INCOME TAXES
Components of income (loss) income from continuing operations before income taxes are as follows:
|
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Domestic | | $ | 86,050 |
| | $ | (94,174 | ) | | $ | (126,582 | ) |
Foreign | | (9,085 | ) | | 55,824 |
| | (146,298 | ) |
Income (loss) from continuing operations before income taxes | | $ | 76,965 |
| | $ | (38,350 | ) | | $ | (272,880 | ) |
Provision (benefit from) for current and deferred income taxes consists of the following:
|
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Current: | | |
| | |
| | |
|
U.S. federal | | $ | 19,271 |
| | $ | 792 |
| | $ | 2,773 |
|
U.S. state and local | | 2,521 |
| | 938 |
| | (1,406 | ) |
Foreign | | (13,012 | ) | | (31,508 | ) | | 2,944 |
|
Total current income taxes | | 8,780 |
| | (29,778 | ) | | 4,311 |
|
Deferred: | | |
| | |
| | |
|
U.S. federal | | 969 |
| | 1,211 |
| | 1,575 |
|
U.S. state and local | | 2,395 |
| | (231 | ) | | 72 |
|
Foreign | | (2,482 | ) | | (1,250 | ) | | 632 |
|
Total deferred income taxes | | 882 |
| | (270 | ) | | 2,279 |
|
Provision (benefit from) for income taxes | | $ | 9,662 |
| | $ | (30,048 | ) | | $ | 6,590 |
|
A reconciliation of our effective tax rate to the U.S. statutory federal income tax rate is as follows:
|
| | | | | | | | | |
| | Fiscal Year Ended
March 31, |
| | 2017 | | 2016 | | 2015 |
U.S. federal statutory rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State and local taxes, net of U.S. federal benefit | | 4.9 | % | | 1.6 | % | | 0.9 | % |
Tax amortization of goodwill | | 1.3 | % | | (3.2 | )% | | (0.6 | )% |
Foreign tax rate differential(1) | | (1.4 | )% | | 25.8 | % | | (12.1 | )% |
Foreign earnings | | 5.5 | % | | (3.7 | )% | | (1.5 | )% |
Tax credits (2) | | (45.8 | )% | | 98.7 | % | | — |
|
Domestic production deduction | | (2.5 | )% | | — |
| | — |
|
Valuation allowance—domestic | | 10.1 | % | | (77.8 | )% | | (16.8 | )% |
Valuation allowance—foreign | | 0.1 | % | | 10.4 | % | | (5.1 | )% |
Change in reserves | | 2.9 | % | | (7.0 | )% | | (1.6 | )% |
Other | | 2.4 | % | | (1.4 | )% | | (0.6 | )% |
Effective tax rate | | 12.5 | % | | 78.4 | % | | (2.4 | )% |
(1) The foreign rate differential in relation to foreign earnings, for all periods presented, are primarily driven by changes in the mix of our foreign earnings.
(2) Tax benefits were recorded for fiscal years ended March 31, 2017 and March 31,2016 attributable to certain tax credits related to software development activities
The effects of temporary differences that gave rise to our deferred tax assets and liabilities were as follows:
|
| | | | | | | | |
| | March 31, |
| | 2017 | | 2016 |
Deferred tax assets: | | |
| | |
|
Accrued compensation expense | | $ | 131,305 |
| | $ | 82,230 |
|
Equity Compensation | | 25,048 |
| | 22,446 |
|
Deferred revenue | | 41,977 |
| | 33,254 |
|
Domestic net operating loss carryforward | | 4,495 |
| | 28,811 |
|
Tax credit carryforward | | 52,639 |
| | 76,565 |
|
Foreign net operating loss carryforwards | | 15,636 |
| | 16,910 |
|
Business reorganization | | 24,103 |
| | 24,143 |
|
Sales returns and allowances (including bad debt) | | 3,942 |
| | 2,257 |
|
Deferred rent | | 8,865 |
| | 5,359 |
|
Other | | 4,045 |
| | — |
|
Total deferred tax assets | | 312,055 |
| | 291,975 |
|
Less: Valuation allowance | | (184,085 | ) | | (170,574 | ) |
Net deferred tax assets | | 127,970 |
| | 121,401 |
|
Deferred tax liabilities: | | |
| | |
|
Capitalized software and depreciation | | (120,715 | ) | | (104,294 | ) |
Convertible debt | | (5,219 | ) | | (12,716 | ) |
Intangible amortization | | (38,068 | ) | | (8,306 | ) |
Other | | — |
| | (896 | ) |
Total deferred tax liabilities | | (164,002 | ) | | (126,212 | ) |
Net deferred tax liability(a) | | (36,032 | ) | | (4,811 | ) |
(a) As of March 31, 2017 and 2016, $36,032 and $4,811, respectively, is included in other long-term liabilities.
The valuation allowance is primarily attributable to deferred tax assets for which no benefit is provided due to uncertainty with respect to their realization. The net deferred tax liability is primarily the result of deferred tax liabilities related to indefinite lived intangibles, which cannot be used to offset deferred tax assets, as well as deferred tax liabilities related to intangibles as a result of the acquisition of Social Point.
At March 31, 2017, we had domestic net operating loss carryforwards totaling $50,208 of which $640 will expire in 2022, $24,022 will expire from 2023 to 2027, $24,263 will expire from 2028 to 2032, and $1,283 will expire in 2037. In addition, we had foreign net operating loss carryforwards of $277,892, of which $25,331 will expire in 2020, $244,527 will expire in 2022, $29 will expire in 2026, $727 will expire in 2035, and the remainder may be carried forward indefinitely.
At March 31, 2017, we had domestic credit carryforwards totaling $150,811 of which $83,371 expire in 2031 to 2036, and the remainder may be carried forward indefinitely. In addition, we had foreign credit carryforwards of $1,691 of which $1,037 expire in 2019, $191 expire in 2028, $80 expire in 2029, $230 expire in 2030, and $153 will expire in 2031.
The total amount of undistributed earnings of foreign subsidiaries was approximately $162,800 at March 31, 2017 and $197,300 at March 31, 2016. It is our intention to reinvest undistributed earnings of our foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign withholding taxes or U.S. income taxes which may become payable if undistributed earnings of foreign subsidiaries are repatriated. It is not practicable to estimate the tax liability that would arise if these earnings were remitted.
We are regularly audited by domestic and foreign taxing authorities. Audits may result in tax assessments in excess of amounts claimed and the payment of additional taxes. We believe that our tax return positions comply with applicable tax law and that we have adequately provided for reasonably foreseeable assessments of additional taxes. Additionally, we believe that any assessments in excess of the amounts provided for will not have a material adverse effect on the Consolidated Financial Statements.
We recognize interest and penalties related to uncertain tax positions in the provision for income taxes in our Consolidated Statements of Operations. For the fiscal years ended March 31, 2017, 2016 and 2015, we recognized an increase in interest and penalties of $877, $1,098 and $771, respectively. The gross amount of interest and penalties accrued as of March 31, 2017 and March 31, 2016 was $4,090 and $3,213, respectively.
As of March 31, 2017 and March 31, 2016, we had gross unrecognized tax benefits, including interest and penalties, of $120,198 and $56,012, of which $36,940 and $41,285, respectively, would affect our effective tax rate if realized.
We are no longer subject to audit for U.S. federal income tax returns for periods prior to our fiscal year ended March 31, 2013 and state income tax returns for periods prior to the fiscal year ended March 31, 2012. With few exceptions, we are no longer subject to income tax examinations in non-U.S. jurisdictions for years prior to our fiscal year ended March 31, 2012. U.S. federal taxing authorities have completed examinations of our income tax returns through the fiscal year ended October 31, 2009. The statute relating to the fiscal year ended March 31, 2013 has expired. The IRS is currently examining our income tax returns for the fiscal year ended March 31, 2015.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that a reduction of up to $31,000 of unrecognized tax benefits may occur within the next 12 months, some of which, depending on the nature of the settlement or expiration of statutes of limitations, may affect the Company’s income tax provision and therefore benefit the resulting effective tax rate. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.
The aggregate changes to the liability for gross uncertain tax positions, excluding interest and penalties, were as follows:
|
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Balance, beginning of period | | $ | 52,799 |
| | $ | 40,591 |
| | $ | 23,536 |
|
Additions: | | |
| | |
| | |
|
Current year tax positions | | 65,669 |
| | 12,208 |
| | 8,297 |
|
Prior year tax positions | | 5,086 |
| | — |
| | 9,040 |
|
Reduction of prior year tax positions | | — |
| | — |
| | — |
|
Lapse of statute of limitations | | (7,469 | ) | | — |
| | (256 | ) |
Other, net | | — |
| | — |
| | (26 | ) |
Balance, end of period | | $ | 116,085 |
| | $ | 52,799 |
| | $ | 40,591 |
|
We believe that we have provided for any reasonably foreseeable outcomes related to our tax audits and that any settlement will not have a material adverse effect on our consolidated financial statements. However, there can be no assurances as to the possible outcomes.