Note 18. Income Taxes

12 Months Ended

Mar. 31, 2013

Income Tax Disclosure [Text Block]

NOTE 18.    INCOME TAXES

The components of the provision for (benefit from) income taxes as of the dates indicated below were as follows (in thousands):

	March 31, 2013			April 1, 2012			March 27, 2011
Current:
Federal	$	(1,255	)	$	110		$	(37	)
State		(73	)		(235	)		(106	)
Foreign		114			218			388
Total current	$	(1,214	)	$	93		$	245
Deferred:
Federal	$	23		$	(39	)	$	9
State		2			(3	)		1
Total deferred	$	25		$	(42	)	$	10
Total provision for (benefit from) income taxes	$	(1,189	)	$	51		$	255

Foreign income included in consolidated pre-tax income for the periods indicated below were as follows (in thousands):

	Fiscal Years Ended
	March 31, 2013		April 1, 2012		March 27, 2011
Foreign income	$	—	$	1,243	$	786

Undistributed earnings of $6.3 million of our foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of a dividend or otherwise, we would be subject to both United States income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.

Significant components of our net deferred taxes are as follows as of the dates indicated (in thousands):

	March 31, 2013			April 1, 2012
Deferred tax assets:
Reserves and expenses not currently deductible	$	8,049		$	9,369
Net operating loss carryforwards		124,662			124,952
Tax credits		29,109			29,567
Losses on investments		2,110			2,261
Intangible assets		6,225			8,215
Deferred margin		4,158			4,723
Depreciation		604			4,058
Total deferred tax assets		174,917			183,145
Deferred tax liabilities:
Unrealized investment gain		(116	)		(247	)
Non-goodwill intangibles		(930	)		(2,349	)
Total deferred tax liabilities		(1,046	)		(2,596	)
Valuation allowance		(173,927	)		(180,579	)
Net deferred tax liabilities	$	(56	)	$	(30	)

The valuation allowance decreased $6.7 million and increased $13.9 million and $23.5 million in fiscal years 2013, 2012 and 2011, respectively.

Reconciliations of the income tax provision at the statutory rate to our provision for (benefit from) income tax are as follows as of the dates indicated (in thousands):

	March 31, 2013			April 1, 2012			March 27, 2011
Income tax benefit at statutory rate	$	593		$	(10,061	)	$	(12,395	)
State income taxes, net of federal tax benefit		60			(824	)		(997	)
Deferred tax assets not benefited		(378	)		11,967			14,599
Tax credits		(539	)		(1,021	)		(1,605	)
Stock-based compensation		258			432			751
Foreign rate differential		148			(373	)		(61	)
Prior year tax expense true-up		11			12			(24	)
Other, net		(1,342	)		(81	)		(13	)
Provision for (benefit from) income taxes	$	(1,189	)	$	51		$	255

As of March 31, 2013, our federal, state and Canada net operating loss carryforwards for income tax purposes were as follow (in thousands):

Federal net operating loss carryforwards	$	317,745
State net operating loss carryforwards	$	154,121
Canada net operating loss carryforwards	$	30,656

If not utilized, some of the federal net operating loss carryovers will begin expiring in fiscal year 2019, while the state net operating losses will begin to expire in fiscal year 2015. As of March 31, 2013, our Canadian net operating loss carryforward deferred tax asset was approximately $4.3 million. The Canadian net operating loss carryovers will begin expiring in fiscal year 2026, if not utilized.

As of March 31, 2013, our federal, state and Canada tax credit carryforwards, net of reserves, were as follows (in thousands):

Federal tax credit carryforwards	$	9,258
State tax credit carryforwards	$	18,348
Canada tax credit carryforwards	$	7,886

Federal tax credits will begin to expire in fiscal year 2019. State tax credits are carried forward indefinitely. The Canadian tax credits will begin to expire in fiscal year 2014.

Utilization of these federal and state net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

We have evaluated our deferred tax assets and concluded that a valuation allowance is required for that portion of the total deferred tax assets that are not considered more likely than not to be realized in future periods. To the extent that the deferred tax assets with a valuation allowance become realizable in future periods, we will have the ability, subject to carryforward limitations, to benefit from these amounts. Approximately $7.5 million of these deferred tax assets pertain to certain net operating loss and credit carryforwards that resulted from the exercise of employee stock options. When recognized, the tax benefit of these carryforwards is accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.

Uncertain Income Tax Benefits

A reconciliation of the beginning and ending amount of the unrecognized tax benefits during the tax year ended March 31, 2013 is as follows (in thousands):

	Amount
Unrecognized tax benefits as of March 28, 2010	$	15,863
Gross increase related to prior year tax positions		179
Gross increase related to current year tax positions		857
Lapses in statute of limitation		(185	)
Unrecognized tax benefits as of March 27, 2011		16,714
Gross decrease related to prior year tax positions		(289	)
Gross increase related to current year tax positions		578
Lapses in statute of limitation		(183	)
Unrecognized tax benefits as of April 1, 2012		16,820
Gross decrease related to prior year tax positions		(271	)
Gross increase related to current year tax positions		292
Lapses in statute of limitation		(1,376	)
Unrecognized tax benefits as of March 31, 2013	$	15,465

Of the total gross unrecognized tax benefits of $15.5 million as of March 31, 2013, $12.9 million, if recognized, would impact the effective tax rate before consideration of valuation allowance.

The total unrecognized gross tax benefits were as follow as of the dates indicated (in thousands):

	March 31, 2013		April 1, 2012
Unrecognized gross tax benefits	$	15,465	$	16,820
Less: amount used to reduce deferred tax assets		13,240		13,216
Net income tax payable(1)	$	2,225	$	3,604

(1) Included in other non-current obligations line item in consolidated balance sheet.

We believe that it is reasonably possible that the amount of gross unrecognized tax benefits related to the resolution of income tax matters could be reduced by approximately $1.4 million during the next 12 months as the statute of limitations expire.

Estimated interest and penalties related to the underpayment of income taxes were classified as a component of the provision for income taxes in the consolidated statement of operations. Accrued interest and penalties consisted of the following as of the dates indicated (in thousands):

	March 31, 2013		April 1, 2012
Accrued interest and penalties	$	228	$	295

Our major tax jurisdictions are the United States federal and various states, Canada, China and certain other foreign jurisdictions. The fiscal years 2003 through 2012 remain open and subject to examinations by the appropriate governmental agencies in the United States and certain of our foreign jurisdictions.

On November 6, 2012, California passed Proposition 39, which mandates most taxpayers to apportion their California income by using a single sales factor and requires all taxpayers to use market-based sourcing for sale receipts for tax years beginning or after January 1, 2013. The enacted law will impact Exar during fiscal year 2014.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which includes retroactive extension of the research credit from January 1, 2012 through December 31, 2013. This enacted tax law will result in an increase in Exar’s gross deferred tax asset by approximately $0.1 million, offset by a valuation allowance during the annual tax provision of 2013.