6INCOME TAXES

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



	2014		2013		2012
United States	$	11,592	$	19,885	$	20,332
Foreign		5,830		4,775		(406)
	$	17,422	$	24,660	$	19,926

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



	2014		2013		2012
Current:
Federal (net of tax benefit from operating loss carryforward of $0, $0 and $3,098, respectively)	$	3,888	$	2,832	$	828
State		403		470		378
Foreign		1,886		1,437		1,595
Deferred		2,122		594		6,991
	$	8,299	$	5,333	$	9,792

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:



	2014		2013
Deferred tax assets:
Inventories	$	1,809	$	1,974
Compensation		10,362		7,074
Tax credit carryforwards		3,462		6,385
Net operating loss carryforwards		7,333		7,215
Other		4,635		5,109
Total gross deferred tax assets		27,601		27,757
Less valuation allowance		8,734		9,479
Deferred tax assets		18,867		18,278
Deferred tax liabilities:
Goodwill and other intangibles		989		1,279
Depreciation and amortization		4,795		1,091
Foreign statutory reserves		503		1,114
Net deferred tax assets	$	12,580	$	14,794

The net deferred tax assets recorded in the accompanying Consolidated Balance Sheet as of the years ended October 3, 2014 and September 27, 2013 were as follows:



	2014		2013
Current assets	$	8,360	$	7,869
Non-current assets		5,353		8,039
Non-current liabilities		1,133		1,114
Net deferred tax assets	$	12,580	$	14,794

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



	2014		2013		2012
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
Foreign rate differential	(0.5)		(4.1)		(1.0)
State income tax, net of federal benefit	4.4		4.5		3.1
Tax credit	(6.3)		(3.1)		-
Deferred tax asset valuation allowance	(4.3)		(11.5)		7.1
Unrecognized tax benefit	5.4		-		-
Goodwill impairment	10.4		-		-
Other	3.6		0.8		4.9
	47.7	%	21.6	%	49.1	%

The Company’s net operating loss carryforwards and their expirations as of October 3, 2014 were as follows:



	State		United States		Foreign		Total
Year of expiration
2015-2019	$	2,158	$	-	$	1,104	$	3,262
2020-2024		1,182		-		2,262		3,444
2025-2029		5,672		-		2,034		7,706
2030-2034		30,074		-		774		30,848
Indefinite		-		-		8,535		8,535
Total	$	39,086	$	-	$	14,709	$	53,795

The Company has tax credit carryforwards comprised of foreign tax credits, research and development and other state credits as shown in the table below.



	State		Federal		Total
Year of expiration
2015-2019	$	767	$	-	$	767
2020-2024		1,111		970		2,081
2025-2029		614		-		614
2030-2034		-		-		-
Indefinite		-		-		-
Total	$	2,492	$	970	$	3,462

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. The 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.

For 2014, the negative impact to the income tax expense and primary increase to the effective tax rate was the result of the impairment charge against goodwill as discussed in Note 18. The Company had no tax value in the goodwill which resulted in no tax benefit received from the impairment charge against it.

The impact of the valuation allowance in fiscal 2014 of $745 of tax benefit was primarily the result of earnings in Italy, Netherlands, Spain and United Kingdom offsetting operating losses in France, Japan and New Zealand. The Company believes the negative evidence continues to outweigh the positive evidence and as such, the valuation allowance will remain in place.

For 2013, the positive impact of the valuation allowance in the amount of $2,831 on tax expense was primarily the result of the expected usage of foreign tax credits of $3,076, offset in part by increases in foreign valuation allowances of $244. Operating losses in France, Netherlands, New Zealand and the United Kingdom were partially offset by income in Italy, Spain and Japan.

The change in the valuation allowance in 2012 provided a negative impact of $1,410 to the effective tax expense. This amount was primarily the result of increases in foreign valuation allowances of $1,787, which were partially offset by U.S. usage of tax attributes totaling $377. In fiscal 2012, the Company established a valuation allowance of $173 against the net deferred tax assets in the New Zealand tax jurisdiction based on a cumulative earnings deficit. Additional operating losses in France, Japan, Italy, Spain and United Kingdom also increased the valuation allowance by $1,614 in fiscal 2012.

Taxes paid were $6,581, $2,399 and $3,163 for 2014, 2013 and 2012, respectively.

The decrease in deferred tax assets due to utilization of U.S. federal net operating loss carryforwards was $0, $0 and $5,260 for 2014, 2013 and 2012, 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 and penalties with respect to income taxes was approximately $778 and $592 for the years ended October 3, 2014 and September 27, 2013, respectively. Interest and penalties of $186, $21 and $184 was recorded as a component of income tax expense (benefit) in the accompanying Consolidated Statements of Operations during fiscal years 2014, 2013 and 2012, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the last three fiscal years was as follows:



Balance at September 30, 2011	$	1,684
Settlement		(773)
Lapse of statute of limitations		(123)
Gross increases - tax positions in period		1,112
Balance at September 28, 2012	$	1,900
Settlement		(186)
Lapse of statute of limitations		(214)
Gross increases - tax positions in period		655
Balance at September 27, 2013	$	2,155
Settlement		-
Lapse of statute of limitations		(161)
Gross increases - tax positions in period		1,097
Balance at October 3, 2014	$	3,091

The Company has not provided additional U.S. income taxes on $113,266 of undistributed earnings of consolidated foreign subsidiaries included in shareholders’ equity attributable to the Company. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. The Company’s intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings. As of October 3, 2014, the Company held approximately $60,135 of cash and cash equivalents in foreign jurisdictions.

The Company is currently undergoing examinations in Italy and Germany. There was a change in unrecognized tax benefits as a result of the settlement of a tax audit in Italy in the year ended September 28, 2012. 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	2011-2014
Canada	2010-2014
France	2010-2014
Germany	2009-2014
Italy	2009-2014
Japan	2012-2014
Switzerland	2004-2014