Income Taxes

12 Months Ended

Apr. 01, 2011


Note 8 —	Income Taxes

The provision for income taxes includes the following:


	Fiscal Years Ended
	April 1,			April 2,			April 3,
	2011			2010			2009
	(In thousands)

Current tax provision (benefit)
Federal	$	433		$	(6,461	)	$	13,021
State		3,178			(667	)		3,644
Foreign		222			199			215

		3,833			(6,929	)		16,880

Deferred tax provision (benefit)
Federal		3,704			13,608			(5,059	)
State		(7,064	)		(1,191	)		(5,005	)
Foreign		(475	)		(50	)		(22	)

		(3,835	)		12,367			(10,086	)

Total (benefit from) provision for income taxes	$	(2	)	$	5,438		$	6,794

Significant components of the Company’s net deferred tax assets are as follows:


	As of
	April 1,			April 2,
	2011			2010
	(In thousands)

Deferred tax assets:
Net operating loss carryforwards	$	79,930		$	86,325
Tax credit carryforwards		46,355			28,673
Warranty reserve		5,086			4,363
Accrued compensation		5,125			4,394
Deferred rent		2,673			2,582
Inventory reserve		4,899			1,498
Stock-based compensation		8,830			7,654
Contract accounting		1,415			2,005
Other		8,060			8,001
Valuation allowance		(12,671	)		(13,074	)

Total deferred tax assets		149,702			132,421
Deferred tax liabilities:
Property, equipment and satellites and intangible assets		87,254			70,160

Total deferred tax liabilities		87,254			70,160

Net deferred tax assets	$	62,448		$	62,261

A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows:


	Fiscal Years Ended
	April 1,			April 2,			April 3,
	2011			2010			2009
	(In thousands)

Tax expense at federal statutory rate	$	12,749		$	12,698		$	15,834
State tax provision, net of federal benefit		1,375			2,259			2,545
Tax credits, net of valuation allowance		(15,615	)		(11,408	)		(10,017	)
Manufacturing deduction		—			—			(920	)
Non-deductible transaction costs		30			1,435			—
Non-deductible compensation		1,054			377			468
Other		405			77			(1,116	)

Total provision for income taxes	$	(2	)	$	5,438		$	6,794

As of April 1, 2011, the Company had federal and state research credit carryforwards of approximately $42.3 million and $46.1 million, respectively, which begin to expire in fiscal year 2027 and fiscal year 2018, respectively, and federal and state net operating loss carryforwards of approximately $211.9 million and $278.8 million, respectively, which begin to expire in fiscal year 2020 and fiscal year 2012, respectively.

The Company recognizes excess tax benefits associated with share-based compensation to stockholders’ equity only when realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, the Company follows the with-and-without approach excluding any indirect effects of the excess tax deductions. Under this approach, excess tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to the Company. During fiscal year 2011, the Company realized $1.3 million of such excess state tax benefits and, accordingly, recorded a corresponding credit to additional paid in capital. As of April 1, 2011, the Company had $9.6 million of unrealized excess tax benefits associated with share-based compensation. These tax benefits will be accounted for as a credit to additional paid-in capital if and when realized, rather than a reduction of the provision for income taxes.

In accordance with the authoritative guidance for income taxes (ASC 740), net deferred tax assets are reduced by a valuation allowance if, based on all the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. A valuation allowance of $12.7 million at April 1, 2011 and $13.1 million at April 2, 2010 has been established relating to state net operating loss carryforwards and research credit carryforwards that, based on management’s estimate of future taxable income attributable to certain states and generation of additional research credits, are considered more likely than not to expire unused.

If the Company has an “Ownership Change” as defined under Internal Revenue Code Section 382, it may have an annual limitation on the utilization of its net operating loss and tax credit carryforwards.

On March 31, 2007, the Company adopted the provisions of the authoritative guidance for accounting for uncertainty in income taxes (ASC 740).

The following table summarizes the activity related to the Company’s unrecognized tax benefits:


	As of
	April 1,			April 2,			April 3,
	2011			2010			2009
	(In thousands)

Balance, beginning of fiscal year	$	31,759		$	37,917		$	30,691
Increases related to current year tax positions		4,740			3,031			8,880
Increase (decrease) related to prior year tax positions		1,819			(2,058	)		(717	)
Statute expirations		(5,303	)		(3,452	)		(937	)
Settlements		—			(3,679	)		—

Balance, end of fiscal year	$	33,015		$	31,759		$	37,917

Of the total unrecognized tax benefits at April 1, 2011, approximately $26.1 million would reduce the Company’s annual effective tax rate if recognized, subject to valuation allowance consideration.

Included in the balance at April 1, 2011 are $1.4 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

In the next twelve months it is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $2.5 million as a result of the expiration of the statute of limitations or settlements with tax authorities for previously filed tax returns.

The Company is subject to periodic audits by domestic and foreign tax authorities. By statute, the Company’s U.S. federal returns are subject to examination by the IRS for fiscal years 2008 through 2010. Additionally, tax credit carryovers that were generated in prior years and utilized in these years may also be subject to examination by the IRS. In September 2010, the IRS commenced an examination of our fiscal year 2009 federal income tax return. Subsequently, the IRS added our fiscal year 2010 income tax return to the examination. With few exceptions, fiscal years 2007 to 2010 remain open to examination by state and foreign taxing jurisdictions. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There were no accrued interest or penalties associated with uncertain tax positions as of April 1, 2011. A decrease of $0.5 million of interest and penalties was recorded in the period ended April 1, 2011.