Income Taxes

Loss from operations before income tax consists of the following (in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Income (loss) from operations before income tax:
Domestic loss	$	(35,864	)	$	(53,706	)	$	(8,976	)
Foreign income	2,669			2,740			3,901
	$	(33,195	)	$	(50,966	)	$	(5,075	)

Income tax expense (benefit) from operations consists of the following (in thousands):



	Fiscal Years Ended March 31,
	2016			2015			2014
Current:
Federal	$	(16	)	$	(17	)	$	(20	)
Foreign	(633		)	1,206			819
State	8			(1		)	6
Total Current	(641		)	1,188			805
Deferred:
Foreign	17			(96		)	(186		)
Total Deferred	17			(96		)	(186		)
	$	(624	)	$	1,092		$	619

The provision (benefit) for income taxes reconciles to the amount computed by applying the federal statutory rate of 35% to the loss before income taxes as follows for operations (in thousands):



	Fiscal Years Ended March 31,
	2016					2015					2014
	$			%		$			%		$			%
Tax at federal statutory rate	$	(11,618	)	35	%	$	(17,838	)	35	%	$	(1,776	)	35	%
Other permanent differences	1,293			(4	)	979			(2	)	(6,561		)	129
State taxes, net of federal benefit	(1,291		)	4		(2,345		)	5		(214		)	4
Federal tax credits	(1,790		)	5		(1,553		)	3		(1,778		)	35
State tax credits	(403		)	1		(460		)	1		(444		)	9
Veloce accrued liability	—			—		3,655			(7	)	16,740			(330	)
Refundable credits	(17		)	—		(16		)	—		—			—
Sale of TPack	—			—		—			—		2,688			(53	)
Valuation allowance	13,102			(43	)	18,445			(36	)	(7,809		)	154
Change in contingency reserve	(612		)	2		(67		)	—		(64		)	1
Other	712			2		292			(1	)	(163		)	4
	$	(624	)	2	%	$	1,092		(2	)%	$	619		(12	)%

The Company's income tax expense (benefit) is primarily impacted by foreign taxes. The decrease in tax expense was primarily related to the reversal of a foreign tax liability that was recorded in prior year. The reversal was based on the favorable ruling from the local tax authority. The decrease in tax expense was also due to the release of an uncertain tax liability reserve as the uncertainty was resolved in the current year.

As of March 31, 2016, income taxes have not been provided for approximately $14.9 million of cumulative undistributed earnings of our foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in operations outside of the U.S. If these earnings were distributed to the U.S., the Company may be subject to U.S. income taxes and foreign withholding taxes. Determination of the amount of any unrecognized deferred income tax liability on the excess of the financial reporting basis over the tax basis of investments in foreign subsidiaries is not practicable because of the complexities of the hypothetical calculation.

Significant components of the Company’s deferred tax assets for federal and state income taxes are as shown below (in thousands):



	Fiscal Years Ended March 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	356,106		$	315,773
Research and development credit carryforwards	84,259			81,546
Inventory write-downs and other reserves	7,656			7,642
Capitalization of research and development costs	7,348			6,245
Goodwill	2,207			3,147
Intangible assets	19,142			26,031
Investment impairment	3,583			3,982
Stock-based compensation	5,188			28,921
Depreciation and amortization	2,548			1,903
Other	1,174			970
Total deferred tax assets	489,211			476,160
Valuation allowance	(488,646		)	(475,545		)
Net deferred tax asset	$	565		$	615

At March 31, 2016, the Company has federal and state R&D tax credit carryforwards of approximately $64.6 million and $30.3 million, respectively, which begin to expire in the fiscal year ending March 31, 2019 unless previously utilized. The Company also has federal and state net operating loss carryforwards of $1,233.0 million and $447.0 million, respectively, which will begin to expire in fiscal year 2018 and fiscal year 2017, respectively. Federal and state laws impose restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an “ownership change” for tax purposes as defined by Section 382 of the Internal Revenue Code. The future utilization of our research and development credit carryforwards and net operating loss carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or may occur in the future. The Tax Reform Act of 1986 (the "Act") limits a company’s ability to utilize certain tax credit carryforwards and net operating loss carryforwards in the event of a cumulative change in ownership in excess of 50% as defined in the Act.

The Company recognizes excess tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from excess tax benefits occurring from April 1, 2006 onward. A windfall tax benefit occurs when the actual tax benefit realized upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award.

The Company has established a valuation allowance against most of its net deferred tax assets due to uncertainty regarding their future realization. In assessing the realizability of its deferred tax assets, management considers cumulative losses, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. Based on the projections for future taxable income over the periods in which the deferred tax assets are realizable and the full utilization of the Company’s loss carryback potential, management concluded that a valuation allowance should be recorded in 2016, 2015 and 2014 against most of its deferred tax assets. The Company has recorded a valuation allowance of $488.6 million as of March 31, 2016 to reflect the estimated amount of deferred tax assets that may not be realized. The Company increased its valuation allowance by $13.2 million for the year ended March 31, 2016.

The following is a tabular reconciliation of the unrecognized tax benefits activity (in thousands):



	March 31,
	2016			2015		2014
Opening Balance	$	45,079		$	44,231	$	43,382
Gross increases - tax positions in prior periods	—			122		60
Gross decreases - tax positions in prior period	(916		)	—		—
Gross increases - current-period tax positions	772			726		789
Ending Balance	$	44,935		$	45,079	$	44,231

If recognized, none of the $44.9 million of unrecognized tax benefits would affect the Company’s effective tax rate due to the Company's full valuation allowance.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in income tax expense. As of March 31, 2016, the Company has no accrued interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions.

The Company’s U.S. federal tax returns for tax years subsequent to 2012 are subject to examination by the Internal Revenue Service and its state income tax returns subsequent to 2011 are subject to examination by state tax authorities. Net operating losses from years for which the statute of limitations has expired (2011 and prior for federal and 2010 and prior for state) could be adjusted in the event that the taxing jurisdictions challenge the amounts of net operating loss carryforwards from such years. With few exceptions, the Company is no longer subject to foreign examinations by the tax authorities for years before 2011.

The Company does not foresee significant changes to its unrecognized tax benefits within the next twelve months.