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 at March 30, 2013 and March 31, 2012 consisted of the following:



(In thousands)	2013			2012
Deferred tax assets and liabilities:
Current
Inventory valuation and warranty costs	$	11,779		$	5,660
Receivables and other current assets	(217		)	(257		)
Payroll-related accruals	1,901			1,367
Accrued liabilities	2,226			1,097
Deferred revenue	3,182			3,897
Other	15			642
Total current deferred tax assets	18,886			12,406
Valuation allowance, current	(17,204		)	(2,385		)
Net current deferred tax assets	$	1,682		$	10,021
Non-current
Deferred compensation	$	6,745		$	6,497
Intangible assets and investments	(1,431		)	(6		)
Accrued liabilities	523			722
Property, plant and equipment	4,967			3,975
Other comprehensive income	(302		)	(303		)
Tax loss and credit carryforwards	36,442			32,408
Other	427			1,880
Total non-current deferred tax asset	47,371			45,173
Valuation allowance, non-current	(43,605		)	(8,684		)
Net non-current deferred tax assets	$	3,766		$	36,489
Total deferred tax assets	$	66,257		$	57,579
Total valuation allowance	(60,809		)	(11,069		)
Net deferred tax assets	$	5,448		$	46,510

As of March 30, 2013, the Company had approximately $40.1 million in tax assets resulting from federal, state and foreign net operating losses and tax credits. A detailed breakdown of the net operating loss carryforwards, net of tax, and tax credits at March 30, 2013 and March 31, 2012 was as follows:



(In thousands)	2013		2012
Federal net operating losses	$	—	$	1,308
State net operating losses	2,863		3,004
Foreign operating losses and tax credits	9,923		3,099
Federal research credits	17,633		15,010
State research credits	4,439		4,630
Federal minimum tax credit	1,171		1,246
Federal capital losses	4,038		4,111
	$	40,067	$	32,408

The state net operating losses expire on various dates through fiscal 2032. The majority of the foreign tax credits expire on various dates through fiscal 2023. The federal and most of the state research credits expire on various dates through fiscal 2033. 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 by U.S. generally accepted accounting principles ("GAAP") 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 $60.8 million and $11.1 million was recorded as of March 30, 2013 and March 31, 2012, respectively. The valuation allowance increased by $49.7 million in 2013. This increase was primarily related to the valuation allowance recorded in the fourth quarter on the Company's federal and state deferred tax assets. In 2013, the Company's effective rate was significantly impacted by the valuation allowance established against our U.S. deferred tax assets and attributes. The Company recorded this valuation allowance based on its operating results, significant restructuring of the business, changes in the Company's future forecast for its U.S. jurisdiction, the Company's continued transition of production overseas, and consideration of available tax planning strategies. These factors led it to provide a valuation allowance against its deferred tax assets and attributes, which the Company believes no longer meet the threshold for recognition.

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



(In thousands)	2013			2012			2011
(Loss) income before income taxes:
Domestic	$	(16,935	)	$	(3,298	)	$	(1,118	)
Foreign	2,070			6,785			9,442
Total (loss) income before income taxes	$	(14,865	)	$	3,487		$	8,324
(Benefit from) provision for income taxes:
Current:
U.S. federal and state	$	(2,978	)	$	2,287		$	1,579
Foreign	1,767			2,093			1,214
	(1,211		)	4,380			2,793
Deferred:
U.S. federal and state	40,055			(5,221		)	(2,024		)
Foreign	1,007			(576		)	(379		)
	41,062			(5,797		)	(2,403		)
Total provision for (benefit from) income taxes	$	39,851		$	(1,417	)	$	390

The portion of the tax benefit derived from stock-based compensation that is allocated as common stock was zero in 2013, $0.5 million in 2012, and $0.3 million in 2011, respectively.

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



	2013		2012		2011
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.1		(7.7	)	0.1
Tax credits	11.3		(72.2	)	(12.1	)
Domestic production and export tax incentives	3.7		—		(2.4	)
Non-U.S. income taxed at different rates	8.4		(16.0	)	(23.3	)
Changes in unrecognized tax benefits	3.6		21.1		4.6
Change in valuation allowance	(327.2	)	(9.4	)	(0.4	)
Stock compensation	(3.6	)	5.2		2.5
Other, net	(0.4	)	3.4		0.7
	(268.1	)%	(40.6	)%	4.7	%

The Company currently benefits from a Pioneer Tax Incentive in Singapore. The incentive commenced on July 1, 2006 and will continue through June 30, 2016 assuming the Company is able to satisfy applicable requirements.

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 30, 2013, the following tax years remained subject to examination by the major tax jurisdictions indicated:



Major Jurisdictions	Open Tax Years
Canada		2011 and forward
China		2003 and forward
France		2010 and forward
Japan		2006 and forward
Korea		2008 and forward
Singapore		2009 and forward
Taiwan		2008 and forward
United Kingdom		2008 and forward
United States		2004 and forward

A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits for the years ended March 30, 2013 and March 31, 2012 was as follows:



(In thousands)	2013			2012
Beginning unrecognized tax benefits balance	$	8,613		$	8,016
Gross increases for tax positions of prior years	109			78
Gross decreases for tax positions of prior years	(581		)	—
Gross increases for tax positions for current year	1,069			519
Ending unrecognized tax benefits balance	$	9,210		$	8,613

The unrecognized tax benefits were presented as short-term and long-term income taxes payable on the Consolidated Balance Sheets as of March 30, 2013 and March 31, 2012. The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $9.2 million as of March 30, 2013 and $8.6 million at March 31, 2012. The total amount of unrecognized tax positions that offset deferred tax assets was $4.1 million and $2.7 million as of March 30, 2013 and March 31, 2012, respectively. The Company expects a $0.6 million 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.