8.INCOME TAXES

The domestic and foreign components of income before income taxes are (in thousands):



	Fiscal Years Ended
	March 30, 2013		March 31, 2012		April 2, 2011
United States	$	2,600	$	1,952	$	15,663
Foreign		2,154		2,893		2,117
Income before provision for income taxes		4,754		4,845		17,780

The components of the provision for income taxes are as follows (in thousands):



	Fiscal Years Ended
	March 30, 2013		March 31, 2012		April 2, 2011
Current:
Federal	$	799	$	375	$	4,416
State		8		115		(33)
Non-US		441		573		716
		1,248		1,063		5,099
Deferred:
Federal		(730)		(915)		(593)
State		1		(22)		998
Non-US		(12)		(30)		(6)
		(741)		(967)		399
Total provision for income taxes	$	507	$	96	$	5,498

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes as follows:



	Fiscal Years Ended
	March 30, 2013		March 31, 2012		April 2, 2011
Tax provision at US statutory rates	34	%	35	%	35	%
State tax provision, net of Federal benefits	(1)		(9)		7
Tax credits	(15)		(10)		(3)
Domestic production activity deduction	-		-		(5)
Foreign earnings tax differential	(12)		(10)		-
Tax exempt investment income	(3)		(3)		(1)
Stock based compensation	1		1		-
Other	7		(2)		(2)
Effective income tax rate	11	%	2	%	31	%

On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012 (the "2012 Act"). Under prior law, a tax payer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2011. The 2012 Act extends the research credit for two years to December 31, 2013. The extension of the research credit is retroactive and includes amounts paid or incurred after December 31, 2011. As a result of the retroactive extension, the Company recognized a tax benefit of approximately $100,000. The tax benefit was recognized in the fourth quarter of fiscal 2013.

Foreign Currency Remeasurement

The functional currency of the Company’s Hong Kong subsidiary is the U.S. dollar. As such, gains and losses resulting from remeasurement from local currency to the U.S. dollar are included in other income (expense), net. Such gains and losses have not been material for any period presented.

Significant components of deferred tax assets are as follows (in thousands):



	Fiscal Years Ended
Deferred tax assets:		March 30, 2013		March 31, 2012
Inventory write downs	$	3,128	$	3,277
Temporary investment impairment		307		757
Accrued liabilities		3,496		3,206
Depreciation and amortization		615		660
Stock compensation		4,065		3,444
Deferred revenue on shipments to distributors		432		528
Allowances for doubtful accounts and sales returns		93		138
Accrued employee benefits		592		673
Other		1,724		1,295
Gross deferred tax assets		14,452		13,978
Valuation allowance		(1,276)		(947)
Deferred tax assets, net of valuation allowance		13,176		13,031
Deferred tax liabilities		(115)		(127)
Net deferred tax assets	$	13,061	$	12,904

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management has concluded it is more likely than not that the Company will realize the benefit of its net deferred tax assets. Management reached this conclusion based on its current expectations of future income. Therefore, the amount of the deferred tax asset that is realizable could be reduced in the near term if actual results differ significantly from estimates of future taxable income.

Changes in valuation allowance for the fiscal years ended March 30, 2013, March 31, 2012, and April 2, 2011 are as follows (in thousands):



Description	Balance at Beginning of Period		Charge⁽¹⁾		Deductions and Other		Balance at End of Period
Twelve months ended March 30, 2013	$	947	$	557	$	(228)	$	1,276
Twelve months ended March 31, 2012	$	424	$	419	$	104	$	947
Twelve months ended April 2, 2011	$	816	$	1,161	$	(1,553)	$	424

^{_________________________}

⁽¹⁾A valuation allowance was placed on the Company’s California deferred tax assets.

Management’s intent is to indefinitely reinvest any undistributed earnings from its Hong Kong subsidiary. Accordingly, no provision for Federal and state income taxes has been provided thereon, nor is it practical to determine the amount of this liability. Upon distribution of those earnings in the form of dividends or otherwise, the Company will be subject to United States income taxes.

In fiscal years 2013 and 2012, the Company reversed tax benefits of $166,000 and $82,000, respectively, which had been previously recorded on the recognition of stock-based compensation expense for non-qualified stock options, whereas in fiscal 2011 the Company had recorded such tax benefits of $13,000. Such benefits were recognized as an increase to shareholders’ equity while the fiscal 2013 and 2012 reversal was recognized as a decrease to shareholders’ equity.

During the year ended March 30, 2013, the liability for uncertain tax positions less accrued interest and penalties decreased from $3,661,000 to $3,160,000. Of the total $3,160,000 of unrecognized tax benefits, $2,275,000 represents the amount that if recognized, would favorably affect the effective income tax rate in any future periods. The Company cannot conclude on the range of cash payments that will be made within the next twelve months associated with its uncertain tax positions.

A reconciliation of the April 2, 2011 through March 30, 2013 amount of unrecognized tax benefits (“UTB”) is as follows (in thousands):

	Fiscal Years Ended
	March 30, 2013		March 31, 2012		April 2, 2011
Beginning balance	$	3,661	$	4,052	$	4,142
(Decreases) increases of unrecognized tax benefits related to prior years' UTB		(34)		(3)		141
Increases of unrecognized tax benefits related to current year's UTB		200		174		481
Reductions to unrecognized tax benefits related to lapsing statute of limitations		(667)		(562)		(712)
Ending balance	$	3,160	$	3,661	$	4,052

The Company records interest and penalties related to unrecognized tax benefits in income tax expense. For the year ended March 30, 2013, the Company recorded estimated reduction in interest of $56,000 and estimated penalties of $6,000, which accumulated to balances of $438,000 for estimated interest and $158,000 for estimated penalties related to uncertain tax positions.

The liability for uncertain tax positions, including accrued interest and accrued penalties as of March 30, 2013 was $1,100,000 related to tax positions for which it is reasonably possible that the statute of limitations will expire in various jurisdictions within the next twelve months.

The Company and its subsidiaries are subject to taxation in various jurisdictions, including federal, state and foreign. The Company’s federal and state income tax returns are generally not subject to examination by taxing authorities for fiscal years before 2002. The Company has filed all tax returns for jurisdictions in which the Company does business, and there are no open examinations.