Note 7—Income Taxes

The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company's income (loss) before taxes and the provision for (benefit from) income taxes is generated outside of Switzerland.

Income (loss) before income taxes for the fiscal years 2014, 2013 and 2012 is summarized as follows (in thousands):

	Years Ended March 31,

	2014		2013(1)			2012(1)
			As Revised			As Restated
Swiss	$	49,503	$	(53,004	)	$	31,045
Non-Swiss		28,079		(200,324	)		93,282


Income (loss) before taxes	$	77,582	$	(253,328	)	$	124,327

(1): During fiscal year 2014, the Company determined that Swiss loss before taxes reported previously as ($121.8) million and ($65.2) million in fiscal years 2013 and 2012, respectively, was overstated by $71.0 million in 2013 and $64.5 million in 2012 and Non-Swiss income (loss) before taxes previously reported as ($129.3) million and $157.8 million for 2013 and 2012 was understated by $71.0 million in 2013 and overstated by $64.5 million in 2012. The overstatement and understatement is due to the elimination of Swiss loss related to stock equity plans were erroneously presented as Non-Swiss in each year. In addition, Swiss loss before taxes increased by ($2.2) million and decreased by $31.7 million in fiscal year 2013 and 2012, respectively to reflect adjustments from the revision and restatement of the respective financial statements.

The provision for (benefit from) income taxes is summarized as follows (in thousands):

	Years Ended March 31,

	2014			2013			2012
				As Revised			As Restated
Current:
Swiss	$	127		$	672		$	401
Non-Swiss		8,580			(23,146	)		24,312
Deferred:
Swiss		—			—			(254	)
Non-Swiss		(5,429	)		(3,336	)		(4,369	)


Provision for (benefit from) income taxes	$	3,278		$	(25,810	)	$	20,090

The difference between the provision for (benefit from) income taxes and the expected tax provision (benefit) at the statutory income tax rate of 8.5% is reconciled below (in thousands):

	Years Ended March 31,

	2014			2013			2012
				As Revised			As Restated
Expected tax provision (benefit) at statutory income tax rates	$	6,594		$	(21,533	)	$	10,568
Income taxes at different rates		497			5,714			2,875
Research and development tax credits		(1,393	)		(3,302	)		(1,666	)
Foreign tax credits		—			(1,535	)		—
Stock-based compensation		1,608			1,643			2,696
Valuation allowance		182			3,809			(104	)
Impairment		—			18,419			—
Restructuring charges		1,174			4,336			—
Tax reserves (releases), net		(4,660	)		1,935			6,555
Audit settlement		(400	)		(35,608	)		—
Other, net		(324	)		312			(834	)


Provision for (benefit from) income taxes	$	3,278		$	(25,810	)	$	20,090

The federal research tax credit in the United States has expired as of December 31, 2013. The income tax expense for the fiscal year ended March 31, 2014 reflected a $0.8 million tax benefit for research tax credits.

Deferred income tax assets and liabilities consist of the following (in thousands):

	March 31,

	2014			2013(1)
				As Revised
Deferred tax assets:
Net operating loss carryforwards	$	9,421		$	13,279
Tax credit carryforwards		13,241			13,746
Accruals		48,153			44,700
Depreciation and amortization		4,781			4,453
Share-based compensation		15,304			17,147


Gross deferred tax assets		90,900			93,325
Valuation allowance		(4,872	)		(6,014	)


Gross deferred tax assets after valuation allowance		86,028			87,311
Deferred tax liabilities:
Acquired intangible assets and other		(8,436	)		(11,951	)


Gross deferred tax liabilities		(8,436	)		(11,951	)


Deferred tax assets, net	$	77,592		$	75,360

(1): Deferred tax assets and liabilities as of March 31, 2013 were adjusted to reflect the tax impact from the revision of the financial statement. In addition, during fiscal year 2014, the Company determined that a deferred tax liability related to U.S. flow-through investment of $0.9 million was erroneously presented as a deferred tax asset associated with "Accruals" as of March 31, 2013. The amount was properly reclassed from "Accruals" to "Acquired intangible assets and others" above. The reclassification adjustment has no impact in the Company's Consolidated Statement of Operations, Consolidated Balance Sheet and Statement of Cash Flows.

Management regularly assesses the ability to realize deferred tax assets recorded in the Company's entities based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

The Company had a valuation allowance of $4.9 million at March 31, 2014, decreased from $6.0 million at March 31, 2013 primarily due to decrease in valuation allowance of $1.3 million for foreign tax credit carryforwards in the United States. The Company elected to deduct foreign taxes in lieu of tax credits in its fiscal year 2013 federal tax return in the United States. The Company had a valuation allowance of $2.6 million as of March 31, 2014 against deferred tax assets in the state of California of the United States. The remaining valuation allowance primarily represents $1.7 million for capital loss carryforwards in the United States and $0.6 million for various tax credit carryforwards. The Company determined that it is more likely than not that the Company would not generate sufficient taxable income in the future to utilize such deferred tax assets.

Deferred tax assets relating to tax benefits of employee stock grants have been reduced to reflect settlement activity in fiscal years 2014 and 2013. Settlement activity of grants in fiscal years 2014 and 2013 resulted in a "shortfall" in which tax deductions were less than previously recorded share-based compensation expense. The Company recorded a shortfall to equity of $2.8 million and $4.6 million, respectively, in fiscal years 2014 and 2013.

As of March 31, 2014, the Company had foreign net operating loss and tax credit carryforwards for income tax purposes of $196.0 million and $35.7 million, respectively, of which $136.2 million of the net operating loss carryforwards and $22.7 million of the tax credit carryforwards, if realized, will be credited to equity since they have not met the applicable realization criteria. Unused net operating loss carryforwards will expire at various dates in fiscal years 2016 to 2034. Certain net operating loss carryforwards in the United States relate to acquisitions and, as a result, are limited in the amount that can be utilized in any one year. The tax credit carryforwards will begin to expire in fiscal year 2019.

As of March 31, 2014, the Company had capital loss carryforwards of $4.6 million. The loss will begin to expire in fiscal year 2016.

Swiss income taxes and non-Swiss withholding taxes associated with the repatriation of earnings or for other temporary differences related to investments in non-Swiss subsidiaries have not been provided for, as the Company intends to reinvest the earnings of such subsidiaries indefinitely or the Company has concluded that no additional tax liability would arise on the distribution of such earnings. If these earnings were distributed to Switzerland in the form of dividends or otherwise, or if the shares of the relevant non-Swiss subsidiaries were sold or otherwise transferred, the Company may be subject to additional Swiss income taxes and non-Swiss withholding taxes. As of March 31, 2014, the cumulative amount of unremitted earnings of non-Swiss subsidiaries was $157.4 million. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

The Company follows a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

As of March 31, 2014 and March 31, 2013, the total amount of unrecognized tax benefits due to uncertain tax positions was $91.0 million and $95.4 million, respectively, of which $86.1 million and $90.3 million would affect the effective income tax rate if recognized, respectively.

As of March 31, 2014, the Company had $93.1 million in non-current income taxes payable and $0.3 million in current income taxes payable, including interest and penalties, related to our income tax liability for uncertain tax positions. As of March 31, 2013, the Company had $98.8 million in non-current income taxes payable.

The aggregate changes in gross unrecognized tax benefits in fiscal years 2014, 2013 and 2012 were as follows (in thousands):


March 31, 2011 (As Restated)	$	130,498
Lapse of statute of limitations		(6,760	)
Decreases in balances related to tax positions taken during prior years		(1,200	)
Increases in balances related to tax positions taken during the year		14,350


March 31, 2012 (As Restated)	$	136,888
Lapse of statute of limitations		(6,490	)
Settlements with tax authorities		(42,770	)
Decreases in balances related to tax positions taken during prior years		(1,500	)
Increases in balances related to tax positions taken during the year		9,570


March 31, 2013 (As Revised)	$	95,698
Lapse of statute of limitations		(12,514	)
Settlements with tax authorities		(100	)
Decreases in balances related to tax positions taken during prior years		(778	)
Increases in balances related to tax positions taken during the year		8,740


March 31, 2014	$	91,046

The Company recognizes interest and penalties related to unrecognized tax positions in income tax expense. The Company recognized $1.1 million, $1.0 million and $1.2 million in interest and penalties in income tax expense during fiscal years 2014, 2013 and 2012, respectively. As of March 31, 2014, 2013 and 2012, the Company had $5.6 million, $6.6 million and $7.5 million of accrued interest and penalties related to uncertain tax positions, respectively.

The Company files Swiss and foreign tax returns. For all these tax returns, the Company is generally not subject to tax examinations for years prior to fiscal year 2001. The Company is under examination and has received assessment notices in other tax jurisdictions. At this time, the Company is not able to estimate the potential impact that these examinations may have on its income tax expense. If the examinations are resolved unfavorably, there is a possibility they may have a material negative impact on its results of operations.

Although the Company has adequately provided for uncertain tax positions, the provisions on these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. During fiscal year 2015, the Company will continue to review its tax positions and provide for or reverse unrecognized tax benefits as issues arise. During the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S. dollar as compared to foreign currencies. Excluding these factors, uncertain tax positions may decrease by as much as $16.0 million to $18.3 million primarily from the lapse of the statutes of limitations in various jurisdictions during the next 12 months.