Income Taxes

Net deferred tax assets and liabilities at April 1, 2017 and April 2, 2016 consisted of the following:



(In thousands)	2017			2016
Deferred tax assets and liabilities:
Inventory valuation and warranty costs	$	11,246		$	11,524
Receivables and other non-current assets	(274		)	(91		)
Payroll-related accruals	7,574			6,035
Intangible assets and investments	(382		)	865
Accrued liabilities	3,006			1,626
Deferred revenue	3,478			1,746
Property, plant and equipment	5,029			5,220
Other comprehensive income	456			219
Tax loss and credit carryforwards, net of unrecognized tax benefits	73,805			67,630
Other assets	259			(219		)
Total deferred tax assets	104,197			94,555
Valuation allowance, non-current	(103,315		)	(93,875		)
Net deferred tax assets	$	882		$	680

The Company had approximately $84.7 million and $77.9 million in tax assets resulting from federal, state and foreign net operating losses and tax credits as of April 1, 2017 and April 2, 2016, respectively as follows:



(In thousands)	2017		2016
Federal net operating losses	$	35,566	$	27,430
State net operating losses	3,679		3,467
Foreign operating losses and tax credits	12,504		12,173
Federal research credits	22,590		21,336
State research credits	4,409		4,480
Federal minimum tax credit	935		990
Federal capital losses	5,015		8,022
	$	84,698	$	77,898

The federal and state net operating losses expire on various dates through fiscal 2037. The majority of the foreign tax credits expire on various dates through fiscal 2027. The federal and most of the state research credits expire on various dates through fiscal 2037. 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 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 $103.3 million and $93.9 million existed as of April 1, 2017 and April 2, 2016, respectively. The valuation allowance increased by $9.4 million in 2017 primarily due to continued net operating losses and tax credits.

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



(In thousands)	2017			2016			2015
Income (loss) before income taxes:
Domestic	$	(32,646	)	$	(13,385	)	$	(39,656	)
Foreign	(4,786		)	1,112			(3,921		)
Total loss before income taxes	$	(37,432	)	$	(12,273	)	$	(43,577	)
Provision for (benefit from) income taxes:
Current:
U.S. federal and state	$	(379	)	$	8		$	(983	)
Foreign	557			916			1,205
Total current	178			924			222
Deferred:
U.S. federal and state	—			—			5
Foreign	(201		)	(940		)	7
Total deferred	(201		)	(940		)	12
Total (benefit from) provision for income taxes	$	(23	)	$	(16	)	$	234

The portion of the tax benefit derived from stock-based compensation that is allocated as common stock was zero in 2017, 2016 and 2015.

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



	2017		2016		2015
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	(0.3	)	(0.5	)	(1.1	)
Tax credits	4.2		17.1		4.2
Domestic production and export tax incentives	(5.9	)	—		—
Non-U.S. income taxed at different rates	(0.9	)	14.3		2.1
Changes in unrecognized tax benefits	(0.3	)	(4.1	)	(2.4	)
Change in valuation allowance	(25.0	)	(51.8	)	(32.3	)
Stock compensation	(2.6	)	(10.2	)	(4.2	)
Intangible write-off	(5.1	)	—		—
Other, net	1.0		0.3		(2.0	)
Effective tax rate	0.1	%	0.1	%	(0.7	)%

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. The Company currently benefits from a tax incentive program in Singapore pursuant to which we pay no Singapore income tax with respect to our manufacturing income. The incentive period ends on June 30, 2021.

The Company provides for income taxes on its foreign subsidiaries’ taxable income based on the effective income tax rate in each respective jurisdiction. The Company provides for deferred taxes on the undistributed earnings of a subsidiary, except to the extent that the income is intended to be indefinitely reinvested or remitted in a tax-free liquidation. The foreign jurisdictions where the Company is permanently reinvested include Singapore and China (Wuhan Topwin Optoelectronics Technology Co., Ltd.). The cumulative amount of earnings upon which U.S. income taxes have not been provided was $38.6 million and $37.0 million as of April 1, 2017 and April 2, 2016, respectively. If not reinvested, the liability related to these earnings would have been $13.4 million and $12.9 million as of April 1, 2017 and April 2, 2016, respectively, which may be offset by foreign tax credits or other tax attributes.

As of April 1, 2017, the following tax years remained subject to examination by the major tax jurisdictions indicated:



Major Jurisdictions	Open Tax Years
Canada	2011 and forward
China	2007 and forward
France	2014 and forward
Japan	2010 and forward
Korea	2012 and forward
Singapore	2013 and forward
Taiwan	2012 and forward
United Kingdom	2013 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 April 1, 2017, April 2, 2016 and March 28, 2015 was as follows:



(In thousands)	2017			2016		2015
Beginning unrecognized tax benefits balance	$	10,385		$	9,654	$	9,356
Gross increases for tax positions of prior years	62			731		849
Gross decreases for tax positions of prior years	(242		)	—		(1,013		)
Gross increases for tax positions for current year	539			—		462
Ending unrecognized tax benefits balance	$	10,744		$	10,385	$	9,654

The unrecognized tax benefits were presented as long-term income taxes payable on the Consolidated Balance Sheets or netted against deferred tax assets, where applicable. If recognized, the net impact to the effective tax rate associated with the unrecognized tax benefits would be zero and $0.2 million as of April 1, 2017 and April 2, 2016, respectively. The Company records interest and penalties related to unrecognized tax benefits as tax expense. The interest and penalties were minimal in 2017, 2016 and 2015. The Company does not expect a decrease in unrecognized tax benefits within the next twelve months due to a lapse in statute of limitations. 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.