Note 8 — Income Taxes

The provision for income taxes includes the following:


	Fiscal Years Ended
	April 3, 2015			April 4, 2014			March 29, 2013
	(In thousands)
Current tax provision (benefit)
Federal	$	(216	)	$	798		$	(166	)
State		1,507			540			2
Foreign		115			12			(64	)

		1,406			1,350			(228	)

Deferred tax provision (benefit)
Federal		14,546			(11,188	)		(36,042	)
State		(1,477	)		(16,032	)		(12,657	)
Foreign		(648	)		(77	)		(1,127	)

		12,421			(27,297	)		(49,826	)

Total provision (benefit) from income taxes	$	13,827		$	(25,947	)	$	(50,054	)

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


	As of
	April 3, 2015			April 4, 2014
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	223,642		$	269,427
Tax credit carryforwards		112,183			96,586
Warranty reserve		5,841			6,475
Accrued compensation		8,016			6,880
Deferred rent		3,585			4,128
Inventory reserve		8,510			6,636
Stock-based compensation		12,739			9,728
Other		34,116			6,872
Valuation allowance		(15,550	)		(12,832	)

Total deferred tax assets		393,082			393,900
Deferred tax liabilities:
Property, equipment and satellites and intangible assets		(260,582	)		(246,293	)

Total deferred tax liabilities		(260,582	)		(246,293	)

Net deferred tax assets	$	132,500		$	147,607

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 3, 2015			April 4, 2014			March 29, 2013
	(In thousands)
Tax provision (benefit) at federal statutory rate	$	18,808		$	(12,132	)	$	(31,737	)
State tax provision, net of federal benefit		4,014			(3,555	)		(3,202	)
Tax credits, net of valuation allowance		(14,055	)		(13,217	)		(17,136	)
Non-deductible compensation		1,966			1,337			1,305
Non-deductible meals and entertainment		759			678			448
Foreign effective tax rate differential, net of valuation allowance		898			536			(363	)
Other		1,437			406			631

Total provision (benefit) from income taxes	$	13,827		$	(25,947	)	$	(50,054	)

As of April 3, 2015, the Company had federal and state research credit carryforwards of $84.2 million and $92.7 million, respectively, which begin to expire in fiscal year 2026 and fiscal year 2018, respectively. As of April 3, 2015, the Company had alternative minimum tax (AMT) and foreign tax credit (FTC) carryforwards of $0.4 million and $1.1 million, respectively. The AMT credit does not expire and the FTC begins to expire in fiscal year 2021. As of April 3, 2015, the Company had federal and state net operating loss carryforwards of $703.4 million and $557.8 million, respectively, which begin to expire in fiscal year 2020 and fiscal year 2016, 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 2015, the Company did not realize any excess tax benefits. As of April 3, 2015, the Company had $48.4 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. In the event that the Company’s estimate of taxable income is less than that required to utilize the full amount of any deferred tax asset, a valuation allowance is established which would cause a decrease to income in the period such determination is made. A valuation allowance of $15.6 million at April 3, 2015 and $12.8 million at April 4, 2014 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 a valuation allowance on deferred tax assets considered the losses incurred during the fiscal years ended April 4, 2014 and March 29, 2013 and the income generated during the fiscal year ended April 3, 2015. In fiscal year 2013, the Company recorded a significant loss, a substantial portion of such which 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 loss from fiscal year 2014 was less significant and a substantial portion of that loss related to legal expense focused on protecting and extending our technology advantages in the litigation against SS/L and its former parent company Loral, which was resolved in the Company’s favor during the second quarter of fiscal year 2015 (see Note 12). In addition to these events, the Company’s evaluation considered other factors, including the Company’s contractual backlog, 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, 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 increased the valuation allowance by $2.7 million during fiscal year 2015 which related primarily to state net operating loss carryforwards and research and development credit carryforwards available to reduce state income taxes. The Company will continue to evaluate the ability to realize its deferred tax assets on a quarterly basis to determine if the weight of available evidence suggests that an additional valuation allowance is needed.

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 3, 2015			April 4, 2014			March 29, 2013
	(In thousands)
Balance, beginning of fiscal year	$	37,395		$	34,491		$	33,556
Increase (decrease) related to prior year tax positions		524			(249	)		16
Increases related to current year tax positions		3,897			4,459			4,608
Statute expirations		(47	)		(1,306	)		(3,489	)
Settlements		—			—			(200	)

Balance, end of fiscal year	$	41,769		$	37,395		$	34,491

Of the total unrecognized tax benefits at April 3, 2015, $34.0 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 2012 through 2014. 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 2011 to 2014 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 3, 2015 and April 4, 2014.