Income Taxes
The components of income (loss) before income taxes were as follows:
|
| | | | | | | | | | | | |
| | Year Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Domestic | | $ | (7,698 | ) | | $ | (6,869 | ) | | $ | 28,048 |
|
Foreign | | 7,175 |
| | 8,714 |
| | 10,844 |
|
| | $ | (523 | ) | | $ | 1,845 |
| | $ | 38,892 |
|
The components of income tax expense (benefit) were as follows:
|
| | | | | | | | | | | | |
| | Year Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Current: | | | | | | |
Federal | | $ | 6,138 |
| | $ | 4,983 |
| | $ | 1,777 |
|
State | | (977 | ) | | 1,076 |
| | 2,533 |
|
Foreign | | 4,818 |
| | 4,982 |
| | 4,791 |
|
Deferred: | | | | | | |
Federal | | (11,144 | ) | | (9,171 | ) | | 4,237 |
|
State | | (56 | ) | | 324 |
| | (24 | ) |
Foreign | | 158 |
| | (485 | ) | | (72 | ) |
| | $ | (1,063 | ) | | $ | 1,709 |
| | $ | 13,242 |
|
A reconciliation of the statutory tax rates and the effective tax rates for the years ended March 31, 2017, 2016 and 2015 are as follows:
|
| | | | | | | | | |
| | Year Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Statutory federal income tax expense (benefit) rate | | (35.0 | )% | | 35.0 | % | | 35.0 | % |
State and local income tax expense, net of federal income tax effect | | 11.2 | % | | 11.2 | % | | 3.0 | % |
Impact of limit on executive compensation | | — | % | | — | % | | 3.2 | % |
Foreign earnings taxed at different rates | | 501.2 | % | | 67.9 | % | | 1.0 | % |
Domestic permanent differences | | 368.4 | % | | 116.8 | % | | 4.1 | % |
Foreign tax credits | | (258.2 | )% | | (54.1 | )% | | (2.8 | )% |
Research credits | | (622.2 | )% | | (141.2 | )% | | (4.9 | )% |
Tax reserves | | 15.6 | % | | 8.7 | % | | (5.3 | )% |
Valuation allowance | | (121.4 | )% | | 50.1 | % | | — | % |
Statutory tax rate changes | | 60.8 | % | | (20.1 | )% | | — | % |
Other differences, net | | (123.7 | )% | | 18.3 | % | | 0.7 | % |
Effective income tax expense (benefit) | | (203.3 | )% | | 92.6 | % | | 34.0 | % |
Net deferred tax assets arise due to the recognition of income and expense items for tax purposes, which differ from those used for financial statement purposes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income, and to the extent that the Company believes recovery is not likely, the Company establishes a valuation allowance. The significant components of the Company’s deferred tax assets are as follows:
|
| | | | | | | | |
| | March 31, |
| | 2017 | | 2016 |
Deferred tax assets: | | | | |
Stock-based compensation | | $ | 45,867 |
| | $ | 40,033 |
|
Deferred revenue | | 11,810 |
| | 12,496 |
|
Tax credits | | 12,810 |
| | 6,970 |
|
Accrued expenses | | 1,249 |
| | 1,155 |
|
Allowance for doubtful accounts and other reserves | | 601 |
| | 753 |
|
Less: valuation allowance | | (1,796 | ) | | (2,772 | ) |
Total deferred tax assets | | 70,541 |
| | 58,635 |
|
Deferred tax liabilities: | | | | |
Depreciation and amortization | | (9,523 | ) | | (8,659 | ) |
Net deferred tax asset | | $ | 61,018 |
| | $ | 49,976 |
|
At March 31, 2017 the Company maintained valuation allowances totaling $1,796 against New Jersey state research tax credits due to uncertainties related to the ability to utilize such state research tax credits before they expire. The Company decreased the valuation allowance $976 in fiscal 2017 due to the expiration of a portion of the NJ research tax credits and higher estimates of forecasted New Jersey taxable income. The Company based its valuation allowance on its estimates of taxable income and the period over which its state research tax credits will be recoverable.
It is the Company’s intention to reinvest undistributed earnings of its foreign subsidiaries and thereby infinitely postpone their remittance. As a result, deferred U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries of the Company. In the event we needed to repatriate funds from outside of the United States, such repatriation would likely be subject to restrictions by local laws and/or tax consequences including foreign withholding taxes or U.S. income taxes. It is not currently practical to estimate the legal restrictions or tax liability that would arise from such repatriations. The cumulative amount of unremitted earnings from the foreign subsidiaries that is expected to be permanently reinvested was approximately $26,176 on March 31, 2017.
Excess tax benefits related to share-based payments are credited to equity. When determining this excess tax benefit, the Company elected to follow the tax law approach. As a result, the Company’s excess tax benefit which was recorded to equity was approximately $3,682 and $3,265 for the years ended March 31, 2017 and 2016, respectively.
At March 31, 2017, the Company has federal and state research tax credit (R&D credits) carryforwards of approximately $3,253 and $3,175, respectively. The federal research tax credit carryforwards expire from 2025 through 2036, and the state research tax credit carryforwards expire from 2017 through 2023. At March 31, 2017, the Company has federal Alternative Minimum Tax credit carryforwards of $1,149.
The Company conducts business globally and as a result, files income tax returns in the United States and in various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions are the United States, Australia, Canada, Germany, Netherlands and United Kingdom. The Company is currently under audit in the United Kingdom, India, and New Jersey. The following table summarizes the tax years in the Company’s major tax jurisdictions that remain subject to income tax examinations by tax authorities as of March 31, 2017. The years subject to income tax examination in the Company’s foreign jurisdictions cover the maximum time period with respect to these jurisdictions. Due to NOL carryforwards, in some cases the tax years continue to remain subject to examination with respect to such NOLs.
|
| |
Tax Jurisdiction | Years Subject to Income
Tax Examination |
U.S. Federal | 2013 - Present |
New Jersey | 2012 - Present |
Foreign jurisdictions | 2012 - Present |
The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in each of its tax jurisdictions. The number of years with open tax audits varies depending on the tax jurisdiction. A number of years may lapse before a particular matter is audited and finally resolved. A reconciliation of the amounts of unrecognized tax benefits is as follows:
|
| | | |
Balance at March 31, 2014 | $ | 4,113 |
|
Additions for tax positions related to fiscal 2015 | 490 |
|
Additions for tax positions related to prior years | 252 |
|
Settlements and effective settlements with tax authorities and remeasurements | (2,838 | ) |
Reductions related to the expiration of statutes of limitations | — |
|
Foreign currency translation adjustment | (12 | ) |
Balance at March 31, 2015 | 2,005 |
|
Additions for tax positions related to fiscal 2016 | — |
|
Additions for tax positions related to prior years | 170 |
|
Settlements and effective settlements with tax authorities and remeasurements | (171 | ) |
Reductions related to the expiration of statutes of limitations | (64 | ) |
Foreign currency translation adjustment | 12 |
|
Balance at March 31, 2016 | 1,952 |
|
Additions for tax positions related to fiscal 2017 | — |
|
Additions for tax positions related to prior years | 179 |
|
Settlements and effective settlements with tax authorities and remeasurements | — |
|
Reductions related to the expiration of statutes of limitations | — |
|
Foreign currency translation adjustment | (33 | ) |
Balance at March 31, 2017 | $ | 2,098 |
|
All of the Company’s unrecognized tax benefits at March 31, 2017 of $2,098, if recognized, would favorably affect the effective tax rate. Components of the reserve are classified as either current or long-term in the Consolidated Balance Sheet based on when the Company expects each of the items to be settled. Unrecognized tax benefits and the related accrued interest and penalties totaling $1,950 are recorded as Other Liabilities on the Consolidated Balance Sheet, of which $287 represents interest and penalties. The Company also has unrecognized tax benefits and related accrued interest and penalties totaling $548 as a reduction of Deferred Tax Assets on the Consolidated Balance Sheet, of which $113 represents interest and penalties.
The Company estimates that no remaining unrecognized tax benefits will be realized during the fiscal year ending March 31, 2018. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. In the years ended March 31, 2017, 2016 and 2015, the Company recognized $61, $52 and $224, respectively, of interest and penalties in the Consolidated Statement of Income.