6. Income Tax

The Company’s income tax provision and related effective tax rate for the three and six month periods ended June 28, 2013 was $581,000 and 20.1% and $556,000 and 21.7%, respectively, compared to $1,658,000 and 37.3% and $3,160,000 and 29.8%, respectively for the same periods a year ago. The change in respective rates reflects, primarily, changes in the geographic mix of worldwide earnings and financial results for the three and six month periods ended June 28, 2013 compared to the same period in 2012.

Undistributed earnings of the Company’s foreign subsidiaries at June 28, 2013, are considered to be indefinitely reinvested and no provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.

The following table summarizes the activity related to the Company’s uncertain tax positions (in thousands):


	Six months ended
	June, 28, 2013			June 29, 2012
Balance as of the beginning of period	$	109		$	132
Increases (decreases) related to prior year tax positions		(22	)		22

Balance as of the end of period	$	87		$	154

The Company’s gross liability for unrecognized tax benefits as of June 28, 2013 and June 29, 2012, was $87,000 and $154,000, respectively. Increases or decreases to interest and penalties on uncertain tax positions are included in income tax provision (benefit) in the Condensed Consolidated Statements of Operations. Interest related to uncertain tax positions was $2,000 for each of the six months ended June 28, 2013 and June 29, 2012, respectively. Although it is possible some of the unrecognized tax benefits could be settled within the next twelve months, the Company cannot reasonably estimate the outcome at this time.

The determination of the Company’s tax provision is subject to judgments and estimates. The carrying value of our net deferred tax assets, which is made up primarily of tax deductions, assumes we will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, we make judgments with respect to whether we are likely to generate sufficient future taxable income to realize these assets. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position.

As of June 28, 2013, the Company maintained a full valuation allowance on one of its China subsidiaries in the amount of $851,000 as the Company believes it is more likely than not that the deferred tax asset will not be realized. In order to reverse a valuation allowance, accounting principles generally accepted in the United States of America suggests that the Company review the cumulative income/loss in recent years as well as determine the Company’s ability to generate sufficient future taxable income to realize the Company’s net deferred tax assets.

The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company’s 2010 through 2012 federal income tax returns are open to audit through the statute of limitations by the Internal Revenue Service. The Company’s 2008 through 2012 state income tax returns are open to audit by the California Franchise Tax Board. The Company is also subject to examination in various other jurisdictions for various periods. The Company is currently experiencing a tax holiday related to its Singapore subsidiary that will expire for tax years beginning January 2015. The Company’s Singapore subsidiary recorded a net profit, considered insignificant by the Company, for the quarter ended June 28, 2013.