Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.4.0.3
INCOME TAXES
12 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
Pre-tax income (loss) reflected in the Consolidated Statements of Operations for the years ended March 31, 2016, 2015 and 2014 follows (in thousands):
 
For the year ended March 31,
 
2016
 
2015
 
2014
U.S
$
(77,245
)
 
$
13,507

 
$
(22,549
)
Foreign
3,745

 
3,971

 
2,292

 
$
(73,500
)
 
$
17,478

 
$
(20,257
)


Income tax provision consists of the following (in thousands):

 
For the year ended March 31,
 
2016
 
2015
 
2014
Federal:
$
(401
)
 
$
(138
)
 
$

State:
 
 
 
 
 
Current
52

 
125

 
76

Foreign:
 
 
 
 
 
Current
1,591

 
890

 
1,096

Deferred
(59
)
 
(159
)
 
45

Total foreign
1,532

 
731

 
1,141

Income tax provision
$
1,183

 
$
718

 
$
1,217



The income tax provision differs from the amount computed by applying the federal statutory rate of 35% to income (loss) before income taxes as follows (in thousands):
 
For the year ended March 31,
 
2016
 
2015
 
2014
Expense (benefit) at federal statutory rate
$
(25,725
)
 
$
6,117

 
$
(7,090
)
State taxes
53

 
125

 
76

Unbenefited (benefited) losses and credits
27,035

 
(4,727
)
 
7,974

Contingent tax reserves
108

 
103

 
460

Foreign rate differential
(347
)
 
(778
)
 
(218
)
Other
59

 
(122
)
 
15

 
$
1,183

 
$
718

 
$
1,217



Significant components of deferred tax assets and liabilities are as follows (in thousands):
 
As of March 31,
 
2016
 
2015
Deferred tax assets:
 
 
 
Inventory valuation method
$
2,025

 
$
1,588

Accrued warranty expense
1,320

 
1,624

Distribution reserves
3,898

 
4,283

Loss carryforwards
108,022

 
75,262

Tax credits
132,061

 
185,578

Restructuring charge accruals
1,054

 
1,866

Other accruals and reserves not currently deductible for tax purposes
28,656

 
34,490

    
277,036

 
304,691

Less valuation allowance
(224,138
)
 
(252,475
)
Deferred tax asset
$
52,898

 
$
52,216

Deferred tax liabilities:
 
 
 
Depreciation
$
(3,962
)
 
$
(4,302
)
Acquired intangibles
(8,244
)
 
(4,920
)
Tax on unremitted foreign earnings
(16,549
)
 
(15,968
)
Other
(23,123
)
 
(26,093
)
Deferred tax liability
$
(51,878
)
 
$
(51,283
)
Net deferred tax asset
$
1,020

 
$
933



The valuation allowance decreased $28.3 million, $8.9 million and $8.0 million in fiscal years 2016, 2015 and 2014, respectively. The decrease in the valuation allowance during fiscal year 2016 was primarily due to NOL usage and expiring tax credits.
A reconciliation of the gross unrecognized tax benefits follows (in thousands):
 
For the year ended March 31,
 
2016
 
2015
 
2014
Beginning balance
$
32,449

 
$
32,449

 
$
32,549

Settlement and effective settlements with tax authorities and related remeasurements

 

 
(488
)
Increase in balances related to tax positions taken in prior period
411

 

 
388

Ending balance
$
32,860

 
$
32,449

 
$
32,449


During fiscal 2016, excluding interest and penalties, there was a $0.4 million change in our unrecognized tax benefits. Including interest and penalties, the total unrecognized tax benefit at March 31, 2016 was $34.1 million, all of which, if recognized, would favorably affect the effective tax rate. At March 31, 2016, accrued interest and penalties totaled $1.2 million. Our practice is to recognize interest and penalties related to income tax matters in income tax provision in the Consolidated Statements of Operations. Unrecognized tax benefits, including interest and penalties, were recorded in other long-term liabilities in the Consolidated Balance Sheets.
We file our tax returns as prescribed by the laws of the jurisdictions in which we operate. Our U.S. tax returns have been audited for years through 2002 by the Internal Revenue Service. In other major jurisdictions, we are generally open to examination for the most recent three to five fiscal years. Although timing of the resolution and closure on audits is highly uncertain, we do not believe it is likely that the unrecognized tax benefits would materially change in the next 12 months.
As of March 31, 2016, we had federal net operating loss and tax credit carryforwards of approximately $351.1 million and $90.4 million, respectively. Our federal net operating loss carryforwards include $34.3 million attributable to excess tax deductions from stock option exercises, and are not included in the deferred tax assets shown above. The benefit of these loss carryforwards will be credited to equity when realized. The net operating loss and tax credit carryforwards expire in varying amounts beginning in fiscal 2017 if not previously utilized, the utilization of which is limited under the tax law ownership change provision. These carryforwards include $11.1 million of acquired net operating losses and $10.7 million of credits.
Certain changes in stock ownership could result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year. Should the company undergo such a change in stock ownership, it could severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges.
Due to our history of net losses and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize the deferred tax assets. Accordingly, we have established a full valuation allowance against our U.S. net deferred tax assets. Significant management judgment is required in determining our deferred tax assets and liabilities and valuation allowances for purposes of assessing our ability to realize any future benefit from our net deferred tax assets. We intend to maintain this valuation allowance until sufficient positive evidence exists to support the reversal of the valuation allowance. Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.