Income Taxes

The components of income (loss) before income taxes and the income tax expense (benefit) were as follows:



	Fiscal Year Ended
(in thousands)	March 29, 2015			March 30, 2014			March 31, 2013
Income (loss) before income taxes from continuing operations:
United States	$	6,113		$	8,634		$	(18,083	)
Foreign	109,825			103,660			18,674
Income before income taxes	$	115,938		$	112,294		$	591
Income tax expense (benefit) from continuing operations:
Current:
United States	$	—		$	(118	)	$	(49	)
State	47			35			128
Foreign	1,312			867			1,368
	1,359			784			1,447
Deferred:
United States	79			240			(3,222		)
State	2			14			(345		)
Foreign	(83		)	(57		)	—
	(2		)	197			(3,567		)
Income tax expense (benefit) from continuing operations	$	1,357		$	981		$	(2,120	)

For fiscal years 2015, 2014 and 2013, there was no U.S. income tax benefit related to the exercise of certain employee stock options that decreased income taxes payable and was credited to additional paid-in capital.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities were as follows:



(in thousands)	March 29, 2015			March 30, 2014
Deferred tax assets:
Deferred income on shipments to distributors	$	3,057		$	2,666
Non-deductible accruals and reserves	9,148			10,233
Inventory related and other expenses	189			1,761
Net operating losses and credit carryforwards	122,178			114,858
Depreciation and amortization	12,274			13,725
Stock options	1,849			1,713
Other	1,737			315
Total deferred tax assets	150,432			145,271
Deferred tax liabilities:
Purchased intangibles	(564		)	(558		)
Other	(2,699		)	(3,087		)
Total deferred tax liabilities	(3,263		)	(3,645		)
Valuation allowance	(148,954		)	(143,704		)
Net deferred tax liabilities	$	(1,785	)	$	(2,078	)

The Company maintains a valuation allowance against its deferred tax assets because management is not able to conclude that it is more likely than not that these deferred tax assets will be realized. The Company reached this decision based on judgment, which included consideration of various tax planning strategies, forecasts of future taxable income, and recent operating results. Given the continued improvement in the Company’s operations combined with certain tax strategies, it is reasonably possible that within the next 12 months, positive evidence will be sufficient to release a material amount of the Company’s valuation allowance. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. The valuation allowance for deferred tax assets increased by $5.3 million and $9.1 million in fiscal 2015 and 2014, respectively.

The net deferred tax liability of $1.8 million and $2.1 million as of March 29, 2015 and March 30, 2014, respectively, relates primarily to unremitted Singapore investment earnings sourced outside Singapore.

As of March 29, 2015, the Company had federal and state net operating loss (NOL) carryforwards of approximately $82.3 million and $102.6 million, respectively, which include excess tax benefits related to stock option exercises. The federal NOL carryforwards will expire in various years from fiscal 2020 through 2035, if not utilized. The state NOL carryforwards will expire in various years from fiscal 2016 through 2035, if not utilized. The utilization of NOLs created by acquired companies is subject to annual limitations under Section 382 of the Internal Revenue Code. However, the Company does not expect that such annual limitation will impair the realization of these NOLs.

As of March 29, 2015, the Company had approximately $56.7 million of federal research and development tax credit carryforwards, and $16.8 million of foreign tax credit carryforwards. The federal research and development tax credit carryforwards will expire in fiscal years 2019 through 2035, if not utilized, and the foreign tax credit carryforwards will expire in fiscal years 2016 to 2025, if not utilized. The Company also had, as of March 29, 2015, approximately $80.8 million of state income tax credit carryforwards, of which $5.7 million will expire in fiscal years 2019 through 2035, if not utilized. The Company also had, as of March 29, 2015, approximately $9.0 million of tax credit carryforwards in foreign jurisdictions, which will expire in fiscal years 2018 through 2025.

The federal, state, and foreign NOL and tax credit carryforwards in the income tax returns filed include unrecognized tax benefits. The deferred tax assets recognized for those NOLs and tax credits are presented net of these unrecognized tax benefits.

The Company has approximately $30.5 million, tax effected, of net operating loss and tax credit carryovers related to excess stock compensation benefits, which are not recorded as deferred tax assets. These excess stock compensation benefits will be credited to additional paid-in capital when recognized.

Reconciliation between the statutory U.S. income tax rate of 35% and the effective rate is as follows:



	Fiscal Year Ended
(in thousands)	March 29, 2015			March 30, 2014			March 31, 2013
Provision (benefit) from continuing operations at 35% U.S. statutory rate	$	40,579		$	39,303		$	207
State tax, net of federal benefit	160			32			(123		)
Effect of foreign operations	(35,740		)	(33,217		)	(4,890		)
Repatriation of foreign earnings	—			5,623			1,505
Net operating losses and tax credits (benefited) not benefited	(1,067		)	(10,985		)	(3,733		)
Stock-based compensation	(2,740		)	(689		)	2,640
Other	165			914			2,274
Income tax expense (benefit) from continuing operations	$	1,357		$	981		$	(2,120	)

As a result of its international manufacturing operations, a significant portion of the Company's worldwide profits are in jurisdictions outside the United States, primarily Malaysia, which has granted the Company significant reductions in tax rates. These lower tax rates allow us to record a relatively low tax expense on a worldwide basis. The Company was granted a tax incentive in Malaysia during fiscal 2009. The tax incentive was contingent upon the Company continuing to meet specified investment criteria in fixed assets, and to operate as an APAC regional headquarters center. In the first quarter of fiscal 2012, the Company entered into an agreement with the Malaysia Industrial Development Board (MIDA), who agreed to cancel the previously granted tax incentive and entered into a new tax incentive. The updated tax incentive provides for a full tax exemption on statutory income for a period of 10 years commencing April 4, 2011. The Company is required to meet several conditions as to financial targets, investment, headcount and activities in Malaysia to retain this status. The impact of these tax incentives decreased foreign taxes by $9.7 million, $2.0 million and $4.1 million for fiscal 2015, 2014 and 2013, respectively. The benefit of the tax incentives on net income per share (diluted) was approximately $0.06, $0.01, and $0.03 for fiscal 2015, 2014 and 2013, respectively.

The Company intends to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for approximately $820.4 million of undistributed earnings of foreign subsidiaries. It is not practicable for the Company to determine the tax impact of remitting these earnings.

The Tax Increase Prevention Act of 2014 (the “Act”) was signed into law on December 19, 2014. The Act contains a number of provisions including, most notably, an extension of the US federal research tax credit through December 31, 2014. The Act did not have a material impact on the Company's effective tax rate for fiscal 2015 due to the effect of the valuation allowance on the Company's deferred tax assets.

The following tables summarize the activities of gross unrecognized tax benefits:



	Fiscal Year Ended
(in thousands)	March 29, 2015			March 30, 2014			March 31, 2013
Beginning balance	$	32,237		$	31,066		$	29,718
Increases related to prior year tax positions	549			90			532
Decreases related to prior year tax positions	(296		)	(301		)	(296		)
Increases related to current year tax positions	803			1,498			1,427
Decreases related to the lapsing of statute of limitations	(103		)	(116		)	(315		)
Ending balance	$	33,190		$	32,237		$	31,066

The amount of unrecognized tax benefits that would favorably impact the effective tax rate were approximately $0.3 million and $0.2 million as of March 29, 2015 and March 30, 2014, respectively. As of March 29, 2015, approximately $32.9 million of unrecognized tax benefits would be offset by a change in valuation allowance. The Company recognizes potential interest and penalties related to the income tax on the unrecognized tax benefits as a component of income tax expense and accrued approximately $0.1 million and zero for these items in fiscal 2015 and 2014, respectively.

As of March 29, 2015, the Company was under examination in the U.S. federal jurisdiction and in Singapore. The Company's fiscal years 2010, 2011 and 2012 are under audit by the Internal Revenue Service (IRS). The Company's fiscal years 2009 through 2012 are under audit by the Inland Revenue Authority of Singapore. Although the final outcome is uncertain, based on currently available information, the Company believes that the ultimate outcome will not have a material adverse effect on its financial position, cash flows or results of operations.

The Company believes that within the next 12 months, it is reasonably possible that a decrease of up to $1.9 million in unrecognized tax benefits may occur due to settlements with tax authorities or statute lapses.

The Company's open years in the U.S. federal jurisdiction are fiscal 2010 and later years. In addition, the Company is effectively subject to federal tax examination adjustments for tax years ended on or after fiscal year 1999, in that the Company has tax attribute carryforwards from these years that could be subject to adjustments, if and when utilized. The Company's open years in various state and foreign jurisdictions are fiscal years 2008 and later.