• Filing Date: 2020-06-24
  • Form Type: 10-K
  • Description: Annual report
v3.20.1
INCOME TAXES
12 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
Pre-tax loss reflected in the consolidated statements of operations for the years ended March 31, 2020, 2019 and 2018 is as follows (in thousands):
 
Year Ended March 31,
 
2020
 
2019
 
2018
U.S.
$
(6,318
)
 
$
(40,935
)
 
$
(46,923
)
Foreign
1,911

514

514

 
464

Total
$
(4,407
)
 
$
(40,421
)
 
$
(46,459
)


Income tax provision (benefit) consists of the following (in thousands):
 
Year Ended March 31,
 
2020
 
2019
 
2018
Current tax expense
 
 
 
 
 
   Federal
$
(115
)
 
$
(217
)
 
$
(3,484
)
   State
106

 
31

 
26

   Foreign
1,271

 
1,103

 
206

      Total current tax expense
1,262

 
917

 
(3,252
)
Deferred tax expense


 


 


   State
33

 
32

 
32

   Foreign
(492
)
 
1,427

 
107

      Total deferred tax expense
(459
)
 
1,459

 
139

Income tax provision (benefit)
$
803

 
$
2,376

 
$
(3,113
)

The income tax provision differs from the amount computed by applying the federal statutory rate of 21% for 2020 and 2019, and 31.5% for 2018 to income (loss) before income taxes as follows (in thousands):
 
For the year ended March 31,
 
2020
 
2019
 
2018
Expense (benefit) at the federal statutory rate
$
(925
)
 
$
(8,488
)
 
$
(14,634
)
Equity compensation
280

 
905

 
1,024

Permanent items
914

 
359

 
564

Foreign taxes
1,612

 
(2,133
)
 
1,336

State income taxes
(20
)
 
(997
)
 
(830
)
Valuation allowance
(2,639
)
 
10,913

 
(42,784
)
Uncertain tax positions
(8,654
)
 
(9,278
)
 
(336
)
Tax reform

 
(207
)
 
52,682

Credit monetization

 

 
(323
)
Expiration of attributes
11,679

 
12,268

 
410

Research and development credits
(1,566
)
 
(879
)
 
(1,714
)
Other
122

 
(87
)
 
1,492

Income tax provision
$
803

 
$
2,376

 
$
(3,113
)


Significant components of deferred tax assets and liabilities are as follows (in thousands):
 
As of March 31,
 
2020
 
2019
Deferred tax assets
 
 
 
Inventory valuation method
$
924

 
$
882

Accrued warranty expense
650

 
814

Distribution reserves
187

 
2,137

Loss carryforwards
85,638

 
93,308

Tax credits
17,416

 
20,346

Restructuring charge accruals

 
678

Deferred revenue
17,043

 
13,094

Acquired intangibles
2,660

 
2,822

Lease obligations
3,413

 

Other accruals and reserves not currently deductible for tax purposes
16,152

 
7,051

Gross deferred tax assets
144,083

 
141,132

Valuation allowance
(137,814
)
 
(140,359
)
   Total deferred tax assets, net of valuation allowance
$
6,269

 
$
773

Deferred tax liabilities
 
 
 
Depreciation
$
(1,440
)
 
$
(450
)
Lease assets
(3,413
)
 

Other
(967
)
 
(524
)
   Total deferred tax liabilities
$
(5,820
)
 
$
(974
)
           Net deferred tax assets (liabilities)
$
449

 
$
(201
)


The valuation allowance decreased by $2,545 during the year ended March 31, 2020, increased by $10,311 during the year ended March 31, 2019, and decreased by $24,248 during the year ended March 31, 2018.

A reconciliation of the gross unrecognized tax benefits follows (in thousands):
 
For the year ended March 31,
 
2020
 
2019
 
2018
Beginning Balance
$
116,032

 
$
150,559

 
$
170,730

Increase in balances related to tax positions in current period
2,275

 
1,718

 
3,298

Increase in balances related to tax positions in prior period
144

 

 
25

Decrease in balances related to tax positions in prior period
(4
)
 
(25,095
)
 
(20,692
)
Decrease in balances due to lapse in statute of limitations
(11,165
)
 
(11,150
)
 
(810
)
Settlement and effective settlements with tax authorities and related remeasurements

 

 
(1,992
)
Ending balance
$
107,282

 
$
116,032

 
$
150,559



During fiscal 2020, excluding interest and penalties, there was a $8.8 million change in the Company's unrecognized tax benefits. Including interest and penalties, the total unrecognized tax benefit at March 31, 2020 was $108.4 million, of which $90.1 million, if recognized, would favorably affect the effective tax rate. At March 31, 2020, accrued interest and penalties totaled $1.1 million. The Company's practice is to recognize interest and penalties related to income tax matters in the income tax provision in the consolidated statements of operations. As of March 31, 2020, $102.3 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the consolidated balance sheets and $6.1 million (including interest and penalties) were included in other long-term liabilities in the consolidated balance sheets.
The Company files its tax returns as prescribed by the laws of the jurisdictions in which we operate. Our U.S. tax returns have been audited for years through 2002 by the Internal Revenue Service. In other major jurisdictions, the Company is generally open to examination for the most recent three to five fiscal years. During the next 12 months, it is reasonably possible that approximately $9.1 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations.
As of March 31, 2020, the Company had federal net operating loss and tax credit carryforwards of approximately $334.2 million and $67.6 million, respectively. The net operating loss and tax credit carryforwards expire in varying amounts beginning in fiscal year 2022 if not previously utilized, and $13.3 million are indefinite-lived net operating loss carryforwards. These carryforwards include $11.1 million of acquired net operating losses and $8.4 million of acquired credits, the utilization of which is subject to various limitations due to prior changes in ownership.
Certain changes in stock ownership could result in a limitation on the amount of both acquired and self-generated net operating loss and tax credit carryovers that can be utilized each year. If the Company has previously undergone, or should it experience in the future, such a change in stock ownership, it could severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges.
Due to its history of net losses and the difficulty in predicting future results, Quantum believes that it cannot rely on projections of future taxable income to realize the deferred tax assets. Accordingly, it has established a full valuation allowance against its U.S. and certain foreign net deferred tax assets. Significant management judgement is required in determining the Company's deferred tax assets and liabilities and valuation allowances for purposes of assessing its ability to realize any future benefit from its net deferred tax assets. The Company intends to maintain this valuation allowance until sufficient positive evidence exists to support the reversal of the valuation allowance. The Company's income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, its valuation allowance.