Income Taxes

Income Tax Expense

Components of income tax expense (benefit) are as follows:



	Years ended March 31,					Quarter ended (transition period) March 31,			Year ended December 31,
	2016			2015		2014			2013
Current:
Federal	$	11,971		$	35,459	$	(572	)	$	51,058
State	2,443			6,861		(4		)	6,252
Foreign	12,039			7,069		5,255			6,650
Total	26,453			49,389		4,679			63,960
Deferred:
Federal	7,887			8,234		1,669			(2,580		)
State	1,113			624		(1		)	(209		)
Foreign	(833		)	1,112		(4,404		)	(1,303		)
Total	8,167			9,970		(2,736		)	(4,092		)
Income tax expense	$	34,620		$	59,359	$	1,943		$	59,868

Foreign income (loss) before income taxes was $105,938, $95,850, $(3,631) and $60,851 during the years ended March 31, 2016, March 31, 2015, during the quarter ended March 31, 2014 and during the year ended December 31, 2013, respectively.

Income Tax Expense Reconciliation

Income tax expense differed from that obtained by applying the statutory federal income tax rate to income before income taxes as follows:



	Years ended March 31,						Quarter ended (transition period) March 31,			Year ended December 31,
	2016			2015			2014			2013
Computed expected income taxes	$	54,910		$	77,399		$	(260	)	$	71,945
State income taxes, net of federal income tax benefit	1,298			3,564			90			4,435
Foreign rate differential	(28,233		)	(25,535		)	1,904			(16,399		)
Unrecognized tax benefits	3,670			3,566			—			—
Foreign tax expense on diminution of operations	1,352			—			—			—
Other	1,623			365			209			(113		)
Income tax expense	$	34,620		$	59,359		$	1,943		$	59,868

Deferred Taxes

The Company has early adopted ASU 2015-17 prospectively. As a result, deferred taxes are presented as noncurrent at March 31, 2016 and the tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are presented as follows:



	3/31/2016			3/31/2015
Deferred tax assets (liabilities), current
Uniform capitalization adjustment to inventory	$	—		$	4,040
Bad debt and other reserves	—			8,984
State taxes	—			482
Prepaid expenses	—			(3,546		)
Accrued bonus	—			4,120
Foreign currency hedge	—			434
Other	—			(448		)
Total deferred tax assets, current	—			14,066
Deferred tax assets (liabilities), noncurrent:
Amortization and impairment of intangible assets	(5,128		)	1,004
Depreciation of property and equipment	(8,804		)	(6,148		)
Share-based compensation	10,118			12,044
Foreign currency translation	151			720
Deferred rent	5,383			4,885
Acquisition costs	745			764
Uniform capitalization adjustment to inventory	5,280			—
Bad debt and other reserves	14,163			—
State taxes	863			—
Prepaid expenses	(3,622		)	—
Accrued bonus	536			—
Foreign currency hedge	(94		)	—
Other	1,045			1,327
Net operating loss carryforwards	—			421
Total deferred tax assets, noncurrent	20,636			15,017
Net deferred tax assets, noncurrent	$	20,636		$	29,083

In order to fully realize the deferred tax assets, the Company will need to generate future taxable income of approximately $62,000. The deferred tax assets are primarily related to the Company's domestic operations and are expected to be realized between fiscal years 2017and 2019. The change in net deferred tax assets between March 31, 2016 and March 31, 2015 includes approximately $300 attributable to OCI. Domestic income before income taxes for the years ended March 31, 2016 and March 31, 2015, the quarter ended March 31, 2014 and the year ended December 31, 2013 was $50,947, $125,289, $2,889 and $144,706, respectively. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets and, accordingly, no valuation allowance was recorded in fiscal years 2016 and 2015.

Tax Impact of Foreign Earnings

At March 31, 2016, the Company has not provided deferred taxes on approximately $454,000 of undistributed earnings from non-US subsidiaries where the earnings are considered to be permanently reinvested. Management’s intent is to continue to reinvest these earnings to support the strategic priority for growth in international markets. If management decides at a later date to repatriate these funds to the US, the Company would be required to provide taxes on these amounts based on applicable US tax rates, net of foreign taxes already paid. The Company has not determined the deferred tax liability associated with these undistributed earnings and, as such, determining our tax liability upon repatriation is not practicable. At March 31, 2016, the Company had approximately $233,000 of cash and cash equivalents outside the US. For fiscal year 2016, the Company generated approximately 23.0% of its pre-tax earnings from a country which does not impose a corporate income tax.

Unrecognized Tax Benefits

When tax returns are filed, some positions taken are subject to uncertainty about the merits of the position taken or the amount that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which the Company believes it is more likely than not that the position will be sustained upon examination. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely to be realized upon settlement. The portion of the benefits that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets, along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

A reconciliation of the beginning and ending amounts of total unrecognized tax benefits is as follows:



Balance, April 1, 2014	$	—
Gross increase related to current year tax positions	1,293
Gross increase related to prior year tax positions	3,374
Balance, March 31, 2015	4,667
Gross increase related to current year tax positions	2,332
Gross increase related to prior year tax positions	2,059
Settlements	(363		)
Balance, March 31, 2016	$	8,695

The amount of accrued unrecognized tax benefits, net of federal benefit that, if recognized, would affect the effective tax rate at March 31, 2016 was $3,996. The accrual relates to tax positions taken in years that are open to examination. At March 31, 2016, interest and potential penalties of $1,842 were accrued in the consolidated balance sheet resulting from tax positions that are subject to examination and were recorded in interest expense on the Company’s consolidated statements of comprehensive income (loss). At March 31, 2015, interest and potential penalties of $1,246 were accrued in the consolidated balance sheet resulting from tax positions that are subject to examination. It is reasonably possible that approximately $856 of unrecognized tax benefits will be settled within the next 12 months.

The Company files income tax returns in the US federal jurisdiction and various state, local, and foreign jurisdictions. With few exceptions, the Company is no longer subject to US federal, state, local, or non-US income tax examinations by tax authorities for years before 2011.

Although the Company believes its tax estimates are reasonable and prepares its tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company's estimates or from its historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, or interest assessments.

The Company has on-going income tax examinations in various state and foreign tax jurisdictions. It is the opinion of management that these audits and inquiries will not have a material impact on the Company's consolidated financial statements.