INCOME TAXES

Income tax provision consisted of the following components (in thousands):



	Three-months Ended				Nine-months Ended
	June 29, 2012		July 1, 2011		June 29, 2012		July 1, 2011
United States income taxes	$	12,372	$	17,586	$	36,263	$	49,236
Foreign income taxes	441		2,625		3,513		4,368
Provision for income taxes	$	12,813	$	20,211	$	39,776	$	53,604

As of June 29, 2012, the United States Congress has not taken action to extend the federal tax credit available under the Internal Revenue Code for research and development. Accordingly, the income tax provision for the nine months ended June 29, 2012 does not include the impact of such research and development tax credits earned after December 31, 2011.

For the three and nine months ended June 29, 2012, the difference between the Company's effective tax rate and the 35% United States federal statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate, the recognition of research and development tax credits earned, and the domestic production activities deduction, partially offset by an increase in the Company's tax expense related to a change in the Company's reserve for uncertain tax positions. For the three and nine months ended July 1, 2011, the difference between the Company's effective tax rate and the 35% United States federal statutory rate resulted primarily from foreign earnings taxed at rates lower than the federal statutory rate and the recognition of research and development tax credits earned.

On October 2, 2010, the Company expanded its presence in Asia by launching operations in Singapore. The Company operates under a tax holiday in Singapore, which is effective through September 30, 2020. The tax holiday is conditional upon the Company's compliance with meeting certain employment and investment thresholds in Singapore. The Company continues to be in compliance with such conditions as of the date that this quarterly report on Form 10-Q was filed.

In accordance with ASC 740 Income Taxes ("ASC 740"), management has determined that it is more likely than not that a portion of the Company's prior and current year income tax benefits will not be realized. Accordingly, as of June 29, 2012, the Company has maintained a valuation allowance of $45.1 million. This valuation allowance is comprised of $31.6 million related to United States state research and experimentation tax credits, of which $5.5 million are state tax credits acquired from AATI in fiscal 2012, and $13.5 million related to the Company's foreign deferred tax assets of which $11.7 million were acquired from SiGe in fiscal 2011.

Realization of benefits from the Company's deferred tax assets, net of valuation allowance, is dependent upon generating United States source taxable income in the future. The existing valuation allowance could be reversed in the future to the extent that the related deferred tax assets no longer require a valuation allowance under the provisions of ASC 740.

The Company will continue to evaluate its valuation allowance in future periods and depending upon the outcome of that assessment, additional amounts could be reversed or recorded and recognized as an adjustment to income tax benefit or expense. Such adjustments could cause the Company's effective income tax rate to vary in future periods. The Company will need to generate $203.1 million of United States federal taxable income in future years to utilize all of the Company's net operating loss carryforwards, research and experimentation tax credit carryforwards, and deferred income tax temporary differences, net of valuation allowance, as of June 29, 2012.

During the three months ended June 29, 2012, the Company increased its gross unrecognized tax benefits by $4.0 million to $52.1 million. Of the total unrecognized tax benefits at June 29, 2012, $38.3 million would impact the effective tax rate, if recognized. The remaining unrecognized tax benefits would not impact the effective tax rate, if recognized, due to the Company's valuation allowance and certain positions which were required to be deferred. There are no positions that the Company anticipates could change within the next twelve months. The Company incurred $0.6 million of interest related to unrecognized tax benefits during the nine months ended June 29, 2012. The Company's policy is to recognize accrued interest and penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense.