Income Taxes | Note 14. Income Taxes Income (loss) before income taxes consists of the following components: 2016 2015 2014 (In thousands) United States $ 7,018 $ 12,294 $ (19,056 ) International 43,708 42,899 10,096 $ 50,726 $ 55,193 $ (8,960 ) The components of income tax expense are as follows: 2016 2015 2014 (In thousands) Current: Federal $ (818 ) $ 1,859 $ 9,206 State (6,185 ) 913 1,532 Foreign 3,376 3,285 2,205 Total current (3,627 ) 6,057 12,943 Deferred: Federal 7,874 (1,700 ) (18,883 ) State (512 ) 603 15,006 Foreign 525 (360 ) 240 Total deferred 7,887 (1,457 ) (3,637 ) $ 4,260 $ 4,600 $ 9,306 The effect of deferred taxes associated with the change in unrealized gains and losses on the Company’s available-for-sale securities was immaterial and was recorded in accumulated other comprehensive income. A reconciliation of the income tax expense (benefit) with the amount computed by applying the federal statutory tax rate to income (loss) before income taxes is as follows: 2016 2015 2014 (In thousands) Expected income tax expense (benefit) at the statutory rate $ 17,754 $ 19,318 $ (3,136 ) State income taxes, net of federal tax benefit 1,406 1,773 (330 ) Tax rate differential on foreign earnings and other international related tax items (10,943 ) (11,195 ) (324 ) Benefit from research and other credits (6,870 ) (7,360 ) (6,764 ) Stock-based compensation 4,090 2,649 4,759 Resolution of prior period tax matters (4,570 ) (3,577 ) (1,480 ) Valuation allowance 2,435 2,634 16,433 Other, net 958 358 148 $ 4,260 $ 4,600 $ 9,306 The components of the deferred tax assets and liabilities are as follows: 2016 2015 (In thousands) Deferred tax assets: Research credits $ 40,033 $ 31,487 Reserves and accruals not currently deductible 13,994 18,971 Net operating loss carryforwards 10,090 9,764 Stock-based compensation 8,112 14,415 Patent license 6,571 7,098 Property and equipment 4,382 2,587 Investment securities 904 913 Other 292 313 Total gross deferred tax assets 84,378 85,548 Valuation allowance (22,742 ) (20,307 ) Total deferred tax assets, net of valuation allowance 61,636 65,241 Deferred tax liabilities: State income taxes 13,398 10,547 Research and development expenditures 7,235 5,814 Total deferred tax liabilities 20,633 16,361 Net deferred tax assets $ 41,003 $ 48,880 The Company’s deferred tax assets related to research credits consist primarily of state and federal research credit carryforwards. These state tax credits have no expiration date and may be carried forward indefinitely. However, these credits may be utilized only to the extent that the Company realizes taxable income in the related state. Based upon the Company’s current projections of future taxable income in the respective states, the Company is unable to assert that it is more likely than not that it will realize the full benefit of these deferred tax assets. Accordingly, the Company has recorded valuation allowances against these deferred tax assets. The balance of this valuation allowance was $19.8 million and $17.5 million as of April 3, 2016 and March 29, 2015, respectively. The Company’s deferred tax assets related to net operating loss carryforwards include both federal and state net operating loss carryforwards. The state net operating loss carryforwards are specific to the states in which the net operating losses were generated and certain of these carryforwards relate to previous acquisitions, which are subject to limitations on the timing of utilization. Based upon the Company’s current projections of future taxable income in the respective states, the Company is unable to assert that it is more likely than not that it will realize the full benefit of these deferred tax assets. Accordingly, the Company has recorded a valuation allowance against these deferred tax assets. The balance of this valuation allowance was $1.8 million and $1.7 million as of April 3, 2016 and March 29, 2015, respectively. The Company’s deferred tax assets related to investment securities and capital loss carryovers consist primarily of temporary differences related to other-than-temporary impairments on the Company’s investment securities and realized losses on dispositions of investment securities that are subject to limitations on deductibility. As a result of limitations on the deductibility of capital losses and other factors, management is unable to assert that it is more likely than not that the Company will realize the full benefit of these deferred tax assets. Accordingly, the Company previously recorded a valuation allowance against these deferred tax assets. The balance of this valuation allowance was $1.1 million as of April 3, 2016 and March 29, 2015. Based upon the Company’s current and historical pre-tax earnings, management believes it is more likely than not that the Company will realize the full benefit of the existing deferred tax assets as of April 3, 2016, except for the deferred tax assets discussed above. Management believes the existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income or that there would be sufficient tax carrybacks available; however, there can be no assurance that the Company will generate any earnings or any specific level of continuing earnings in future years. As of April 3, 2016, the Company has federal net operating loss carryforwards of $13.0 million, which will expire between fiscal 2027 and 2029, if not utilized, and state net operating loss carryforwards of $67.5 million, which will expire between fiscal 2017 and 2036, if not utilized. The net operating loss carryforwards relating to acquired companies are subject to limitations on the timing of utilization. The Company also has state capital loss carryovers of $54.5 million, which will expire between fiscal 2017 and 2031, if not utilized. As of April 3, 2016, the Company has federal research tax credit carryforwards of $9.8 million, which will expire between fiscal 2034 and 2036, if not utilized. The Company also has state research tax credit carryforwards of $31.9 million and state alternative minimum tax credits of $0.6 million, both of which have no expiration date. The Company has made no provision for U.S. income taxes or foreign withholding taxes on the earnings of its foreign subsidiaries, as these amounts are intended to be indefinitely reinvested in operations outside the United States. As of April 3, 2016, the cumulative amount of undistributed earnings of the Company’s foreign subsidiaries was $438.1 million. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely. During fiscal 2016, the statute of limitations expired for certain tax years in various states. As a result, the Company reduced the related income tax liabilities for such periods and recorded income tax benefits totaling $4.3 million. During fiscal 2015, the Company settled all open matters relating to an Internal Revenue Service examination of the Company’s income tax returns for fiscal years 2010 through 2013. This settlement was for an amount less than the Company had previously accrued for this tax position. As a result, the Company recorded an income tax benefit of $2.5 million. In connection with this settlement, the Company paid federal and state income taxes totaling $2.1 million in fiscal 2016. The Company is no longer subject to federal income tax examinations for years prior to fiscal 2014. With limited exceptions, the Company is no longer subject to state and foreign income tax examinations by taxing authorities for years prior to fiscal 2009. Management does not believe that the results of tax examinations will have a material impact on the Company’s financial condition or results of operations. A rollforward of the activity in the gross unrecognized tax benefits is as follows: 2016 2015 (In thousands) Balance at beginning of year $ 12,904 $ 13,577 Additions based on tax positions related to the current year 1,266 1,059 Additions for tax positions of prior years 993 2,966 Reductions for tax positions of prior years (690 ) (276 ) Decreases relating to settlements with taxing authorities (364 ) (3,629 ) Reductions due to lapses of statutes of limitations (4,931 ) (793 ) Balance at end of year $ 9,178 $ 12,904 If the unrecognized tax benefits as of April 3, 2016 were recognized, $8.1 million, net of $1.1 million of tax benefits from state income taxes, would favorably affect the Company’s effective income tax rate. In addition to the unrecognized tax benefits noted above, the Company had accrued $2.6 million and $3.5 million of interest expense and penalties as of April 3, 2016 and March 29, 2015, respectively. The Company recognized interest expense, net of the related tax effect, and penalties aggregating $(0.6) million, $0.1 million and $2.1 million during fiscal 2016, 2015 and 2014, respectively. It is reasonably possible that the Company’s liability for uncertain tax positions may be reduced by as much as $1.0 million as a result of either the settlement of tax positions with various tax authorities or by virtue of the statute of limitations expiring through the end of fiscal 2017. |