Income Taxes

9 Months Ended

Mar. 30, 2013

Income Taxes [Abstract]

INCOME TAXES

10. INCOME TAXES

Accounting for Uncertainty in Income Taxes

The Company’s total amount of unrecognized tax benefits as of March 30, 2013 was $2,697,000. $2,298,000 of this amount would affect the Company’s tax rate if recognized. In addition, as of March 30, 2013 the Company had accrued $319,000 for any interest and penalties related to unrecognized tax benefits.

The Company’s effective tax rate may differ from the federal statutory rate primarily due to state income taxes, stock-based compensation from incentive stock options, the employee stock purchase plan and foreign non-qualified stock options, differing tax rates in income-earning foreign jurisdictions, and the inability to utilize losses in certain foreign entities to offset domestic income.

The Company is subject to examination by federal, foreign, and various state jurisdictions for the years 2006 through 2012. The Company is currently under examination of the federal tax returns for fiscal 2010 and 2011 by the Internal Revenue Service.

Income Tax Expense

In fiscal 2013, we began implementation of an operating structure to more efficiently align the Company's transaction flows with the Company's geographic business operations. We have foreign sales offices in Korea, Taiwan, Japan, Singapore and Hong Kong, manufacturing operations in Taiwan and China, and research and development centers in Hong Kong and China. Revenues from non-U.S. regions account for over 90% of all revenue. In addition, nearly all of our suppliers are located in the Asia Pacific region. Based on these factors we have formed new legal entities and begun realigning existing ones, completed the intercompany transfer of intellectual property rights, inventory and fixed assets across different tax jurisdictions, and implemented intercompany intellectual property licensing agreements between our U.S. and foreign entities. These actions have resulted in a gain for tax purposes, for which we recorded a $5.0 million tax provision during the nine months ended March 30, 2013.

Income tax expense for the nine months ended March 30, 2013 and March 31, 2012 was $5.7 million and $123,000, respectively, and was comprised of domestic federal and state income tax and foreign income and withholding tax. The income tax expense for the nine months ended March 30, 2013 included the $5.0 million tax provision discussed above. As of March 30, 2013, the Company has recorded a valuation allowance of $4.3 million against certain of its deferred tax assets.