1, 2010, respectively. Interest of $39 and $86 was recorded as a component of income tax expense in the Consolidated Statements of Operations during fiscal year 2011 and 2010, respectively.

The Company is currently undergoing examination in the Netherlands and subsequent to September 30, 2011 was notified that Canada will begin an examination of the years 2008 – 2010. There was a change in unrecognized tax benefits as a result of the settlement of a tax audit in Germany in the year ended September 30, 2011. The amount of unrecognized tax benefits recognized within the next twelve months may decrease due to expiration of the statute of limitations for certain years in various jurisdictions however, it is possible that a jurisdiction may open an audit prior to the statute expiring or one of the above audits may adjust the Company's tax filings. At this time, an estimate of the range of the reasonably possible change cannot be made.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. The following tax years remain subject to examination by the respective major tax jurisdictions:

Jurisdiction	Fiscal Years
United States	2008-2011
Canada	2006-2011
France	2008-2011
Germany	2009-2011
Italy	2006-2011
Japan	2009-2011
Switzerland	2001-2011

Federal and state income taxes are provided on foreign subsidiary income distributed to, or taxable in, the U.S. during the year. In 2010, the Company reversed $2,900 of U.S. tax on undistributed earnings of its Canadian subsidiary considered not permanently reinvested as a result of attributed dividend repatriation. As of September 30, 2011, net undistributed earnings of foreign subsidiaries totaled approximately $115,546. The Company considers these unremitted earnings to be permanently invested abroad and no provision for federal or state income taxes has been made on these amounts. In the future, if foreign earnings are returned to the U.S., additional tax may result, although the calculation of such additional taxes is not practical at this time. As of September 30, 2011, the Company held approximately $40,200 of cash and cash equivalents in bank accounts in foreign taxing jurisdictions.