NOTE 15: 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						Nine-months Ended
	Sept. 29, 2013			Sept. 30, 2012			Sept. 29, 2013			Sept. 30, 2012
Income tax at federal statutory rate		35	%		35	%		35	%		35	%
State income taxes, net of federal benefit		1			1			1			1
Foreign tax rate differential		(17	)		(15	)		(17	)		(15	)
Discrete events		(6	)		(2	)		(3	)		(1	)

Income tax provision		13	%		19	%		16	%		20	%

The effective tax rate for 2013 included the impact of the following discrete tax events: (1) a decrease in tax expense of $1,790,000 recorded in the third quarter from the expiration of statutes of limitations for certain reserves for income tax uncertainties, (2) an increase in tax expense of $267,000 recorded in the third quarter from the final true-up of the prior year’s tax accrual upon filing the actual tax returns, and (3) a decrease in tax expense of $555,000 recorded in the first quarter from 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. These discrete tax events decreased the effective tax rate from a provision of 19% to a provision of 13% for the three-month period in 2013 and decreased the effective tax rate from a provision of 19% to a provision of 16% for the nine-month period in 2013.

The effective tax rate for 2012 included the impact of the following discrete tax events: (1) a decrease in tax expense of $441,000 recorded in the third quarter from the expiration of statutes of limitations for certain reserves for income tax uncertainties and (2) an increase in tax expense of $84,000 recorded in the third quarter from the final true-up of the prior year’s tax accrual upon filing the actual tax returns. These discrete tax events decreased the effective tax rate from a provision of 21% to a provision of 19% for the three-month period in 2012 and decreased the effective tax rate from a provision of 21% to a provision of 20% for the nine-month period in 2012.

During the nine-month period ended September 29, 2013, the Company recorded a $679,000 decrease in liabilities, net of deferred tax benefit, for uncertain tax positions that were recorded as income tax benefit, of which $1,597,000 of income tax benefit was recorded in the three-month period ended September 29, 2013. Estimated interest and penalties included in these amounts totaled $834,000 for the nine-month period ended September 29, 2013, of which $911,000 was recorded in the three-month period ended September 29, 2013.

The Company’s reserve for income taxes, including gross interest and penalties, was $4,390,000 as of September 29, 2013, all of which was classified as noncurrent. The amount of gross interest and penalties included in these balances was $297,000. 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 $361,000 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 $450,000 to $550,000 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 2010 through 2012 remain open to examination by various taxing authorities, while the tax years 2009 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.