Note 11. Income Taxes

The components of the Company’s income tax provision (benefit) for the fiscal years ended March 31, 2016, 2015 and 2014 are as follows:

		2016			2015				2014
					(in $000's)
Income before provision for income taxes:
United States	$		54,406	$		22,243		$		4,267
Foreign			11,432			6,522				4,263
Income before income taxes	$		65,838	$		28,765		$		8,530

Current tax expense (benefit):
Federal	$		1,690	$		464		$		(100	)
State			2,113			424				(106	)
Foreign			1,592			1,283				525
			5,395			2,171				319
Deferred tax expense (benefit):
Federal			18,769			(66,140	)			825
State			1,284			(13,430	)			35
Foreign			2,243			(7,524	)			-
			22,296			(87,094	)			860
Total income tax provision (benefit)	$		27,691	$		(84,923	)	$		1,179

The components of the Company’s net deferred taxes were as follows:

	March 31,
	2016			2015
	(in $000's)
Deferred tax assets
NOL carryforwards and tax credit carryforwards	$	34,305		$	60,081
Stock-based compensation		14,879			10,568
Nondeductible reserves and accruals		8,550			7,573
Amortizable intangibles other than goodwill		2,420			2,993
Capitalized research and development		442			1,597
Foreign NOL carryforwards		17,635			19,617
Deferred revenue		3,351			2,669
Depreciation		353			276
Other, net		1,802			1,298
	83,737			106,672
Deferred tax liabilities
Indefinite lived intangibles		(8,480	)		(7,530	)
In-process research and development		(4,649	)		(4,443	)
Domestic deferred tax liability on foreign NOL carryforwards		(10,488	)		(12,276	)
		(23,617	)		(24,249	)

Net deferred tax assets		60,120			82,423
Valuation allowance		(2,418	)		(2,912	)
Net deferred tax assets	$	57,702		$	79,511

Reported as:
Long-term deferred tax assets, net		58,534			80,306
Long-term deferred tax liabilities		(832	)		(795	)
Net deferred tax assets	$	57,702		$	79,511

As disclosed in Note 2. “Summary of Significant Accounting Policies,” The Company early adopted ASU No. 2015-17 and has applied the guidance retrospectively to all periods presented. The impact on the March 31, 2015 balance sheet was a reclassification of $35.1 million from current deferred tax assets to long-term deferred tax assets. Adoption of this standard did not impact the Company’s results of operations, retained earnings, or cash flows in the current or previous interim and annual reporting periods.

A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the fiscal years ended March 31, 2016, 2015, and 2014:

	2016				2015				2014
Statutory income tax rate		35.0		%		35.0		%		34.0		%
Increase (decrease) resulting from:
Change in valuation allowance		0.7				(342.8	)			(53.7	)
Credits		(4.1	)			(1.9	)			(20.1	)
Foreign taxes		2.5				4.5				-
State taxes, net		3.7				4.0				12.9
Permanent differences		3.0				3.9				0.4
Stock based compensation		0.3				0.3				0.9
Rate differential on foreign operations		-				0.2				31.1
Other		1.0				1.6				8.4
Effective tax rate		42.1		%		(295.2	)	%		13.9		%

The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluates all available positive and negative evidence, and weights the evidence based on its objectivity.

During the fiscal year ended March 31, 2015, the Company determined based on its consideration of the weight of positive and negative evidence that there was sufficient positive evidence that most of its federal, state and certain foreign deferred tax assets are more likely than not recoverable as of March 31, 2015. The Company’s conclusion was primarily driven by the receipt of PMA approval for our Impella 2.5™ product in March 2015, our history of profits in recent years and our expectation of continuing future profitability. Accordingly, the Company recorded a $101.5 million reversal of the valuation allowance in the quarter ended March 31, 2015, primarily related to the Company expecting to be able to use NOL carryforwards in the future in the U.S. and Germany.

As of March 31, 2016 and 2015, respectively, the Company recorded a valuation allowance of $2.4 million and $2.9 million which represents deferred tax assets related to NOL carryforwards in certain foreign jurisdictions in which the Company has had limited history of profitability. Based on the review of all available evidence, the Company recorded a valuation allowance to reduce these deferred tax assets to the amount that is more likely than not to be realizable as of March 31, 2016 and 2015.

Changes in the valuation allowance for deferred tax assets during the fiscal years ended March 31, 2016, 2015 and 2014 were as follows:

		2016				2015				2014
		(in $000's)
Valuation allowance as of beginning of year	$		2,912		$		102,093		$		106,670
Decreases recorded as benefit to income tax provision			(1,171	)			(101,468	)			(4,577	)
Increases due to foreign net operating loss in certain foreign jurisdictions			677				2,287				-
Valuation allowance as of end of year	$		2,418		$		2,912		$		102,093

At March 31, 2016, the Company had federal net operating loss carryforwards, or NOLs, of approximately $173.2 million which expire in varying years from fiscal 2018 through fiscal 2034. At March 31, 2016, the Company had German and French NOLs of approximately $25.0 million and $2.4 million, respectively, which do not expire. In addition, at March 31, 2016, the Company had federal and state research and development credit carryforwards of approximately $12.4 million and $8.0 million, respectively, which expire in varying years from fiscal 2017 through fiscal 2036.

Of the total amount of available federal NOLs, $142.0 million relates to stock-based compensation tax deductions in excess of stock-based compensation expense for financial reporting purposes (“excess tax benefits”). Excess tax benefits are realized when they reduce income taxes payable, as determined using a “with and without” method, and are credited to additional paid-in capital rather than as a reduction of the income tax provision. During the year ended March 31, 2016, the Company realized excess tax benefits from federal and state tax deductions of $3.6 million which were credited to additional paid-in capital.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of multiple state and foreign jurisdictions. Fiscal years 2012 through 2016 remain open to examination in Germany. All tax years remain subject to examination by the Internal Revenue Service and state tax authorities, because the Company has net operating loss and tax credit carryforwards which may be utilized in future years to offset taxable income, those years may also be subject to review by relevant taxing authorities if the carryforwards are utilized.