12. Income Taxes

The components of loss from continuing operations before income taxes are as follows:

 

		For the Fiscal Years Ended January 31,
		2016				2015				2014
		(Amounts in thousands)
Domestic		$	(38,709	)		$	(25,920	)		$	(15,049	)
Foreign			(10,044	)			(2,694	)			12,833
		$	(48,753	)		$	(28,614	)		$	(2,216	)

 

The components of the income tax (benefit) provision from continuing operations are as follows:

 

		For the Fiscal Years Ended January 31,
		2016				2015				2014
		(Amounts in thousands)
Current:
Federal		$	—			$	—			$	11
State			50				(762	)			50
Foreign			(49	)			24				692
Total			1				(738	)			753
Deferred:
Foreign			(1,030	)			(368	)			(698	)
Total			(1,030	)			(368	)			(698	)
Income tax (benefit) provision		$	(1,029	)		$	(1,106	)		$	55

The income tax (benefit) provision for continuing operations computed using the federal statutory income tax rate differs from our effective tax rate primarily due to the following:

 

		For the Fiscal Years Ended January 31,
		2016				2015				2014
		(Amounts in thousands)
Statutory U.S. federal tax rate		$	(17,066	)		$	(10,014	)		$	(774	)
State taxes, net of federal tax benefit			33				(779	)			33
Income (losses) not benefitted			15,712				8,913				92
Non-deductible stock compensation expense			3				—				15
Other(1)			(31	)			(74	)			694
Innovative technology and development incentive			(189	)			(68	)			260
Foreign tax rate differential			509				916				(265	)
		$	(1,029	)		$	(1,106	)		$	55

 

(1)

Within the other line in the table above, other non-deductible items were ($0.2) million and $0.3 million for the fiscal years ended January 31, 2016 and 2014, respectively but were not material in fiscal 2015. These expenses have been aggregated with various adjustments related to differences in prior year U.S. and foreign tax provisions and the actual returns filed.

Our effective tax rate was a benefit of 2% and 4% for the fiscal years ended January 31, 2016 and 2015, respectively, and an effective tax rate provision of 3% for the fiscal year ended January 31, 2014.

 

The components of deferred income taxes are as follows:

 

		January 31,
		2016				2015
		(Amounts in thousands)
Deferred tax assets:
Accruals and reserves		$	5,041			$	1,783
Deferred revenue			346				761
Stock-based compensation expense			3,655				3,005
U.S. federal, state and foreign tax credits			7,510				7,670
Intangible assets			7,153				—
Loss carryforwards			24,172				18,298
Deferred tax assets			47,877				31,517
Less: Valuation allowance			(47,368	)			(30,369	)
Net deferred tax assets			509				1,148
Deferred tax liabilities:
Intangible assets			—				1,267
Other			75				74
Property and equipment			426				869
Total net deferred tax liabilities		$	8			$	(1,062	)

At January 31, 2016, we had federal, state and foreign net operating loss carry forwards of $48.0 million, $80.8 million and $2.0 million respectively, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2017. Utilization of these net operating loss carry forwards may be limited pursuant to provisions of the respective local jurisdiction. At January 31, 2016, we had a federal capital loss carry forward of $13.1 million. This loss can only be utilized to offset capital gains and it expires in fiscal 2018. In addition, at January 31, 2016, we had federal and state research and development credit carry forwards of $3.6 million and $1.8 million respectively, and state investment tax credit carry forwards of $0.3 million. Certain federal and state credit carry forwards will expire at various dates if not utilized, while certain other credit carry forwards may be carried forward indefinitely. Utilization of these credit carry forwards may be limited pursuant to provisions of the respective local jurisdiction. We also have alternative minimum tax credit carry forwards of $0.6 million which are available to reduce future federal regular income taxes over an indefinite period. We have foreign tax credit carry forwards of $2.0 million which are available to reduce future federal regular income taxes.

We review the adequacy of the valuation allowance for deferred tax assets on a quarterly basis. We have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets and have established a valuation allowance of $47.4 million for such assets, which are comprised principally of net operating loss carry forwards, research and development credits, deferred revenue, inventory and stock-based compensation. If we generate pre-tax income in the future, some portion or all of the valuation allowance could be reversed and a corresponding increase in net income would be reported in future periods. The valuation allowance increased $17.0 million from $30.4 million at January 31, 2015.

At January 31, 2016, we have indefinitely reinvested $82.5 million of the cumulative undistributed earnings of certain foreign subsidiaries. Approximately $48 million of such earnings would be subject to U.S. taxes if repatriated to the United States. Through January 31, 2016, we have not provided deferred income taxes on the undistributed earnings of our foreign subsidiaries because such earnings are considered to be indefinitely reinvested outside the United States. Non-U.S. current and deferred income taxes have been provided in connection with our foreign subsidiaries’ continuing operations with the exception of a subsidiary in the British Virgin Islands, which operates in a zero rate jurisdiction. Determination of the potential deferred income tax liability on these undistributed earnings is not practicable because such liability, if any, is dependent on circumstances existing if, and when, remittance occurs.

 

For the fiscal year ended January 31, 2016, we recognized incremental tax benefits of $0.4 million. This incremental tax benefit is primarily due to $0.3 million of tax benefit recorded for the expiration of the statute of limitations and $0.1 million for the effect of foreign translation. At January 31, 2016, $0.4 million of the $5.2 million of unrecognized tax benefits are related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months due to the statute of limitations expiring. We recognize accrued interest and penalties related to uncertain tax positions in income tax expense. A reconciliation of the beginning and ending balance of the total amounts of gross unrecognized tax benefits, excluding interest of $0.4 million, is as follows:

 

		For the Fiscal Years Ended January 31,
		2016				2015
		(Amounts in thousands)
Balance of gross unrecognized tax benefits, beginning of period		$	5,527			$	6,035
Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period			—				96
Decrease due to expiration of statute of limitation			(325	)			(275	)
Effect of currency translation			(51	)			(329	)
Balance of gross unrecognized tax benefits, end of period		$	5,151			$	5,527

We file income tax returns in U.S. federal jurisdiction, various state jurisdictions, and various foreign jurisdictions. We have closed out an audit with the Internal Revenue Service (“IRS”) through fiscal 2013, however, the taxing authorities still have the ability to review the propriety of certain tax attributes created in closed years if such tax attributes are utilized in an open tax year, such as our federal research and development credit carryovers.

In the fourth quarter of fiscal 2016, we effectively settled our IRS audit for fiscal years 2010 through 2013. The closing of the audit resulted in $2.3 million reduction in our federal net operating loss (“NOL”) carryforward, a corresponding $2.3 million increase in our federal capital loss carryforward and a $0.1 million reduction in our federal research and development credits.

We continue to maintain a valuation allowance against deferred tax assets where realization is not certain. We periodically evaluate the likelihood of the realization of deferred tax assets and reduce the carrying amount of these deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized.