Income Taxes

Changes in Tax Law

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Reform Act) was enacted into law. The Tax Reform Act includes significant changes to US corporate income tax law, including a permanent reduction in the federal corporate income tax rate from 35.0% to 21.0%, limitations on the deductibility of interest expense and executive compensation, the transition of the US tax regime from a worldwide tax system to a territorial tax system, and provisions aimed at preventing base erosion of the US tax base.

As a result of the Tax Reform Act, the Company recorded provisional estimates in accordance with Staff Accounting Bulletin No. 118 (SAB 118) during the year ended March 31, 2018 in relation to the US federal and state income tax associated with the one-time mandatory deemed repatriation of accumulated foreign earnings and the non-cash re-measurement of deferred tax assets and liabilities due to the US federal tax rate reduction. In connection with finalizing the tax effects of the Tax Reform Act, the Company recorded immaterial measurement period adjustments during the year ended March 31, 2019 including a reduction from $59,114 to $57,895 related to the one-time mandatory deemed repatriation tax on accumulated foreign earnings. Refer to below “Income Tax Expense (Benefit) Reconciliation” for further information.

Other provisions of the Tax Reform Act which were effective on or after January 1, 2018, include but are not limited to, US taxation of foreign earnings considered global intangible low-taxed income (GILTI), minimum tax on base erosion anti-abuse (BEAT), and limitations on the deductibility of interest expense and executive compensation. The Company has elected to account for temporary differences that are expected to reverse as GILTI in future periods using a period cost method. The Company continues to evaluate new guidance and legislation as it is issued. There has been no new guidance or legislation issued after the balance sheet date through May 17, 2019 that is expected to have a material impact on the Company’s consolidated financial statements.

Income (Loss) Before Income Taxes

Components of income (loss) before income taxes include the following:



	Years Ended March 31,
	2019		2018		2017
Domestic*	$	181,730	$	71,482	$	(69,997	)
Foreign	147,204		149,214		63,011
Total	$	328,934	$	220,696	$	(6,986	)

*Domestic income (loss) before income taxes for the years ended March 31, 2019, 2018 and 2017 is presented net of intercompany dividends of $130,000, $250,000, and $13,692, respectively.

Income Tax Expense (Benefit)

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



	Years Ended March 31,
	2019		2018		2017
Current
Federal	$	33,334	$	80,339	$	2,184
State	9,084		3,437		1,576
Foreign	15,269		14,388		8,039
Total	57,687		98,164		11,799



	Years Ended March 31,
	2019			2018			2017
Deferred
Federal	6,612			12,007			(20,287		)
State	2,236			391			(3,446		)
Foreign	(1,909		)	(4,260		)	(762		)
Total	6,939			8,138			(24,495		)
Total	$	64,626		$	106,302		$	(12,696	)

Income Tax Expense (Benefit) Reconciliation

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



	Years Ended March 31,
	2019			2018			2017
Computed expected income taxes	$	69,076		$	69,556		$	(2,445	)
State income taxes, net of federal income tax benefit*	9,329			9,044			(1,403		)
Foreign rate differential	(20,105		)	(37,090		)	(8,062		)
Unrecognized tax benefits	786			1,301			2,691
Income tax expense on diminution of operations and nondeductible goodwill	—			—			3,921
Return to provision adjustments	(179		)	(2,252		)	(1,386		)
Nontaxable income	(4,257		)	(7,006		)	(5,055		)
Nondeductible expense	7,742			1,382			1,358
US tax on foreign earnings**	5,848			57,138			—
Re-measurement of deferred taxes***	(983		)	14,395			—
Statutory foreign income tax expense (benefit)	276			59			(2,504		)
Other	(2,907		)	(225		)	189
Total	$	64,626		$	106,302		$	(12,696	)

*During the year ended March 31, 2018, the Company recorded $1,976 of state income taxes associated with one-time mandatory deemed repatriation of foreign earnings due to the Tax Reform Act.

**The amount for the year ended March 31, 2018 is the one-time mandatory deemed repatriation tax on accumulated foreign earnings due pursuant to the Tax Reform Act. The amount for the year ended March 31, 2019 is GILTI pursuant to the Tax Reform Act.

***The total non-cash re-measurement of deferred tax assets and liabilities for the year ended March 31, 2018 was driven by the US federal tax rate reduction from 35.0% to 21.0% pursuant to the Tax Reform Act.

Deferred Taxes

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



	As of March 31,
	2019		2018
Deferred tax assets
Amortization and impairment of intangible assets	$	13,615	$	18,261
Stock compensation	3,645		4,027
Deferred rent obligations	4,899		5,452
Acquisition costs	461		481
Uniform capitalization adjustment to inventory	3,965		3,212
Bad debt allowance and other reserves	11,932		12,939
State taxes	239		798
Accrued bonuses	7,350		7,573
Foreign currency translation	670		—
Net operating loss carry-forwards, net of valuation allowances	807		863
Other	745		—
Total	48,328		53,606
Deferred tax liabilities
Prepaid expenses	3,379		2,686
Depreciation of property and equipment	14,079		9,638
Foreign currency translation	—		1,700
Other	—		1,201
Total	17,458		15,225

Deferred tax assets, net	$	30,870	$	38,381

In order to fully realize the deferred tax assets, the Company will need to generate future taxable income of $118,447. The deferred tax assets are primarily related to the Company’s domestic operations and are currently expected to be realized between fiscal years 2020 and 2030. The Company recorded a decrease of $572 to deferred tax assets, net during the year ended March 31, 2019 related to the adoption of new ASUs, the tax effect of Designated Derivative Contracts recognized in OCI and changes in cumulative translation adjustments.

Based on 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. The Company’s deferred tax valuation allowances are primarily the result of foreign losses in jurisdictions with limited future profitability. As of March 31, 2019 and 2018, the Company had immaterial valuation allowances recorded against the related deferred tax assets for those loss carry-forwards that are not more likely than not to be fully utilized in reducing future taxable income.

As of March 31, 2019 and 2018, the Company reported deferred tax assets related to tax credit carry-forwards and net operating losses, net of valuation allowances, available to reduce future taxable income of $843 and $974, respectively. Some of the net operating losses and tax credits expire beginning in 2022; however, others can be carried forward indefinitely.

US Taxation of Foreign Earnings

Pursuant to the Tax Reform Act, the Company reported $57,895 of US federal and state income taxes on undistributed earnings from its non-US subsidiaries on its March 31, 2018 income tax returns filed with the US tax authorities. During the year ended March 31, 2019, the Company recorded $6,348 of US federal and state income tax expense, net of foreign tax credits on foreign earnings. During the year ended March 31, 2019, the Company declared a dividend of $130,000 from a foreign subsidiary, for which no foreign withholding taxes were required.

As of March 31, 2019, the Company reported $388,535 of undistributed earnings from its non-US subsidiaries, of which $214,876 relates to cash and cash equivalents, a portion of which may be subject to additional foreign withholding taxes if it were to be repatriated. As of March 31, 2019, the Company reported $15,193 of accumulated earnings from its non-US subsidiaries for which no US federal or state income taxes have been provided. The Company currently anticipates repatriating current and future unremitted earnings of non-US subsidiaries, to the extent they have been and will be subject to US income tax, as long as such cash is not required to fund ongoing foreign operations. Due to the complexities in the laws of foreign jurisdictions and assumptions that would have to be made, it is not practicable to estimate the amount of foreign withholding taxes associated with such unremitted earnings.

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 consolidated financial statements in the period during which the Company believes it is more likely than not that the position will be sustained upon examination by taxing authorities. The recognition threshold is 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 recorded as a liability for unrecognized tax benefits, along with any associated interest and penalties, in the consolidated balance sheets.

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



Balance as of 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 as of March 31, 2017	11,727
Gross increase related to current year tax positions	1,168
Gross increase related to prior year tax positions	1,243
Settlements	(4,501		)
Lapse of statute of limitations	(43		)
Balance as of March 31, 2018	9,594
Gross increase related to current year tax positions	1,027
Gross increase related to prior year tax positions	3,282
Settlements	(1,157		)
Lapse of statute of limitations	(1,804		)
Balance as of March 31, 2019	$	10,942

Total gross unrecognized tax benefits recorded in the consolidated balance sheets, as follows:



	As of March 31,
	2019		2018
Long-term asset
Deferred tax assets, net	$	486	$	—
Current liability
Income taxes payable	7		—
Long-term liability
Income tax liability	10,449		9,594
Total	$	10,942	$	9,594

As of March 31, 2019 and 2018, the Company had $2,456 and $3,224 accrued for the payment of interest and penalties, respectively, in income tax liability in the consolidated balance sheets. During the years ended March 31, 2019, 2018 and 2017, the Company recognized $(110), $369, and $1,148, respectively, of interest and penalties as a (decrease) or increase to interest expense in the consolidated statements of comprehensive income (loss).

Management believes it is reasonably possible that the amount of unrecognized tax benefits, as well as associated interest and penalties, may decrease during the next 12 months by $3,272 related to the expiration of statutes of limitations. Of this amount, $2,332 would result in an income tax benefit for the Company and $940 would result in a decrease to interest expense in the consolidated statements of comprehensive income (loss).

The Company has on-going income tax examinations in various state and foreign tax jurisdictions and regularly assesses tax positions taken in years open to examination. 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 foreign income tax examinations by tax authorities for the fiscal years before 2014.

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 impact 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. However, it is the opinion of management that the Company does not currently expect these audits and inquiries to have a material impact on the Company’s consolidated financial statements.