INCOME TAXES

Income tax expense for fiscal years 2015, 2014, and 2013 consisted of the following:



(in thousands)	Fiscal Year Ended March 31,
	2015			2014			2013
Current:
Federal	$	26,938		$	28,859		$	25,530
State	2,685			1,263			2,452
Foreign	4,253			4,384			4,777
Total current provision for income taxes	33,876			34,506			32,759
Deferred:
Federal	(1,148		)	(4,675		)	(586		)
State	(1,353		)	(629		)	(474		)
Foreign	1,575			(480		)	324
Total deferred benefit for income taxes	(926		)	(5,784		)	(736		)
Income tax expense	$	32,950		$	28,722		$	32,023

The components of income before income taxes for fiscal years 2015, 2014, and 2013 are as follows:



	Fiscal Year Ended March 31,
(in thousands)	2015		2014		2013
United States	$	83,583	$	85,231	$	80,875
Foreign	61,668		55,908		57,550
Income before income taxes	$	145,251	$	141,139	$	138,425

The following is a reconciliation between statutory federal income taxes and the income tax expense for fiscal years 2015, 2014, and 2013:



(in thousands)	Fiscal Year Ended March 31,
	2015			2014			2013
Tax expense at statutory rate	$	50,838		$	49,399		$	48,449
Foreign operations taxed at different rates	(15,839		)	(16,175		)	(15,244		)
State taxes, net of federal benefit	1,331			634			1,978
Research and development credit	(2,460		)	(1,805		)	(3,380		)
Other, net	(920		)	(3,331		)	220
Income tax expense	$	32,950		$	28,722		$	32,023

The effective tax rate for fiscal years 2015, 2014, and 2013 was 22.7%, 20.4%, and 23.1% respectively. The effective tax rate for fiscal year 2015 is higher than the previous year due primarily to the absence of several one-time, discrete items that benefited the tax rate in the previous year, such as the generation of a foreign tax credit carryover, changes in Mexican tax law that resulted in the reversal of a valuation allowance, and a deduction for qualifying domestic production activities. These factors were offset by a higher proportion of income earned in foreign jurisdictions that is taxed at lower rates and by an increase in the benefit from the U.S. federal research tax credit. Our fiscal year 2015 included four quarters of benefit from the U.S. federal research tax credit because the credit expired on December 31, 2014 but was retroactively reinstated in January 2015. In contrast, during our fiscal year 2014, the credit was only available for three quarters as the credit expired December 31, 2013 and was not renewed.

In comparison to fiscal year 2013, the decrease in the effective tax rate for fiscal year 2014 was due primarily to changes in Mexican tax law that resulted in the reversal of a valuation allowance, a deduction for qualifying domestic production activities, and the generation of a foreign tax credit carryover, offset by a decrease in the benefit from the U.S. federal research tax credit. The U.S. federal research tax credit expired December 31, 2013 and was therefore only available for three quarters in our fiscal year 2014, compared to fiscal year 2013, which included a full five quarters of benefit. Five quarters of benefit was recorded in fiscal year 2013 due to the timing of the retroactive reinstatement of the U.S. federal research tax credit. On January 2, 2013, the American Taxpayer Relief Act of 2012, which included a provision that retroactively extended the federal tax research credit to January 1, 2012 for two years, was signed into law. The Company recognized an approximate $1.8 million discrete tax benefit in the fourth quarter of fiscal year 2013 for the previously expired period from January 1, 2012 to December 31, 2012.

The effective tax rate for fiscal years 2015, 2014, and 2013 differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates, income tax credits, state taxes, and other factors. The future tax rate could be impacted by a shift in the mix of domestic and foreign income, tax treaties with foreign jurisdictions, changes in tax laws in the U.S. or internationally, or a change in estimate of future taxable income which could result in a valuation allowance being required.

The Company's provision for income taxes does not include provisions for U.S. income taxes and foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign operations that it intends to reinvest indefinitely in the foreign operations. Indefinitely reinvested foreign earnings were approximately $650.8 million at March 31, 2015. The determination of the tax liability that would be incurred if these amounts were remitted back to the U.S. is not practical but would likely be material. If these earnings were distributed to the U.S. in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes, subject to an adjustment for foreign tax credits and foreign withholding taxes. The Company's current plans do not require repatriation of earnings from foreign operations to fund the U.S. operations because it generates sufficient domestic operating cash flow and has access to external funding under its line of credit. As a result, the Company does not expect a material impact on its business or financial flexibility with respect to undistributed earnings of its foreign operations.

Deferred tax assets and liabilities represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of March 31, 2015 and 2014 are as follows:



	March 31,
(in thousands)	2015			2014
Accruals and other reserves	$	5,100		$	8,459
Net operating loss carry forward	3,043			4,580
Stock compensation	9,865			8,957
Other deferred tax assets	8,375			3,937
Valuation allowance	(1,940		)	(3,351		)
Total deferred tax assets	24,443			22,582
Deferred gains on sales of properties	(1,756		)	(1,756		)
Unremitted earnings of certain subsidiaries	(3,064		)	(3,064		)
Fixed asset depreciation	(4,650		)	(3,571		)
Total deferred tax liabilities	(9,470		)	(8,391		)
Net deferred tax assets⁽¹⁾	$	14,973		$	14,191

⁽¹⁾ The long-term portion of the Company's deferred tax assets for the fiscal years ending March 31, 2015 and March 31, 2014, are included as a component of other assets on the consolidated balance sheets.

The Company evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize the assets using a more likely than not analysis. Deferred tax assets are only recorded to the extent that they are realizable based upon past and future income. The Company has a long established earnings history with taxable income in its carryback years and forecasted future earnings. The Company has concluded that no valuation allowance is required, except for the specific items discussed below.

The valuation allowance of $1.9 million as of March 31, 2015 was related to the net operating losses of a foreign subsidiary with an insufficient history of earnings to support the realization of the deferred tax asset.

The impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more likely than not to be sustained. An uncertain income tax position will not be recognized unless it has a greater than 50% likelihood of being sustained. As of March 31, 2015, 2014, and 2013, the Company had $12.8 million, $12.6 million, and $11.1 million, respectively, of unrecognized tax benefits. The unrecognized tax benefits as of March 31, 2015 would favorably impact the effective tax rate in future periods if recognized.

A reconciliation of the change in the amount of gross unrecognized income tax benefits for the periods is as follows:



	March 31,
(in thousands)	2015			2014			2013
Balance at beginning of period	$	12,571		$	11,072		$	11,141
Increase (decrease) of unrecognized tax benefits related to prior years	(244		)	641			(117		)
Increase of unrecognized tax benefits related to the current year	1,908			2,427			2,430
Reductions to unrecognized tax benefits related to lapse of applicable statute of limitations	(1,414		)	(1,569		)	(2,382		)
Balance at end of period	$	12,821		$	12,571		$	11,072

The Company's continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The interest related to unrecognized tax benefits was $1.8 million and $1.7 million as of March 31, 2015 and 2014, respectively. No penalties have been accrued.

The Company and its subsidiaries are subject to taxation in various foreign and state jurisdictions, including the U.S. The Company is under examination by the Internal Revenue Service for its 2010 tax year. The California Franchise Tax Board completed its examination of our 2007 and 2008 tax years. The Company received a Notice of Proposed Assessment and responded by filing a protest letter. The amount of the proposed assessment is not material. Foreign income tax matters for material tax jurisdictions have been concluded for tax years prior to fiscal year 2011, except for the United Kingdom, which has been concluded for tax years prior to fiscal year 2014.

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations; however, the outcome of such examinations cannot be predicted with certainty. If any issues addressed in the tax examinations are resolved in a manner inconsistent with the Company's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. The timing of any resolution and/or closure of tax examinations is not certain.