Income Taxes

Income (loss) before income taxes is as follows (in thousands):



	Year Ended
	June 30, 2012			July 3, 2011			June 27, 2010
Domestic	$	20,839		$	4,416		$	(10,024	)
Foreign	(3,771		)	(704		)	9,841
Total	$	17,068		$	3,712		$	(183	)

The provision for (benefit from) income taxes for fiscal 2012, 2011 and fiscal 2010 consisted of the following (in thousands):



	Year Ended
	June 30, 2012		July 3, 2011			June 27, 2010
Current:
Federal	$	114	$	142		$	(1,062	)
State	79		92			106
Foreign	916		1,613			596
Total current	1,109		1,847			(360		)
Deferred:
Federal	30		(639		)	—
State	—		—			—
Foreign	57		(209		)	(50		)
Total deferred	87		(848		)	(50		)
Provision (benefit) for income taxes	$	1,196	$	999		$	(410	)

The difference between the provision for income taxes and the amount computed by applying the federal statutory income tax rate (35 percent) to income (loss) before taxes is explained below (in thousands):



	Year Ended
	June 30, 2012			July 3, 2011			June 27, 2010
Tax at federal statutory rate (benefit)	$	5,974		$	1,299		$	(64	)
State income tax, net of federal benefit	51			57			66
Valuation allowance	(8,035		)	(2,492		)	607
Foreign earnings taxed at other than U.S. rates	3,607			1,576			(3,348		)
Deferred compensation	170			398			2,196
Other	(571		)	161			133
Provision for income taxes	$	1,196		$	999		$	(410	)

Significant components of the Company’s deferred tax assets are as follows (in thousands):



	June 30, 2012			July 3, 2011
Deferred tax assets:
Net operating loss carry-forwards	$	73,413		$	76,158
Tax credit carry-forwards	23,051			23,335
Depreciation	14,074			16,602
Deferred revenue (net)	8,722			9,160
Warrant amortization	5,489			6,854
Inventory write-downs	2,803			3,685
Other allowances and accruals	2,901			3,579
Other	10,895			11,912
Total deferred tax assets	141,348			151,285
Valuation allowance	(140,641		)	(150,503		)
Total net deferred tax assets	707			782
Deferred tax liabilities:
Deferred tax liability on foreign withholdings	(120		)	(93		)
Total deferred tax liabilities	(120		)	(93		)
Net deferred tax assets	$	587		$	689
Recorded as:
Net current deferred tax assets	$	644		$	681
Net non-current deferred tax assets	178			101
Net current deferred tax liabilities	(235		)	—
Net non-current deferred tax liabilities	—			(93		)
Net deferred tax assets (liabilities)	$	587		$	689

The Company's valuation allowance decreased by $9.9 million in fiscal 2012, decreased by $4.6 million in fiscal 2011, and increased by $11.5 million in fiscal 2010. The Company has provided a full valuation allowance against all of its U.S. federal and state deferred tax assets, and no valuation allowance against any of its non-U.S. deferred tax assets. The valuation allowance is determined by assessing both negative and positive evidence to determine whether it is more likely than not that the deferred tax assets are recoverable; such assessment is required on a jurisdiction by jurisdiction basis. The Company's U.S. losses in recent periods we believe represent sufficient negative evidence to require a full valuation allowance against its U.S. federal and state net deferred tax assets. This valuation allowance will be evaluated periodically and can be reversed partially or totally if business results and the economic environment have sufficiently improved to support realization of the Company's deferred tax assets.

As of June 30, 2012, the Company had net operating loss carry-forwards for federal and state tax purposes of $254.8 million and $90.0 million, respectively, of which $53.7 million and $32.3 million, respectively, represent deductions from share-based compensation for which a benefit would be recorded in additional paid-in capital when realized. The Company also had federal and state tax credit carry-forwards of $10.9 million and $18.7 million, respectively, as of June 30, 2012. Federal net operating loss carry-forwards of $254.8 million will expire between 2020 through 2030 and state net operating losses of $90.0 million will expire between 2013 through 2031, if not utilized. Federal tax credits of $10.9 million will expire beginning in 2020, if not utilized and state tax credits of $0.8 million will expire beginning in 2013, if not utilized. The additional state tax credits of $18.0 million will carry forward indefinitely.

As of June 30, 2012, the Company conducted an Internal Revenue Code Section 382 (“Sec. 382”) analysis with respect to its net operating loss and credit carry-forwards and determined that there was no limitation. It is possible that subsequent ownership changes may limit the utilization of these tax attributes.

As of June 30, 2012, the Company intends to indefinitely reinvest the earnings of certain foreign corporations. If such earnings were distributed, the Company would accrue an additional income tax expense of approximately $1.0 million.

As of June 30, 2012, the Company had $25.7 million of unrecognized tax benefits. If fully recognized in the future, $0.5 million would impact the effective tax rate, and $25.2 million would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance. It is reasonably possible that the amount of unrealized tax benefit could decrease by approximately $0.2 million during the next twelve months due to the expiration of the statute of limitations in certain foreign jurisdictions.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows (in thousands):



Balance at June 28, 2009	$	22,578
Decrease related to prior year tax positions	(98		)
Increases related to prior year tax positions	1,094
Increases related to current year tax positions	1,414
Lapse of statute of limitations	(1,078		)
Balance at June 27, 2010	$	23,910
Increase related to prior year tax positions	464
Increase related to current year tax positions	1,636
Balance at July 3, 2011	$	26,010
Decrease related to prior year tax positions	(444		)
Increase related to current year tax positions	729
Lapse of statute of limitations	(549		)
Balance at June 30, 2012	$	25,746

Estimated interest and penalties related to the underpayment of income taxes are classified as a component of tax expense in the Consolidated Statement of Operations and totaled approximately $28,000, $30,000, and $72,000 for the years ended June 30, 2012, July 3, 2011, and June 27, 2010, respectively. Accrued interest and penalties were approximately $77,000 and $222,000 as of June 30, 2012 and July 3, 2011, respectively.

In general, the Company's U.S. federal income tax returns are subject to examination by tax authorities for fiscal years 1999 forward due to net operating losses and the Company's state income tax returns are subject to examination for fiscal years 2001 forward due to net operating losses.