8x8 2016 Annual Report Download - page 80

The Company's income (loss) from continuing operations before income taxes included $6.9 million, $3.5 million and $0.8 million of foreign subsidiary loss for
the fiscal years ended March 31, 2016, 2015 and 2014, respectively. The Company is permanently reinvesting the earnings of its profitable foreign subsidiaries.
The company intends to reinvest these profits in expansion of overseas operations. If the Company were to remit these earnings, the tax impact would be
immaterial.
Deferred tax assets were comprised of the following (in thousands):
March 31,
Current deferred tax assets 2016 2015
Net operating loss carryforwards $ 2,739 $ 2,179
Inventory valuation 14 14
Reserves and allowances 2,740 2,394
Net current deferred tax assets 5,493 4,587
Net operating loss carryforwards 38,449 44,228
Research and development and other credit carryforwards 7,106 5,414
Stock-based compensation 5,577 3,164
Fixed assets and intangibles (6,160) (4,869)
Net non-current deferred tax assets 44,972 47,937
Valuation allowance (3,760) (4,901)
Total $ 46,705 $ 47,623
As of March 31, 2016 and 2015, management assessed the realizability of deferred tax assets based on the available evidence, including a history of taxable income
and estimates of future taxable income. At March 31, 2016, management evaluated the need for a valuation allowance and determined that a valuation allowance of
approximately $3.8 million was needed. At March 31, 2015, management evaluated the need for a valuation allowance and determined that a valuation allowance
of approximately $4.9 million was needed. The net change in the valuation allowance for the years ended March 31, 2016 and 2015 was a decrease of $1.1 million
and an increase of $0.7 million, respectively.
At March 31, 2016, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $137.9 million and $38.7
million, respectively, which expire at various dates between 2017 and 2036. The net operating loss carryforwards include approximately $40.7 million resulting
from employee exercises of non-qualified stock options or disqualifying dispositions of incentive stock options, the tax benefits of which, when realized, will be
accounted for as an addition to additional paid-in capital rather than as a reduction of the provision for income taxes. In addition, at March 31, 2016, the Company
had research and development credit carryforwards for federal and California tax reporting purposes of approximately $4.5 million and $6.2 million, respectively.
The federal income tax credit carryforwards will expire at various dates between 2021 and 2036, while the California income tax credits will carry forward
indefinitely. A reconciliation of the Company's provision (benefit) for income taxes to the amounts computed using the statutory U.S. federal income tax rate of
34% is as follows (in thousands):
Years Ended March 31,
2016 2015 2014
Tax provision at statutory rate $ (2,029) $ 1,599 $ 1,285
State income taxes before valuation allowance,
net of federal effect 9 269 196
Foreign tax rate differential (769) - -
Research and development credits (1,253) (725) (1,534)
Change in valuation allowance (1,555) (1,480) 1,264
Compensation/option differences (471) (331) (264)
Non-deductible compensation 944 746 605
Acquisition costs 230 - 230
Expiring CA NOLs 1,626 1,484 240
Foreign loss not benefited 2,342 1,192 271
Other 79 35 (74)
Total income tax provision $ (847) $ 2,789 $ 2,219
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