INCOME TAXES

The provision for income taxes from continuing operations consisted of the following:



	For the Year Ended
	June 30, 2012			June 25, 2011		June 26, 2010
	(in thousands)
Federal
Current	$	143,903		$	44,579	$	151,786
Deferred	16,767			118,351		12,340
State
Current	2,877			781		4,092
Deferred	3,523			4,204		(1,464		)
Foreign
Current	14,757			2,810		14,345
Deferred	(4,012		)	1,937		(6,175		)
	$	177,815		$	172,662	$	174,924

In addition, the Company recorded income tax of $13.6 million related to discontinued operations that was netted against income from discontinued operations.

Pretax income (loss) from continuing operations for the Company's foreign subsidiaries was approximately $348.3 million, $285.0 million and $(95.5) million for fiscal years ended June 30, 2012, June 25, 2011 and June 26, 2010, respectively.

The Company has tax holidays with respect to certain operations in Thailand that will expire at various dates between the fiscal years 2013 and 2020. The impact of the tax holidays on net income was not material for fiscal years 2012, 2011, and 2010.

As of June 30, 2012, the Company's foreign subsidiaries have accumulated undistributed earnings of approximately $58.5 million that are intended to be indefinitely reinvested outside the U.S. and, accordingly, no provision for U.S. federal and state tax has been made for the distribution of these earnings. At June 30, 2012 the amount of the unrecognized deferred tax liability on the indefinitely reinvested earnings was $8.7 million.

The provision for income taxes for continuing operations differs from the amount computed by applying the statutory rate as follows:



	For the Year Ended
	June 30, 2012		June 25, 2011		June 26, 2010

Federal statutory rate	35.0	%	35.0	%	35.0	%
State tax, net of federal benefit	1.1		0.7		0.4
General business credits	(0.5	)	(1.5	)	(1.2	)
Domestic production deduction benefit	—		(0.1	)	(2.1	)
Foreign earnings and losses taxed or benefitted at different rates	(3.9	)	(4.6	)	21.0
Stock-based compensation	2.3		1.3		3.0
Executive compensation	—		0.1		0.1
Release of unrecognized tax benefits	(0.4	)	(4.1	)	—
Interest accrual for unrecognized tax benefits	0.6		(1.6	)	0.9
Other	(0.8	)	0.9		1.2

Income tax rate	33.4	%	26.1	%	58.3	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's deferred tax assets and liabilities are as follows:



	For the Year Ended
	June 30, 2012			June 25, 2011
	(in thousands)
Deferred tax assets:
Inventory valuation and reserves	$	8,160		$	11,768
Distributor related accruals and sales return and allowance accruals	16,426			21,334
Deferred revenue	1,475			2,233
Accrued compensation	44,524			56,467
Stock-based compensation	59,524			73,295
Net operating loss carryovers	40,750			20,827
Tax credit carryovers	43,005			43,285
Other reserves and accruals not currently deductible for tax purposes	17,225			10,608
Other	8,102			8,940

Total deferred tax assets	$	239,191		$	248,757

Deferred tax liabilities:
Fixed assets cost recovery, net	(260,374		)	(257,647		)
Other	(11,822		)	(12,168		)

Net deferred tax assets /(liabilities) before valuation allowance	(33,005		)	(21,058		)
Valuation allowance	(61,550		)	(44,562		)

Net deferred tax assets/(liabilities)	$	(94,555	)	$	(65,620	)

The valuation allowance increased by $17.0 million in fiscal year 2012. The increase was primarily due to a valuation allowance that was established for net operating loss carryforwards of companies acquired during the fiscal year 2012. $37.3 million of the valuation allowance is attributable to the tax benefits of income tax deductions generated by the exercise of stock options that, when realized, will be recorded as a credit to additional paid-in-capital.

As of June 30, 2012, the Company has $28.6 million of federal net operating loss carryforwards expiring at various dates between fiscal years 2024 and 2031, $63.9 million of state net operating loss carryforwards expiring at various dates through the fiscal years 2031, $102.8 million of foreign net operating losses with no expiration date, $8.1 million of state tax credit carryforwards expiring at various dates between fiscal years 2013 and 2027 and $67.3 million of state tax credit carryforwards with no expiration date.

The Company classifies unrecognized tax benefits as (i) a current liability to the extent that payment is anticipated within one year; (ii) a non-current liability to the extent that payment is not anticipated within one year; or (iii) as a reduction to deferred tax assets to the extent that the unrecognized tax benefit relates to deferred tax assets such as operating loss or tax credit carryforwards.

A reconciliation of the change in gross unrecognized tax benefits, excluding interest, penalties and the federal benefit for state unrecognized tax benefits, is as follows:



	For the Year Ended
	June 30, 2012			June 25, 2011
	(in thousands)
Balance as of beginning of year	$	117,413		$	151,464
Tax positions related to current year:
Addition	56,257			59,345
Tax positions related to prior year:
Addition	60,221			7,935
Reduction	(2,979		)	(21,399		)
Settlements	—			(16,636		)
Lapses in statutes of limitations	(2,005		)	(63,296		)

Balance as of end of year	$	228,907		$	117,413

The total amount of gross unrecognized tax benefits as of June 30, 2012 that, if recognized, would affect the effective tax rate and additional paid in capital is $218.8 million and $10.1 million, respectively.

Consistent with prior years, the Company reports interest and penalties related to unrecognized tax benefits as a component of income tax expense. The gross amount of interest and penalties recognized in income tax expense during fiscal years ended June 30, 2012, June 25, 2011, and June 26, 2010 was $7.3 million, $(17.1) million and $4.4 million, respectively, and the total amount of interest and penalties accrued as of June 30, 2012, June 25, 2011, and June 26, 2010 was $10.6 million, $3.3 million, and $20.4 million, respectively. The fiscal year 2011 interest and penalty net benefit of $17.1 million was primarily due to a $19.5 million reversal of prior year interest and penalties due to the expiration of the statute of limitations.

In fiscal year 2012 the U.S. Internal Revenue Service commenced an audit of the Company's federal corporate income tax returns for fiscal years 2009 through 2011, which is still ongoing. Management believes that it has adequately provided for any adjustments that may result from this audit.

A summary of the fiscal tax years that remain subject to examination, as of June 30, 2012, for the Company's major tax jurisdictions are:



United States - Federal	2009 - forward
United States - Various States	2008 - forward
Japan	2006 - forward
Philippines	2009 - forward
Thailand	2002 - forward
United Kingdom	2010 - forward
Ireland	2010 - forward