Income Taxes

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



	Fiscal Years Ended March 31,
	2014			2013			2012
Loss from operations before income tax:
Domestic loss	$	(8,976	)	$	(130,552	)	$	(78,630	)
Foreign income (loss)	3,901			(4,117		)	(3,130		)
	$	(5,075	)	$	(134,669	)	$	(81,760	)

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



	Fiscal Years Ended March 31,
	2014			2013			2012
Current:
Federal	$	(20	)	$	(1,106	)	$	147
Foreign	819			847			1,034
State	6			(129		)	60
Total Current	805			(388		)	1,241
Deferred:
Foreign	(186		)	(166		)	(313		)
State	—			—			—
Total Deferred	(186		)	(166		)	(313		)
	$	619		$	(554	)	$	928

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,
	2014					2013					2012
	$			%		$			%		$			%
Tax at federal statutory rate	$	(1,776	)	35	%	$	(47,134	)	35	%	$	(28,613	)	35	%
Tax benefit from loss from continuing operations	—			—		(925		)	1		(123		)	—
Other permanent differences	(6,561		)	129		1,195			(1	)	2,295			(3	)
State taxes, net of federal benefit	(214		)	4		(7,263		)	5		(3,937		)	5
Federal tax credits	(1,778		)	35		(1,909		)	1		(4,131		)	5
State tax credits	(444		)	9		(537		)	—		(622		)	1
Veloce accrued liability	16,740			(330	)	26,749			(20	)	24,046			(29	)
Sale of TPack	2,688			(53	)	—			—		—			—
Valuation allowance	(7,809		)	154		28,715			(21	)	11,600			(14	)
Change in contingency reserve	(64		)	1		74			—		52			—
Other	(163		)	4		481			—		361			(1	)
	$	619		(12	)%	$	(554	)	—	%	$	928		(1	)%

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



	Fiscal Years Ended March 31,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	294,910		$	310,276
Research and development credit carryforwards	79,839			78,696
Inventory write-downs and other reserves	8,068			9,046
Capitalization of research and development costs	5,915			8,038
Goodwill	4,007			7,431
Intangible assets	32,290			40,201
Investment impairment	3,494			4,958
Stock-based compensation	26,664			31,177
Depreciation and amortization	3,253			165
Other	1,182			1,056
Total deferred tax assets	459,622			491,044
Valuation allowance	(459,081		)	(490,629		)
	$	541		$	415

At March 31, 2014, the Company has federal and state R&D tax credit carryforwards of approximately $60.7 million and $29.4 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 approximately $1,137.3 million and $522.5 million, respectively, which will begin to expire in fiscal year 2018 and fiscal year 2015, 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.

As a result of the adoption of ASC 718-10, 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 2014, 2013 and 2012 against most of its deferred tax assets.

The following is a tabular reconciliation of the Unrecognized Tax Benefits activity during the fiscal year ended March 31, 2014 (in thousands):



Opening Balance	$	43,382
Gross decreases - tax positions in prior period	60
Gross increases - current-period tax positions	789
Ending Balance	$	44,231

If recognized, approximately $0.6 million of the $44.2 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, 2014, 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.

The Company’s U.S. federal income tax returns for tax years subsequent to 2010 are subject to examination by the Internal Revenue Service and its state income tax returns subsequent to 2009 are subject to examination by state tax authorities. Net operating losses from years for which the statute of limitations has expired (2009 and prior for federal and 2008 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 tax authorities for years before 2010.

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