Income Taxes

12 Months Ended

Jul. 01, 2012

Income Taxes [Abstract]

Income Taxes

Note 5—Income Taxes

Income from continuing operations before taxes and income tax provision (benefit) on income from continuing operations consists of the following:

	Year ended
	July 1, 2012		July 3, 2011			June 27, 2010
	(In thousands)
Income from continuing operations before taxes:
Domestic	$	15,366	$	7,443		$	1,243
Foreign		1,760		587			800
Total	$	17,126	$	8,030		$	2,043
Income tax provision (benefit):
Current:
Federal	$	355	$	(107	)	$	106
State		247		56			105
Puerto Rico		—		216			(257	)
Foreign		572		(142	)		297
Total		1,174		23			251
Deferred:
Federal		4,102		1,670			(92	)
State		495		4,861			(586	)
Puerto Rico		—		307			(76	)
Total		4,597		6,838			(754	)
Total income tax provision (benefit) on income from continuing operations	$	5,771	$	6,861		$	(503	)

The income tax provision (benefit) attributable to continuing operations and discontinued operations, included in the consolidated statements of operations, is as follows:

	Year ended,
	July 1, 2012		July 3, 2011		June 27, 2010
	(In thousands)
Tax provision (benefit) from:
Continuing operations	$	5,771	$	6,861	$	(503	)
Discontinued operations		—		143		(11	)
Total provision (benefit)	$	5,771	$	7,004	$	(514	)

The effective income tax rate on our continuing operations differs from the federal statutory income tax rate as follows:

	Year ended
	July 1, 2012			July 3, 2011			June 27, 2010
Federal statutory income tax expense (benefit) rate		35.0	%		35.0	%		35.0	%
Puerto Rico taxes		—			6.5			(16.3	)
State income taxes, net of federal benefit		1.3			4.9			(26.2	)
Valuation allowance- state credits, net of federal benfit		3.0			55.7			—
Foreign taxes		(0.3	)		(3.7	)		—
Federal research and development credit		(1.1	)		(6.9	)		(16.2	)
Other		(4.2	)		(6.0	)		(0.9	)
Effective income tax rate on continuing operations		33.7	%		85.5	%		(24.6	)%

The principal components of deferred tax assets and liabilities are as follows:

	July 1, 2012			July 3, 2011
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	2,804		$	8,397
Tax credit carryforwards		15,135			15,402
Reserves and accruals		18,264			8,501
Depreciation and amortization		2,408			11,830
		38,611			44,130
Valuation allowance		(7,307	)		(7,498	)
Total deferred tax assets		31,304			36,632
Deferred tax liabilities—
Unremitted foreign earnings		334			334
Net deferred tax assets	$	30,970		$	36,298

Net deferred tax assets are comprised of the following:

	July 1, 2012			July 3, 2011
	(In thousands)
Current assets	$	6,961		$	7,118
Non-current assets		24,343			29,514
Non-current liabilities		(334	)		(334	)
Net deferred tax assets	$	30,970		$	36,298

As of July 1, 2012, for federal income tax purposes, we had regular net operating loss carryforwards of approximately $10.0 million which will expire in years 2024 through 2025. We had California regular net operating loss carryforwards of approximately $6.5 million which will expire in years 2014 through 2030.

Also, we had federal research and development tax credit carryforwards of approximately $11.1 million that will expire in the fiscal years 2013 through 2032, alternative minimum tax credit carryforwards of approximately $4.5 million that have no expiration date, and approximately $1.9 million of foreign tax credits that will expire in 2016 through 2019. A total of $0.3 million of the federal research credit carryforwards and $0.1 million of the alternative minimum tax credit carryforwards are related to excess tax benefits as a result of stock option exercises, and therefore, will be recorded to additional paid-in-capital in the period in which they are realized. Additionally, for state income tax purposes, we had research and development tax credit carryforwards of approximately $13.3 million that have no expiration date.

As of July 1, 2012, the Company’s foreign subsidiaries have accumulated undistributed earnings of approximately $5.6 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.

We have provided a valuation allowance for certain deferred tax assets because we have determined that it is more likely than not that we will not have sufficient taxable income to realize these tax assets. At July 1, 2012, $1.5 million of the valuation allowance was attributable to fiscal 2008 and fiscal 2009 short-term investment losses incurred which have a limited carryforward period. For state income tax purposes, we have a $4.5 million valuation allowance related to state income tax credits primarily attributable to research and development credits that are not expected to be utilized. The valuation allowance has not changed significantly from the fiscal year 2011.

As of July 1, 2012, we had $16.1 million of unrecognized tax benefits, of which $13.7 million, if recognized, would impact our effective tax rate. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2012, 2011, and 2010, we had no interest or penalties related to unrecognized tax benefits recorded to income tax expense.

The aggregate changes in the balance of unrecognized tax benefits were as follows:

	Year ended
	July 1, 2012			July 3, 2011			June 27, 2010
	(in millions)
Beginning balance	$	16.2		$	15.4		$	14.3
Additions based on tax position related to the current year		—			0.7			0.1
Additions for tax positions of prior years		0.4			0.6			1.0
Lapse of Statute of limitations		(0.5	)		(0.5	)		—
Settlements		—			—			—
Ending balance	$	16.1		$	16.2		$	15.4

We are subject to income tax in the United States and a number of state and foreign jurisdictions. The tax years ended June 29, 2008 and onwards remain open to examination by major taxing jurisdictions in which we operate which include the United States, The State of California and Germany. We ceased operating in Puerto Rico in fiscal 2011. However, fiscal 2008 through 2011 remain open for examination and we are currently under examination in Puerto Rico for fiscal 2010.