Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for the future tax consequences attributable to temporary differences between the financial statement and tax balances of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those assets and liabilities are expected to be recovered or settled. The effect on deferred taxes resulting from a change in tax rates is recognized in income in the period that includes the enactment date. When management determines that it is not more likely than not that a deferred tax asset will be fully realized, a valuation allowance is established to reduce deferred tax assets to the amount expected to be realized.

Net deferred tax assets and liabilities at March 28, 2015 and March 29, 2014 consisted of the following:



(In thousands)	2015			2014
Deferred tax assets and liabilities:
Current
Inventory valuation and warranty costs	$	10,781		$	13,650
Receivables and other current assets	(272		)	(311		)
Payroll-related accruals	1,288			1,594
Accrued liabilities	2,382			926
Deferred revenue	3,368			2,900
Other	1,029			(161		)
Total current deferred tax assets	18,576			18,598
Valuation allowance, current	(18,571		)	(18,607		)
Net current deferred tax assets (liabilities)	$	5		$	(9	)
Non-current
Deferred compensation	$	4,704		$	6,482
Intangible assets and investments	(1,677		)	2,446
Accrued liabilities	454			186
Property, plant and equipment	5,187			4,634
Other comprehensive income	(112		)	(253		)
Tax loss and credit carryforwards	59,137			42,324
Other assets	1,049			1,473
Total non-current deferred tax assets	68,742			57,292
Valuation allowance, non-current	(69,011		)	(56,588		)
Net non-current deferred tax (liabilities) assets	$	(269	)	$	704
Total deferred tax assets	$	87,318		$	75,890
Total valuation allowance	(87,582		)	(75,195		)
Net deferred tax (liabilities) assets	$	(264	)	$	695

The Company had approximately $68.5 million and $49.7 million in tax assets resulting from federal, state and foreign net operating losses and tax credits as of March 28, 2015 and March 29, 2014, respectively as follows:



(In thousands)	2015		2014
Federal net operating losses	$	19,785	$	7,691
State net operating losses	3,467		3,100
Foreign operating losses and tax credits	11,433		11,527
Federal research credits	19,670		18,332
State research credits	4,287		3,953
Federal minimum tax credit	1,049		1,106
Federal capital losses	8,855		4,024
	$	68,546	$	49,733

The federal and state net operating losses expire on various dates through fiscal 2035. The majority of the foreign tax credits expire on various dates through fiscal 2025. The federal and most of the state research credits expire on various dates through fiscal 2035. Certain state research credits and the federal minimum tax credits are available indefinitely. The state net operating losses and credits are reflected net of their federal tax impact.

A valuation allowance is required if it is more likely than not that all or a part of a deferred tax asset will not be realized in the future. A valuation allowance of $87.6 million and $75.2 million was recorded as of March 28, 2015 and March 29, 2014, respectively. The valuation allowance increased by $12.4 million in 2015 primarily due to higher net operating losses, tax credits and capital losses.

The components of income before income taxes and the (benefit from) provision for income taxes, all from continuing operations, were as follows:



(In thousands)	2015			2014			2013
Loss before income taxes:
Domestic	$	(39,656	)	$	(37,739	)	$	(16,935	)
Foreign	(3,921		)	(687		)	2,070
Total loss before income taxes	$	(43,577	)	$	(38,426	)	$	(14,865	)
Provision for (benefit from) income taxes:
Current:
U.S. federal and state	$	(983	)	$	(605	)	$	(2,978	)
Foreign	1,205			437			1,767
	222			(168		)	(1,211		)
Deferred:
U.S. federal and state	5			(26		)	40,055
Foreign	7			102			1,007
	12			76			41,062
Total provision for (benefit from) income taxes	$	234		$	(92	)	$	39,851

The portion of the tax benefit derived from stock-based compensation that is allocated as common stock was $0.0 million in 2015, 2014 and 2013.

A reconciliation of the Company’s effective tax rate to the United States federal statutory income tax rate was as follows:



	2015		2014		2013
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	(1.1	)	(0.6	)	1.1
Tax credits	4.2		3.0		11.3
Domestic production and export tax incentives	—		—		3.7
Non-U.S. income taxed at different rates	2.1		3.3		8.4
Changes in unrecognized tax benefits	(2.4	)	2.1		3.6
Change in valuation allowance	(32.3	)	(38.0	)	(327.2	)
Stock compensation	(4.2	)	(4.1	)	(3.6	)
Other, net	(2.0	)	(0.5	)	(0.4	)
	(0.7	)%	0.2	%	(268.1	)%

The Company currently benefits from a tax incentive program in Singapore pursuant to which the Company pays no Singapore income tax with respect to manufacturing income. The incentive commenced on July 1, 2006 and will continue through June 30, 2016 assuming the Company is able to satisfy applicable requirements. There is no assurance the Company will be able to satisfy these requirements and failure to meet such requirements may lead to reduction in future or past tax benefits. The Company has failed to meet certain of the associated requirements in the past, however has obtained a waiver for certain periods. The Company believes that it is more likely than not it will continue to receive the associated tax incentives and there is no indication that past benefits received would be rescinded.

The Company operates globally but considers its significant tax jurisdictions to include Canada, China, France, Japan, Korea, Singapore, Taiwan, the United Kingdom and the United States. As of March 28, 2015, the following tax years remained subject to examination by the major tax jurisdictions indicated:



Major Jurisdictions	Open Tax Years
Canada	2011 and forward
China	2005 and forward
France	2012 and forward
Japan	2008 and forward
Korea	2010 and forward
Singapore	2011 and forward
Taiwan	2010 and forward
United Kingdom	2011 and forward
United States	2004 and forward

A US federal income tax audit for the 2011 and 2012 tax period concluded in the final quarter of 2014 and resulted in a tax refund of $0.5 million.

A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits for the years ended March 28, 2015 and March 29, 2014 was as follows:



(In thousands)	2015			2014
Beginning unrecognized tax benefits balance	$	9,356		$	9,210
Gross increases for tax positions of prior years	849			44
Gross decreases for tax positions of prior years	(1,013		)	—
Gross increases for tax positions for current year	462			102
Ending unrecognized tax benefits balance	$	9,654		$	9,356

The unrecognized tax benefits were presented as long-term income taxes payable on the Consolidated Balance Sheets net of offsetting deferred tax assets. If recognized the net impact to the effective tax rate associated with the unrecognized tax benefits would be $0.2 million and $1.0 million as of March 28, 2015 and March 29, 2014, respectively. The company records interest and penalties related to unrecognized tax benefits as tax expense. The interest and penalties were minimal in 2015 and 2014. The Company expects no decrease in unrecognized tax benefits within the next twelve months from the lapse in statutes of limitation. The Company also expects the annual increases to be consistent with prior years and does not anticipate any significant changes in unrecognized tax benefits in the next twelve months as the result of examinations.