Note 18 - Income Taxes

12 Months Ended

Mar. 30, 2014

Income Tax Disclosure [Abstract]

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 30, 2014			March 31, 2013			April 1, 2012
Current:
Federal	$	(1,350	)	$	(1,255	)	$	110
State		(93	)		(73	)		(235	)
Foreign		(81	)		114			218
Total current	$	(1,524	)	$	(1,214	)	$	93
Deferred:
Federal	$	(6,807	)	$	23		$	(39	)
State		(147	)		2			(3	)
Total deferred	$	(6,954	)	$	25		$	(42	)
Total provision for (benefit from) income taxes	$	(8,478	)	$	(1,189	)	$	51

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

	Fiscal Years Ended
	March 30, 2014			March 31, 2013		April 1, 2012
Foreign income/(loss)	$	(307	)	$	—	$	1,243

Undistributed earnings of $5.8 million of our foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes has 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 30, 2014			March 31, 2013
Deferred tax assets:
Reserves and expenses not currently deductible	$	7,973		$	8,049
Net operating loss carryforwards		123,826			124,662
Tax credits		27,259			29,109
Losses on investments		1,832			2,110
Unrealized investment gain		80			-
Intangible assets		6,838			6,225
Deferred margin		3,968			4,158
Depreciation		642			604
Total deferred tax assets		172,418			174,917
Deferred tax liabilities:
Unrealized investment loss		—			(116	)
Non-goodwill intangibles		(6,560	)		(930	)
Total deferred tax liabilities		(6,560	)		(1,046	)
Valuation allowance		(165,924	)		(173,927	)
Net deferred tax liabilities	$	(66	)	$	(56	)

The valuation allowance decreased $8.0 million and $6.7 million in fiscal years 2014 and 2013, respectively, and increased $13.9 million in fiscal year 2012. The change in fiscal year 2014 was primarily due to release of $6.8 million valuation allowance related to Cadeka acquisition in July 2013 and release of $1.3 million reserve for uncertain tax positions related to an NOL carryback refund in the third quarter of 2014.

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 30, 2014			March 31, 2013			April 1, 2012
Income tax benefit at statutory rate	$	(937	)	$	593		$	(10,061	)
State income taxes, net of federal tax benefit		(1	)		60			(824	)
Deferred tax assets not benefited		(1,972	)		(378	)		11,967
Tax credits		(757	)		(539	)		(1,021	)
Stock-based compensation		(427	)		258			432
Foreign rate differential		156			148			(373	)
Prior year tax expense true-up		(10	)		11			12
Fair value adjustment		(3,732	)		-			-
Other, net		(798	)		(1,342	)		(81	)
Provision for (benefit from) income taxes	$	(8,478	)	$	(1,189	)	$	51

As of March 30, 2014, our federal, state and Canada net operating loss carryforwards for income tax purposes were as follow (in thousands):

Federal net operating loss carryforwards	$	325,333
State net operating loss carryforwards	$	118,149
Canada net operating loss carryforwards	$	27,064

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. The Canadian net operating loss carryovers will begin expiring in fiscal year 2022, if not utilized.

As of March 30, 2014, our federal, state and Canada tax credit carryforwards, net of reserves, were as follows (in thousands):

Federal tax credit carryforwards	$	9,618
State tax credit carryforwards	$	19,186
Canada tax credit carryforwards	$	5,135

Federal tax credits will begin to expire in fiscal year 2018. State tax credits are carried forward indefinitely. The Canadian tax credits will begin to expire in fiscal year 2018.

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 $8.3 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 30, 2014 is as follows (in thousands):

	Amount
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
Gross increase related to prior year tax positions		92
Gross increase related to current year tax positions		487
Lapses in statute of limitation		(1,880	)
Unrecognized tax benefits as of March 30, 2014	$	14,164

Of the total gross unrecognized tax benefits of $14.2 million as of March 30, 2014, $11.6 million, if recognized, would impact the effective tax rate before consideration of the valuation allowance.

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

	March 30, 2014		March 31, 2013
Unrecognized gross tax benefits	$	14,164	$	15,465
Less: amount used to reduce deferred tax assets		13,370		13,240
Net income tax payable(1)	$	794	$	2,225

(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 $96,000 during the next 12 months as the statutes of limitations expire, which would decrease the provision for income taxes and increase our net income.

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 30, 2014		March 31, 2013
Accrued interest and penalties	$	83	$	228

Our major tax jurisdictions are the United States federal, 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 adoption of this guidance did not have any material impact on our financial position, results of operations or cash flows.

ASU No. 2013-11 – US GAAP previously did not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. On a jurisdictional basis, Accounting Standard Update (“ASU”) No. 2013-11 generally requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Exar has properly applied this guidance to its required SEC disclosures. The adoption of this guidance did not have any material impact on our financial position, results of operations or cash flows.