Income Taxes

Income Tax (Benefit) Expense

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



	Years Ended March 31,
	2017			2016			2015
Current
Federal	$	2,184		$	11,971		$	35,459
State	1,576			2,443			6,861
Foreign	8,039			12,039			7,069
Total	11,799			26,453			49,389
Deferred
Federal	(20,287		)	7,887			8,234
State	(3,446		)	1,113			624
Foreign	(762		)	(833		)	1,112
Total	(24,495		)	8,167			9,970
Income tax (benefit) expense	$	(12,696	)	$	34,620		$	59,359

Foreign income before income taxes was $49,319, $105,938, and $95,850 during the years ended March 31, 2017, 2016 and 2015, respectively.

Income Tax (Benefit) Expense Reconciliation

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



	Years Ended March 31,
	2017			2016			2015
Computed expected income taxes	$	(2,445	)	$	54,910		$	77,399
State income taxes, net of federal income tax benefit	(1,403		)	1,298			3,564
Foreign rate differential	(8,062		)	(28,233		)	(25,535		)
Unrecognized tax benefits	2,691			3,670			3,566
Income tax expense on diminution of operations and nondeductible goodwill	3,921			1,352			—
Foreign income withholding tax expense	432			—			—
Nontaxable income	(5,055		)	—			—
Statutory foreign income tax (benefit) expense	(2,504		)	(477		)	20
Other	(271		)	2,100			345
Income tax (benefit) expense	$	(12,696	)	$	34,620		$	59,359

Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are presented as follows:



	As of March 31,
	2017			2016
Deferred tax assets (liabilities), noncurrent:
Amortization and impairment of intangible assets	$	28,304		$	(5,128	)
Depreciation of property and equipment	(19,511		)	(8,804		)
Stock-based compensation	6,258			10,118
Deferred rent	6,809			5,383
Acquisition costs	751			745
Uniform capitalization adjustment to inventory	4,971			5,280
Bad debt and other reserves	15,946			14,163
State taxes	(145		)	863
Prepaid expenses	(4,144		)	(3,622		)
Accrued bonuses	1,456			536
Foreign currency exchange rate hedges	(534		)	(94		)
Other	1,376			1,196
Net operating loss carry-forwards	3,171			—
Net deferred tax assets	$	44,708		$	20,636

In order to fully realize the deferred tax assets, the Company will need to generate future taxable income of approximately $126,386. The deferred tax assets are primarily related to the Company's domestic operations and are currently expected to be realized between fiscal years 2018 and 2029. The change in net deferred tax assets between March 31, 2017 and March 31, 2016 includes approximately $400 attributable to the effective portion of Designated Derivative Contracts recognized in OCI. Refer to Note 9, "Foreign Currency Exchange Rate Contracts and Hedging", for additional information regarding the Company's derivative instruments and the impact to OCI. Domestic income (loss) before income taxes for the years ended March 31, 2017, 2016 and 2015 was $(56,305), $50,947, and $125,289, 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 2017 and 2016.

Tax Impact of Foreign Earnings

As of March 31, 2017, the Company has not provided deferred taxes on approximately $505,124 of US GAAP 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, as doing so is not practicable. As of March 31, 2017, the Company had approximately $265,773 of cash and cash equivalents outside the US.

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 upon examination. 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 benefit that exceeds the amount measured, as described above, is reflected as a liability for unrecognized tax benefits in the 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, 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
Gross increase related to current year tax positions	1,878
Gross increase related to prior year tax positions	1,154
Balance, March 31, 2017	$	11,727

The amount of accrued unrecognized tax benefits, net of federal benefit, affecting the effective tax rate as of March 31, 2017 was $2,691. The accrual relates to tax positions taken in years that are open to examination. As of March 31, 2017, interest and potential penalties of $2,990 compared to $1,842 as of March 31, 2016 were accrued in the consolidated balance sheets resulting from tax positions that are subject to examination and were recorded in interest expense in the Company’s consolidated statements of comprehensive income (loss). 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 2012.

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.