Note 8 — Income Taxes

The provision for income taxes includes the following:


	Fiscal Years Ended
	April 4, 2014			March 29, 2013			March 30, 2012
	(In thousands)
Current tax provision (benefit)
Federal	$	798		$	(166	)	$	(4,761	)
State		540			2			(482	)
Foreign		12			(64	)		(45	)

		1,350			(228	)		(5,288	)

Deferred tax benefit
Federal		(11,188	)		(36,042	)		(1,519	)
State		(16,032	)		(12,657	)		(6,334	)
Foreign		(77	)		(1,127	)		(510	)

		(27,297	)		(49,826	)		(8,363	)

Total benefit from income taxes	$	(25,947	)	$	(50,054	)	$	(13,651	)

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


	As of
	April 4, 2014			March 29, 2013
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	269,427		$	240,402
Tax credit carryforwards		96,586			82,910
Warranty reserve		6,475			5,325
Accrued compensation		6,880			5,846
Deferred rent		4,128			3,618
Inventory reserve		6,636			7,578
Stock-based compensation		9,728			8,214
Other		6,872			10,793
Valuation allowance		(12,832	)		(15,965	)

Total deferred tax assets		393,900			348,721
Deferred tax liabilities:
Property, equipment and satellites and intangible assets		(246,293	)		(227,965	)

Total deferred tax liabilities		(246,293	)		(227,965	)

Net deferred tax assets	$	147,607		$	120,756

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 4, 2014			March 29, 2013			March 30, 2012
	(In thousands)
Tax benefit at federal statutory rate	$	(12,132	)	$	(31,737	)	$	(2,128	)
State tax provision, net of federal benefit		(3,555	)		(3,202	)		26
Tax credits, net of valuation allowance		(13,149	)		(17,171	)		(12,887	)
Manufacturing deduction		—			—			176
Non-deductible compensation		1,337			1,305			700
Non-deductible meals and entertainment		678			448			447
Other		874			303			15

Total benefit from income taxes	$	(25,947	)	$	(50,054	)	$	(13,651	)

As of April 4, 2014, the Company had federal and state research credit carryforwards of approximately $72.5 million and $81.3 million, respectively, which begin to expire in fiscal year 2026 and fiscal year 2018, respectively. As of April 4, 2014, the Company had alternative minimum tax (AMT) and foreign tax credit (FTC) carryforwards of approximately $0.4 million and $1.0 million, respectively. The AMT credit does not expire and the FTC begins to expire in fiscal year 2021. As of April 4, 2014, the Company had federal and state net operating loss carryforwards of approximately $787.7 million and $615.0 million, respectively, which begin to expire in fiscal year 2020 and fiscal year 2014, 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 2014, the Company did not realize any excess tax benefits. As of April 4, 2014, the Company had $35.2 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 $12.8 million at April 4, 2014 and $16.0 million at March 29, 2013 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 losses incurred during the fiscal year ended April 4, 2014 and March 30, 2013. The loss incurred in fiscal year 2013 was more significant and a substantial portion of such loss resulted from an extinguishment of debt charge that was recorded upon the refinancing of the Company’s former 2016 Notes with the proceeds from the issuance of additional 2020 Notes, which provides a benefit to net income 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, current earnings trends assuming the Company’s satellite subscriber base continues to grow, taxable income adjusted for certain items, the Company’s contractual backlog, and forecasted income by jurisdiction. The Company also considered 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. Based on the Company’s analysis of the need for a valuation allowance on deferred tax assets, the Company released $3.1 million of the valuation allowance during fiscal year 2014 which related primarily to state net operating loss carryforwards as a result of the combination of the merger of ViaSat Communications, Inc. into ViaSat and changes in the apportioned state tax rates.

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
	April 4, 2014			March 29, 2013			March 30, 2012
	(In thousands)
Balance, beginning of fiscal year	$	34,491		$	33,556		$	33,015
(Decrease) increase related to prior year tax positions		(249	)		16			819
Increases related to current year tax positions		4,459			4,608			3,148
Statute expirations		(1,306	)		(3,489	)		(3,426	)
Settlements		—			(200	)		—

Balance, end of fiscal year	$	37,395		$	34,491		$	33,556

Of the total unrecognized tax benefits at April 4, 2014, approximately $30.3 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 not change significantly.

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 2011 through 2013. 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 2010 to 2013 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 4, 2014 and March 29, 2013.