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 29, 2014 and March 30, 2013 consisted of the following:



(In thousands)	2014			2013
Deferred tax assets and liabilities:
Current
Inventory valuation and warranty costs	$	13,650		$	11,779
Receivables and other current assets	(311		)	(217		)
Payroll-related accruals	1,594			1,901
Accrued liabilities	926			2,226
Deferred revenue	2,900			3,182
Other	(161		)	15
Total current deferred tax assets	18,598			18,886
Valuation allowance, current	(18,607		)	(17,204		)
Net current deferred tax (liability) assets	$	(9	)	$	1,682
Non-current
Deferred compensation	$	6,482		$	6,745
Intangible assets and investments	2,446			(1,431		)
Accrued liabilities	186			523
Property, plant and equipment	4,634			4,967
Other comprehensive income	(253		)	(302		)
Tax loss and credit carryforwards	42,324			36,442
Inventory valuation and warranty costs	1,473			—
Other	—			427
Total non-current deferred tax asset	57,292			47,371
Valuation allowance, non-current	(56,588		)	(43,605		)
Net non-current deferred tax assets	$	704		$	3,766
Total deferred tax assets	$	75,890		$	66,257
Total valuation allowance	(75,195		)	(60,809		)
Net deferred tax assets	$	695		$	5,448

The Company had approximately $49.7 million and $40.1 million in tax assets resulting from federal, state and foreign net operating losses and tax credits as of March 29, 2014 and March 30, 2013, respectively as follows:



(In thousands)	2014		2013
Federal net operating losses	$	7,691	$	—
State net operating losses	3,100		2,863
Foreign operating losses and tax credits	11,527		9,923
Federal research credits	18,332		17,633
State research credits	3,953		4,439
Federal minimum tax credit	1,106		1,171
Federal capital losses	4,024		4,038
	$	49,733	$	40,067

The federal and state net operating losses expire on various dates through fiscal 2034. The majority of the foreign tax credits expire on various dates through fiscal 2024. The federal and most of the state research credits expire on various dates through fiscal 2034. 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 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 $75.2 million and $60.8 million was recorded as of March 29, 2014 and March 30, 2013, respectively. The valuation allowance increased by $14.4 million in 2014 primarily due to higher net operating losses, tax credits and inventory reserves. In 2013, the Company recorded a $46.9 million valuation allowance against its U.S. deferred tax assets and attributes, which the Company believed no longer met the threshold for recognition. The Company recorded this valuation allowance based on its operating results, significant restructuring of the business, changes in the Company's forecast for its U.S. jurisdiction, the Company's transition of production overseas, and consideration of available tax planning strategies.

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



(In thousands)	2014			2013			2012
(Loss) income before income taxes:
Domestic	$	(37,739	)	$	(16,935	)	$	(3,298	)
Foreign	(687		)	2,070			6,785
Total (loss) income before income taxes	$	(38,426	)	$	(14,865	)	$	3,487
(Benefit from) provision for income taxes:
Current:
U.S. federal and state	$	(605	)	$	(2,978	)	$	2,287
Foreign	437			1,767			2,093
	(168		)	(1,211		)	4,380
Deferred:
U.S. federal and state	(26		)	40,055			(5,221		)
Foreign	102			1,007			(576		)
	76			41,062			(5,797		)
Total (benefit from) provision for income taxes	$	(92	)	$	39,851		$	(1,417	)

The portion of the tax benefit derived from stock-based compensation that is allocated as common stock was $0.0 million in 2014 and 2013 and $0.5 million in 2012.

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



	2014		2013		2012
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	(0.6	)	1.1		(7.7	)
Tax credits	3.0		11.3		(72.2	)
Domestic production and export tax incentives	—		3.7		—
Non-U.S. income taxed at different rates	3.3		8.4		(16.0	)
Changes in unrecognized tax benefits	2.1		3.6		21.1
Change in valuation allowance	(38.0	)	(327.2	)	(9.4	)
Stock compensation	(4.1	)	(3.6	)	5.2
Other, net	(0.5	)	(0.4	)	3.4
	0.2	%	(268.1	)%	(40.6	)%

The Company currently benefits from a tax incentive program in Singapore pursuant to which the Company pays no Singapore income tax with respect to manufacturing income. The incentive commenced on July 1, 2006 and will continue through June 30, 2016 assuming the Company is able to satisfy applicable requirements. There is no assurance the Company will be able to satisfy these requirements and failure to meet such requirements may lead to reduction in future or past tax benefits. The Company has failed to meet certain of the associated requirements in the past, however has obtained a waiver for certain periods. The Company believes that it is more likely than not it will continue to receive the associated tax incentives and there is no indication that past benefits received would be rescinded.

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 29, 2014, the following tax years remained subject to examination by the major tax jurisdictions indicated:



Major Jurisdictions	Open Tax Years
Canada	2011 and forward
China	2004 and forward
France	2011 and forward
Japan	2007 and forward
Korea	2009 and forward
Singapore	2010 and forward
Taiwan	2009 and forward
United Kingdom	2009 and forward
United States	2004 and forward

A US federal income tax audit commenced in 2014 for the 2011 and 2012 tax period. The audit was resolved in the final quarter of 2014 and resulted in a tax refund.

A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits for the years ended March 29, 2014 and March 30, 2013 was as follows:



(In thousands)	2014		2013
Beginning unrecognized tax benefits balance	$	9,210	$	8,613
Gross increases for tax positions of prior years	44		109
Gross decreases for tax positions of prior years	—		(581		)
Gross increases for tax positions for current year	102		1,069
Ending unrecognized tax benefits balance	$	9,356	$	9,210

The unrecognized tax benefits were presented as short-term and long-term income taxes payable on the Consolidated Balance Sheets. As of March 29, 2014 pursuant to ASU 2013-11, the unrecognized tax benefit was reported net of offsetting deferred tax assets. If recognized, certain of the deferred tax assets associated with the unrecognized tax benefits would be subject to our overall tax valuation allowance, resulting in a net impact to the effective tax rate of $1.0 million and $0.2 million as of March 29, 2014 and March 30, 2013, respectively. The amount of interest and penalties was zero for both March 29, 2014 and March 30, 2013. The Company expects no 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.