6. Income Taxes

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


	Fiscal Years Ended March 31,
	2012			2011			2010
Loss from continuing operations before income tax:
Domestic income (loss)	$	(78,630	)	$	536		$	(26,229	)
Foreign income (loss)		(3,130	)		(1,143	)		2,022

	$	(81,760	)	$	(607	)	$	(24,207	)

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


	Fiscal Years Ended March 31,
	2012			2011			2010
Current:
Federal	$	147		$	(17	)	$	(10,078	)
Foreign		1,034			285			213
State		60			131			(745	)

Total Current		1,241			399			(10,610	)
Deferred:
Foreign		(313	)		—			—
State		—			—			—

Total Deferred		(313	)		—			—

	$	928		$	399		$	(10,610	)

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


	Fiscal Years Ended March 31,
	2012						2011						2010
	$			%			$			%			$			%
Tax at federal statutory rate	$	(28,613	)		35	%	$	(212	)		35	%	$	(8,473	)		35	%
Tax benefit from loss from continuing operations		(123	)		—			—			—			(10,386	)		43
Other Permanent Differences		2,295			(3	)		1,903			(314	)		1,144			(5	)
State taxes, net of federal benefit		(3,937	)		5			(30	)		5			(903	)		4
Federal tax credits		(4,131	)		5			(3,010	)		496			(1,746	)		7
State tax credits		(622	)		1			(409	)		67			(295	)		1
Veloce accrued liability		24,046			(29	)		—			—			—			—
Valuation allowance		11,600			(14	)		1,441			(237	)		9,706			(40	)
Change in contingency reserve		52			—			94			(15	)		(36	)		—
Other		361			(1	)		622			(102	)		379			(2	)

	$	928			(1	)%	$	399			(66	)%	$	(10,610	)		43	%

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


	March 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	284,210		$	278,615
Research and development credit carryforwards		78,621			74,061
Inventory write-downs and other reserves		9,748			8,459
Capitalization of research and development costs		8,451			9,071
Goodwill		8,248			9,154
Intangible assets		46,681			53,153
Investment impairment		4,083			8,748
Stock-based compensation		26,975			27,071
Other		979			589

Total deferred tax assets		467,996			468,921
Deferred tax liabilities:
Depreciation and amortization		(2,402	)		(7,155	)
Intangible assets		—			(494	)

Net deferred tax asset		465,594			461,272
Valuation allowance		(465,281	)		(461,272	)

	$	313		$	—

At March 31, 2012, the Company has federal and state R&D tax credit carryforwards of approximately $96.3 million and $51.1 million, respectively, which begin to expire in the fiscal year ending March 31, 2014 unless previously utilized. The Company also has federal and state net operating loss carryforwards of approximately $1,051.5 million and $581.9 million, respectively, which will begin to expire in fiscal year 2018 and fiscal year 2013, 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 Company has completed a Section 382 analysis regarding the limitation of net operating loss and R&D tax credit carryforwards. There were no ownership changes identified.

As a result of the adoption of ASC 718-10, the Company recognizes 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 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 2012, 2011 and 2010 against most of its deferred tax assets.

The Company adopted the provisions of ASC 740-10 as it relates to accounting for uncertainty in income taxes, on April 1, 2007. The adoption of ASC 740-10 was not material to the financial statements due to a full valuation allowance against deferred tax assets. The total amount of unrecognized tax benefits as of the date of adoption was $37.4 million, including interest and penalties.

The following is a tabular reconciliation of the Unrecognized Tax Benefits activity during the fiscal year ended March 31, 2012 (in thousands):


Opening Balance	$	40,614
Gross increases — tax positions in prior period		867
Gross increases — current-period tax positions		1,698

Ending Balance	$	43,179

If recognized, approximately $0.5 million of the $43.2 million of unrecognized tax benefits would affect the Company's effective tax rate.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in income tax expense. As of March 31, 2012, the Company has recognized $0.1 million of 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.

Effectively, all of the Company's historical tax years are subject to examination by the Internal Revenue Service and various state jurisdictions due to the generation of net operating loss and credit carryforwards. With few exceptions, the Company is no longer subject to foreign examinations by tax authorities for years before 2008.

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