Note 10: INCOME TAXES

The provision for income taxes included the following for the years ended November 30:

Deferred income tax assets/(liabilities) were comprised of the following as of November 30:

As of November 30, 2008, the Company had foreign net operating loss carry-overs of approximately $34,900,000. A full valuation allowance has been provided against these net operating losses except for $17,000,000 of net operating losses generated by the Company’s subsidiary in the Netherlands, which has shown recent profitability. The balance of the valuation allowance applies to certain foreign deferred tax assets and certain other deferred tax assets that will likely not result in a tax benefit. The net valuation allowance decreased by $5,363,000 in 2008, compared to 2007. This net decrease included a $6,479,000 decrease in the valuation allowance for foreign net operating loss carry-overs and other foreign deferred tax assets for which no benefit has been recognized. Included in this decrease was a release of $1,100,000 in 2008 and $3,200,000 in 2007 of valuation allowance related to the Company’s subsidiary in the Netherlands due to profitability in 2007 and 2008, and projected profitability in the future. The decrease in 2008 was partially offset by a net increase in the valuation allowance related to executive compensation deductions.

The tax provision represents effective tax rates of 26.0%, 18.5% and 23.0% of income before income taxes for the years ended November 30, 2008, 2007 and 2006, respectively.A reconciliation of income taxes provided at the effective income tax rate and the amount computed at the federal statutory income tax rate of 35.0% is as follows for the year ended November 30:

The Company files tax returns in numerous jurisdictions and is subject to audit in these jurisdictions. During the year ended November 30, 2008, the Company was audited by the Internal Revenue Service (“IRS”) for 2005 and 2006, with no material assessment; and the statute of limitations for 2004 expired. Although the 2005 and 2006 examinations were completed, the statutes are still open for 2005 and forward. In addition, the financial statements reflect settlements with other local and foreign jurisdictions. The net impact to the Company’s financial statements as a result of these federal, foreign and local jurisdiction settlements was a reduction of $2,920,000 in income taxes payable.

During the year ended November 30, 2007, the Company was not under federal audit; and the statute of limitations for 2003 expired. In 2006, the IRS finalized its examination of the Company’s 1996 through 1998 federal income tax returns as well as its returns for 1999 through 2002. The results of these examinations, which included a concurrent review of the Company’s claims for research and development credits for tax years 1998-2000, are reflected in the financial statements. In addition, the financial statements reflect settlements with other local and foreign jurisdictions. The net impact to the Company’s financial statements as a result of these federal, foreign and local jurisdiction settlements was a reduction of $7,233,000 in income taxes payable in 2006.

The Company intends to permanently reinvest its unrepatriated foreign earnings. The cumulative amount of undistributed earnings of foreign subsidiaries was $94,000,000 at November 30, 2008. The Company has not provided deferred taxes on the earnings, and the additional U.S. income tax on the unremitted foreign earnings, if repatriated, may be offset in whole or in part by foreign tax credits.

Prior to December 1, 2007, the Company recorded reserves related to uncertain tax positions as a current liability. Upon adoption of FIN No. 48, the Company reclassified tax reserves related to uncertain tax positions for which a cash payment is not expected within the next 12 months to noncurrent liabilities. The Company’s adoption of FIN No. 48 did not require a cumulative adjustment to the opening balance of retained earnings.

A reconciliation of unrecognized tax benefits from December 1, 2007 to November 30, 2008 follows:

At November 30, 2008, the total amount of gross unrecognized tax benefits, excluding interest, was $7,416,000. This amount is not reduced for offsetting benefits in other tax jurisdictions and for the benefit of future tax deductions that would arise as a result of settling such liabilities as recorded. Of this amount, $3,951,000 would reduce the Company’s income tax expense and effective tax rate, after giving effect to offsetting benefits from other tax jurisdictions and resulting future deductions. At December 1, 2007, the total amount of gross unrecognized tax benefits, excluding interest,was $13,102,000.

The Company anticipates that it is reasonably possible that the total amount of unrecognized tax benefits may significantly change within the succeeding 12 months as a result of the expiration of certain state statutes of limitations for examination and the settlement of certain state audits. The Company estimates that these events could reasonably result in a possible decrease in unrecognized tax benefits of $1,233,000.

The Company accrues interest and penalties related to unrecognized tax benefits as income tax expense. Accruals totaling $1,098,000 were recorded as a liability in the Company’s consolidated balance sheet at November 30, 2008, compared to $1,415,000 as of December 1, 2007.

The Company’s federal income tax returns remain subject to examination for 2007 and forward. The Company files multiple state income tax returns, including California, Hawaii, Arizona and Texas, with open statutes ranging from 2000 through 2008. The Company also files multiple foreign income tax returns and remains subject to examination in multiple foreign jurisdictions, including the Netherlands, Brazil, Singapore and Malaysia, for years ranging from 1996 through 2008.