Income Taxes

The Company expects to repatriate a portion of its foreign earnings based on increased sales growth driving additional capital requirements domestically, cash requirements for potential acquisitions and to implement certain tax strategies. The Company currently expects to repatriate approximately $9.2 million of foreign earnings in the future. As such, these earnings would be recognized in the United States, and the Company would be subject to U.S. federal income taxes and potential withholding taxes in foreign jurisdictions. Both the domestic tax and estimated withholding tax of expected repatriation of foreign earnings have been recorded as part of deferred taxes as of March 30, 2013. All other unremitted foreign earnings are expected to remain permanently reinvested for planned fixed assets purchases in foreign locations.

The Company has available approximately $5.6 million of federal research and development tax credits as of March 30, 2013. ASC 740 requires the Company to recognize in its financial statements uncertainties in tax positions taken that may not be sustained upon examination by the taxing authorities. Accordingly, as of March 30, 2013, the Company has recorded $3.0 million to date of unrecognized tax benefits associated with these federal tax credits, resulting in a net deferred tax benefit of approximately $2.6 million.

The Company has a wholly owned foreign subsidiary in Mexico that utilizes certain tax credits related to production assets that currently offset all of the income tax liabilities under general Mexican income tax law. However, the Company is subject to a Mexican business flat tax called Impuesto Empresarial a Tasa Unica (IETU). The Company anticipates that it will be taxable under IETU for the foreseeable future based on projected assets used in its operations. The effect of IETU and an associated presidential decree has been included in the effective tax rate for the nine months ended March 30, 2013.

The Company’s effective tax rate differs from the federal tax rate as follows (in thousands):



	Three Months Ended
	March 30, 2013			March 31, 2012
Federal income tax provision at statutory rate	$	1,209		$	1,551
Foreign earnings taxed at lower rates	(194		)	(83		)
Effect of foreign currency rate changes	(40		)	81
Recognition of tax credits, net	(490		)	(191		)
Change in valuation allowance	—			(445		)
Other	207			255
Income tax provision	$	692		$	1,168



	Nine Months Ended
	March 30, 2013			March 31, 2012
Federal income tax provision at statutory rate	$	4,888		$	2,973
Foreign earnings taxed at lower rates	(502		)	(357		)
Effect of foreign currency rate changes	(97		)	(70		)
Recognition of tax credits, net	(490		)	(1,660		)
Change in valuation allowance	—			(262		)
Other	390			306
Income tax provision	$	4,189		$	930

On January 2, 2013, President Obama signed the American Taxpayer Relief Act (ATRA) of 2012 into law. As part of this legislation, the federal research and development (R&D) tax credit was retroactively reinstated for qualifying costs incurred from January 1, 2012 through December 31, 2013. Previously, the Company had only recognized tax benefits associated with credits generated through December 31, 2011.

Because ATRA was signed into law after the end of the Company's second quarter, the benefits associated with R&D tax credits generated from January 1, 2012 through March 30, 2013 were recognized during the third quarter of fiscal 2013, resulting in net tax benefit of approximately $490,000 after consideration of an increase in the allowance for uncertain tax positions related to these credits in the amount of $121,000.