Note 8 — Income Taxes

The provision for income taxes includes the following:


	Fiscal Years Ended
	March 29, 2013			March 30, 2012			April 1, 2011
	(In thousands)
Current tax (benefit) provision
Federal	$	(166	)	$	(4,761	)	$	433
State		2			(482	)		3,178
Foreign		(64	)		(45	)		222

		(228	)		(5,288	)		3,833

Deferred tax (benefit) provision
Federal		(36,042	)		(1,519	)		3,704
State		(12,657	)		(6,334	)		(7,064	)
Foreign		(1,127	)		(510	)		(475	)

		(49,826	)		(8,363	)		(3,835	)

Total benefit from income taxes	$	(50,054	)	$	(13,651	)	$	(2	)

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


	As of
	March 29, 2013			March 30, 2012
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	240,402		$	163,548
Tax credit carryforwards		82,910			64,013
Warranty reserve		5,325			4,482
Accrued compensation		5,846			5,547
Deferred rent		3,618			3,390
Inventory reserve		7,578			6,069
Stock-based compensation		8,214			9,793
Contract accounting		3,018			768
Other		7,775			8,027
Valuation allowance		(15,965	)		(14,695	)

Total deferred tax assets		348,721			250,942
Deferred tax liabilities:
Property, equipment and satellites and intangible assets		(227,965	)		(180,096	)

Total deferred tax liabilities		(227,965	)		(180,096	)

Net deferred tax assets	$	120,756		$	70,846

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
	March 29, 2013			March 30, 2012			April 1, 2011
	(In thousands)
Tax (benefit) expense at federal statutory rate	$	(31,737	)	$	(2,128	)	$	12,749
State tax provision, net of federal benefit		(3,124	)		112			1,375
Tax credits, net of valuation allowance		(17,249	)		(12,973	)		(15,615	)
Manufacturing deduction		—			176			—
Non-deductible transaction costs		—			—			30
Non-deductible compensation		1,305			700			1,054
Non-deductible meals and entertainment		448			447			328
Other		303			15			77

Total (benefit from) provision for income taxes	$	(50,054	)	$	(13,651	)	$	(2	)

As of March 29, 2013, the Company had federal and state research credit carryforwards of approximately $65.5 million and $69.6 million, respectively, which begin to expire in fiscal year 2026 and fiscal year 2018, respectively, and federal and state net operating loss carryforwards of approximately $678.3 million and $501.5 million, respectively, which begin to expire in fiscal year 2020 and fiscal year 2013, 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 2013, the Company did not realize any excess tax benefits. As of March 29, 2013, the Company had $21.9 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. Future realization of existing deferred tax assets ultimately depends on future profitability and the existence of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under tax law. A valuation allowance of $16.0 million at March 29, 2013 and $14.7 million at March 30, 2012 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. The Company’s analysis of the need for additional valuation allowance considered the loss incurred during the fiscal year ended March 29, 2013. However, a substantial portion of the loss incurred in such period was the result of an extinguishment of debt charge that was recorded upon the refinancing of the 2016 Notes with the Additional 2020 Notes, which is expected to provide a benefit to net income in the future due to the lower interest rate of the 2020 Notes. The Company’s evaluation considered other factors, including the Company’s history of positive earnings, taxable income adjusted for certain items, the Company’s significant growth in contractual backlog, and trends and forecasted income by jurisdiction. Consideration was also given to the lengthy period over which these net deferred tax assets can be realized, and the Company’s history of not having federal tax loss carryforwards 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.

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


	As of
	March 29, 2013			March 30, 2012			April 1, 2011
	(In thousands)
Balance, beginning of fiscal year	$	33,556		$	33,015		$	31,759
Increase related to prior year tax positions		16			819			1,819
Increases related to current year tax positions		4,608			3,148			4,740
Statute expirations		(3,489	)		(3,426	)		(5,303	)
Settlements		(200	)		—			—

Balance, end of fiscal year	$	34,491		$	33,556		$	33,015

Of the total unrecognized tax benefits at March 29, 2013, approximately $27.9 million would reduce the Company’s annual effective tax rate if recognized, subject to valuation allowance consideration.

In the next twelve months it is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $1.3 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 income tax returns are subject to examination by the Internal Revenue Service (“IRS”) for fiscal years 2010 through 2012. Additionally, tax credit carryovers that were generated in prior years and utilized in these years may also be subject to examination by the IRS. With few exceptions, fiscal years 2009 to 2012 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 March 29, 2013 and March 30, 2012.