NOTE 13: Taxes

A reconciliation of the United States federal statutory corporate tax rate to the Company’s effective tax rate, or income tax provision, was as follows:


	Three-months Ended						Six-months Ended
	June 30, 2013			July 1, 2012			June 30, 2013			July 1, 2012

Income tax at federal statutory rate		35	%		35	%		35	%		35	%
State income taxes, net of federal benefit		2			1			2			1
Foreign tax rate differential		(17	)		(15	)		(17	)		(15	)
2013 research and development credit		(1	)		—			(1	)		—
Discrete event - 2012 research and development credit		—			—			(1	)		—


Income tax provision		19	%		21	%		18	%		21	%

During the six-month period ended June 30, 2013, the Company recorded a $918,000 increase in liabilities, net of deferred tax benefit, for uncertain tax positions that were recorded as income tax expense, of which $274,000 was recorded in the three-month period ended June 30, 2013. Estimated interest and penalties included in these amounts totaled $76,000 for the six-month period ended June 30, 2013, of which $38,000 was recorded in the three-month period ended June 30, 2013.

The effective tax rate for the six-month period ended June 30, 2013 includes a discrete event recorded in the first quarter of 2013 for the retroactive application of the 2012 research and development credit. The American Taxpayer Relief Act of 2012 was passed by Congress and signed into law on January 1, 2013. The provisions under this law are to be applied retroactively to January 1, 2012. As a result of the law being signed on January 1, 2013, the financial impact of the retroactive provision was recorded as a discrete event in the first quarter of 2013. The Company recorded a reduction to tax expense in the first quarter of 2013 of $555,000, net of related reserves for uncertain tax positions, for the aforementioned research and development tax credit. Excluding this discrete event, the effective tax rate for the six-month period ended June 30, 2013 was 19%. There were no discrete events in the three-month period ended June 30, 2013 or in the six-month period ended July 1, 2012.

The Company’s reserve for income taxes, including gross interest and penalties, was $6,255,000 as of June 30, 2013, all of which was classified as noncurrent. The amount of gross interest and penalties included in these balances was $1,303,000. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period, less $405,000 that would be recorded through additional paid in capital. As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $1,600,000 to $1,800,000 over the next twelve months.

The Company has defined its major tax jurisdictions as the United States, Ireland, China, and Japan, and within the United States, Massachusetts and California. Within the United States, the tax years 2006 through 2012 remain open to examination by various taxing authorities due to a 2009 carryback claim, while the tax years 2008 through 2012 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates. The Company has recently been notified by the Internal Revenue Service that its U.S. Federal tax returns for years 2010 and 2011 are under audit. The Company believes it is adequately reserved for these years.