6. INCOME TAXES

In the fiscal years set forth below, the provision (benefit) for income taxes consisted of the following:

(in thousands)	Year Ended October 31,
	2012			2011			2010

Current:
U.S. taxes	$	5,460		$	3,272		$	(4,410	)
Foreign taxes		2,612			2,595			1,079
		8,072			5,867			(3,331	)
Deferred:
U.S. taxes		(1,931	)		(1,452	)		189
Foreign taxes		85			80			27
		(1,846	)		(1,372	)		216
	$	6,226		$	4,495		$	(3,115	)

A comparison of income tax expense at the U.S. statutory rate of 35% in 2012, 2011 and 2010, to the Company's effective tax rate is as follows:

Income (Loss) before income taxes (in thousands):	Year Ended October 31,
	2012			2011			2010
Domestic	$	12,432		$	6,098		$	(12,504	)
Foreign		9,432			9,521			3,645
Earnings (Loss) before taxes on income	$	21,864		$	15,619		$	(8,859	)
Tax rates: U.S. statutory rate		35.0	%		35.0	%		35.0	%
Effect of tax rate of international jurisdictions different than U.S. statutory rates		(5.5	)%		(4.9	)%		2.6	%
Valuation allowance.		0.7	%		(0.9	)%		(9.5	)%
State taxes		1.0	%		0.9	%		3.3	%
Uncertain tax position statute expiration		-			-			5.6	%
Other		(2.7	)%		(1.3	)%		(1.8	)%
Effective tax rate		28.5	%		28.8	%		35.2	%

We have not provided any U.S. income taxes on the undistributed earnings of our wholly-owned foreign subsidiaries based upon our determination that such earnings will be indefinitely reinvested. Undistributed earnings of our wholly-owned foreign subsidiaries at October 31, 2012 are approximately $48.7 million. In the event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax that may be offset, at least in part by associated foreign tax credits.

Deferred income taxes are determined based on the difference between the amounts used for financial reporting purposes and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

As of October 31, 2012, we have deferred tax assets established for accumulated net operating loss carryforwards of $764,000, primarily related to state and foreign jurisdictions. The Company has established a valuation allowance against some of these carryforwards due to the uncertainty of their full realization. As of October 31, 2012 and 2011, the balance of this valuation allowance was $460,000 and $487,000, respectively.

Significant components of our deferred tax assets and liabilities at October 31, 2012 and 2011 were as follows (in thousands):

	October 31,
	2012			2011
Deferred Tax Assets:

Net derivative instruments	$	-		$	448
Accrued inventory reserves		907			761
Accrued warranty expenses		171			205
Deferred compensation		282			265
Other accrued expenses		1,119			879
Net operating loss and credit carryforwards		764			750
Other		446			196
		3,689			3,504
Less: Valuation allowance on net operating loss carryforwards		(460	)		(487	)
Deferred tax assets		3,229			3,017

Deferred Tax Liabilities:
Net derivative instruments		(799	)		-
Property and equipment and capitalized software development costs		(2,025	)		(2,298	)
Other		(126	)		(9	)

Net deferred tax assets	$	279		$	710

As of October 31, 2012, we had deferred tax assets relating to net operating losses and credit carryforwards for international and U.S. income tax purposes of $764,000, of which $460,000 will expire within 5 years and $304,000 will expire between 5 and 20 years.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding the related accrual for interest or penalties, is as follows (in thousands):

	2012			2011		2010
Balance, beginning of year	$	244		$	178	$	574
Additions based on tax positions related to the current year		5			66		1
Additions (reductions) related to prior years tax positions		(131	)		-		-
Reductions due to statute expiration		-			-		(397	)

Balance, end of year	$	118		$	244	$	178

The entire balance of the unrecognized tax benefits and related interest at October 31, 2012, if recognized, would favorably affect the effective tax rate in future periods.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax provision. We believe there is substantial support for taking these tax benefits and therefore have estimated no tax penalties. As of October 31, 2012, the gross amount of interest accrued, reported in other liabilities, was approximately $14,000, which did not include the federal tax benefit of interest deductions.

The statute of limitations with respect to unrecognized tax benefits will expire between July 2014 and July 2016.

Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of future audits may result in liabilities that could be different from this estimate. In such case, we will record additional tax expense or tax benefit in the tax provision (benefit) or reclassify amounts on the consolidated balance sheets in the period in which such the matter is effectively settled with the taxing authority.

We file income tax returns in the U.S. federal jurisdiction and various states, local, and non-U.S. jurisdictions. The Internal Revenue Service (IRS) has concluded their examination during the current fiscal year of our federal income tax returns for the years 2006, 2007 and 2010. The IRS did not examine tax returns for the tax years 2008 and 2009. The IRS examination resulted in no adjustments.

We or one of our subsidiaries files U.S. federal and/or state income tax returns as well as tax returns in one or more foreign jurisdictions. A summary of open tax years by major jurisdiction is presented below:

United States federal		Fiscal 2006 through the current period
Indiana		Fiscal 2007 through the current period
California		Fiscal 2007 through the current period
Germany¹		Fiscal 2009 through the current period
Taiwan		Fiscal 2007 through the current period

¹ Includes federal as well as state, provincial or similar local jurisdictions, as applicable.