INCOME TAXES

Income tax expense for Fiscal Years 2015, 2016, and 2017 consisted of the following:



	Fiscal Year Ended March 31,
(in thousands)	2015			2016			2017
Current:
Federal	$	26,938		$	15,702		$	10,591
State	2,685			1,934			457
Foreign	4,253			4,644			7,731
Total current provision for income taxes	33,876			22,280			18,779
Deferred:
Federal	(1,148		)	(7,767		)	1,022
State	(1,353		)	(1,103		)	(117		)
Foreign	1,575			374			(618		)
Total deferred income tax expense (benefit)	(926		)	(8,496		)	287
Income tax expense	$	32,950		$	13,784		$	19,066

The components of income before income taxes for Fiscal Years 2015, 2016, and 2017 are as follows:



	Fiscal Year Ended March 31,
(in thousands)	2015		2016		2017
United States	$	83,583	$	42,184	$	43,377
Foreign	61,668		39,992		58,288
Income before income taxes	$	145,251	$	82,176	$	101,665

The following is a reconciliation between statutory federal income taxes and the income tax expense for Fiscal Years 2015, 2016, and 2017:



	Fiscal Year Ended March 31,
(in thousands)	2015			2016			2017
Tax expense at statutory rate	$	50,838		$	28,762		$	35,583
Foreign operations taxed at different rates	(15,839		)	(9,478		)	(13,183		)
State taxes, net of federal benefit	1,331			831			340
Research and development credit	(2,460		)	(3,133		)	(3,119		)
Unwind of stock based compensation cost sharing	—			(2,855		)	—
Other, net	(920		)	(343		)	(555		)
Income tax expense	$	32,950		$	13,784		$	19,066

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 $709.1 million at March 31, 2017. 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 incur additional U.S. income taxes, subject to an adjustment for foreign tax credits and foreign withholding taxes.

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, 2016 and 2017 are as follows:



	March 31,
(in thousands)	2016			2017
Accruals and other reserves	$	5,896		$	8,526
Deferred Compensation	3,750			4,859
Net operating loss carry forward	2,955			2,221
Stock compensation	12,561			12,821
Prepaid cost sharing	6,199			—
Tax credits	3,642			4,530
Other deferred tax assets	1,684			1,711
Valuation allowance	(1,962		)	(2,209		)
Total deferred tax assets	34,725			32,459
Deferred gains on sales of properties	(1,761		)	(1,771		)
Unremitted earnings of certain subsidiaries	(4,481		)	—
Fixed asset depreciation	(4,846		)	(7,351		)
Total deferred tax liabilities	(11,088		)	(9,122		)
Net deferred tax assets⁽¹⁾	$	23,637		$	23,337

⁽¹⁾ The Company's deferred tax assets for the fiscal year ending March 31, 2016 and March 31, 2017, are included as a component of other assets on the consolidated balance sheets.

The Company has California research and development credit carryforwards for income tax purposes of $9.7 million that can be carried forward indefinitely. The Company has Brazilian net operating losses of $2.1 million which can be carried forward indefinitely. The Company has Chinese net operating losses of $2.7 million that expire in different periods through Fiscal Year 2023.

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 $2.2 million as of March 31, 2017 was related to the net operating losses of foreign subsidiaries with an insufficient recent history of earnings to support the realization of their deferred tax assets, as well as to excess California research credit carryforwards. The valuation allowance of $2.0 million as of March 31, 2016 was related to the net operating losses of foreign subsidiaries with an insufficient history of recent earnings to support the realization of their deferred tax assets. During the year ending March 31, 2017, the valuation allowance increased by $0.2 million, which was primarily related to excess California research credit carryforwards generated during the year ending March 31, 2017 for which it is more likely than not these deferred tax assets will not be realized.

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, 2016, and 2017, the Company had $12.8 million, $12.7 million, and $12.9 million, respectively, of unrecognized tax benefits. The unrecognized tax benefits as of March 31, 2017 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			2016			2017
Balance at beginning of period	$	12,571		$	12,821		$	12,692
Increase (decrease) of unrecognized tax benefits related to prior fiscal years	(244		)	(598		)	(2		)
Increase of unrecognized tax benefits related to the current year	1,908			2,252			2,195
Reductions to unrecognized tax benefits related to settlements with taxing authorities	—			(149		)	—
Reductions to unrecognized tax benefits related to lapse of applicable statute of limitations	(1,414		)	(1,634		)	(2,031		)
Balance at end of period	$	12,821		$	12,692		$	12,854

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 $1.6 million and $1.7 million as of March 31, 2016 and 2017, 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. All federal tax matters have been concluded for tax years prior to Fiscal Year 2014. 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.

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.