NOTE 18. INCOME TAXES

Income Tax Provision

The components of our income tax provision are summarized as follows (in thousands):

	Year Ended March 31,
	2015			2014			2013
Continuing operations:
Current:
Federal	$	12,065		$	7,947		$	16,635
State		1,657			939			1,647
Foreign		64			892			174
Total current income tax provision		13,786			9,778			18,456
Deferred:
Federal		(1,363	)		(631	)		(1,219	)
State		(158	)		(154	)		(88	)
Foreign		(26	)		-			-
Total deferred income tax provision (benefit)		(1,547	)		(785	)		(1,307	)
Total income tax provision - continuing operations	$	12,239		$	8,993		$	17,149

Discontinued operations and gain on sale of discontinued operations:
Current:
Federal	$	5,923		$	(1,147	)	$	(2,060	)
State		458			(88	)		(159	)
Total current income tax provision (benefit)		6,381			(1,235	)		(2,219	)
Deferred:
Federal		(2,258	)		-			-
State		(175	)		-			-
Total deferred income tax (benefit)		(2,433	)		-			-
Total income tax provision (benefit) - discontinued operations and gain on sale of discontinued operations	$	3,948		$	(1,235	)	$	(2,219	)

The components of our income before income tax provision are summarized as follows (in thousands):

	Year Ended March 31,
	2015			2014			2013
Continuing operations:
United States	$	33,489		$	22,598		$	47,630
Foreign		(447	)		2,624			646
Total - continuing operations	$	33,042		$	25,222		$	48,276
Discontinued operations:
United States	$	10,475		$	(3,279	)	$	(5,887	)

The income tax provision from continuing operations differs from the amount computed by applying the federal statutory income tax rate (35 percent) to income from continuing operations before income tax provision as follows (in thousands):

	Year Ended March 31,
	2015			2014			2013
Continuing operations:
Income taxes at federal income tax rate	$	11,565		$	8,828		$	16,896
State income taxes, net of federal benefits		787			475			1,282
Non-deductible compensation		880			260			56
Research and development tax credits		(383	)		(210	)		(541	)
Tax-exempt interest income		(6	)		(20	)		(32	)
Qualified production activities income benefit		(866	)		(490	)		(525	)
Other		262			150			13
Total income tax provision from continuing operations	$	12,239		$	8,993		$	17,149

During fiscal 2015, 2014 and 2013, we recognized $0.9 million, $2.2 million and $2.7 million, respectively, of tax deductions related to share-based compensation, on a consolidated basis, in excess of recognized share-based compensation expense (“excess benefits”) that was recorded to shareholders’ equity. We record excess benefits to shareholders’ equity when the benefits result in a reduction in cash paid for income taxes.

Our policy is to reinvest earnings of our foreign subsidiaries unless such earnings are subject to U.S. taxation. As of March 31, 2015, the cumulative earnings upon which U.S. income taxes has not been provided is approximately $0.2 million. The U.S. tax liability if the earnings were repatriated is $84,000.

Unrecognized Tax Benefits

During fiscal 2015, we did not recognize any interest and penalties related to unrecognized tax benefits. We file income tax returns in the U.S. federal jurisdiction, Germany, United Kingdom and various state jurisdictions. The statute of limitations is three years for federal and four years for California. Our federal income tax returns are subject to examination for fiscal years 2012 through 2015. Our California income tax returns are subject to examination for fiscal years 2011 through 2015, with the exception of California tax credit carryovers. To the extent there is a research and development tax credit available for carryover to future years, the statute of limitations with respect to the tax credit begins in the year utilized. As a result of the timing for the utilization of California tax credit carryovers, our California research and development tax credits are subject to examination for fiscal years 2007 through 2015. We are subject to examination in Germany for fiscal years 2012 through 2015 and in the United Kingdom for fiscal years 2011 through 2015.

Deferred Tax Assets and Liabilities

The following table presents the breakdown between current and non-current net deferred tax assets (liabilities) (in thousands):

	March 31,
	2015			2014
Deferred tax assets, current	$	6,575		$	4,464
Deferred tax assets, non-current		3,413			1,557
Deferred tax liabilities, non-current		(310	)		-
Total net deferred tax assets	$	9,678		$	6,021

Significant components of our deferred tax assets (liabilities) are as follows (in thousands):

	March 31,
	2015			2014
Deferred tax assets:
Research and development tax credit carryforwards	$	717		$	646
Capitalized research and development		106			136
Inventory reserves		724			622
Deferred revenue from extended maintenance agreements		1,687			1,940
Warranty reserves		1,190			704
Accrued payroll and other accrued expenses		2,904			1,269
Share-based compensation		2,932			2,129
Alternative minimum tax credits		24			24
Tax on deferred intercompany profit		1,161			742
Other		494			792
Total deferred tax assets		11,939			9,004
Deferred tax liabilities:
Depreciation		(1,850	)		(2,876	)
Other		(411	)		(107	)
Total deferred tax liabilities		(2,261	)		(2,983	)
Net deferred tax assets	$	9,678		$	6,021

A valuation allowance against deferred tax assets is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. As of March 31, 2015, 2014 and 2013, we did not have a valuation allowance.

As of March 31, 2015, we had no federal or California net operating loss carryforwards. As of March 31, 2015, our California research and development tax credit carryforwards were $1.1 million. The California research and development tax credit will carryforward indefinitely.