Income Taxes | 9 Months Ended |
Dec. 31, 2014 |
Income Taxes [Abstract] | |
Income Taxes | 5 | Income Taxes |
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The Company's effective tax rate is affected by recurring items, such as tax benefit or expense relative to the amount of loss incurred or income earned in its domestic and foreign jurisdictions. The Company's tax rate is also affected by discrete items, such as tax benefits attributable to the recognition of previously unrecognized tax benefits and changes in valuation allowance, which may occur in any given year but are not consistent from year to year. |
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The Company maintains valuation allowances against its deferred tax assets related to various federal, state, and foreign net operating loss carryforwards, tax credits, and capital loss carryforwards. The Company evaluates its ability to realize the benefit of its deferred tax assets in each of its jurisdictions, at the required more-likely-than-not level of certainty, based on the existence of sufficient taxable income of the appropriate character within the carryforward period. In determining the need for a valuation allowance, the Company weighs all available positive and negative evidence, both objective and subjective in nature. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Due to the high seasonality of the Company's business with a significant portion of its annual income earned late in the year, the final determination for the need for valuation allowances is generally made at the end of the December quarter, after the critical holiday season has passed. |
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A full valuation allowance was recorded against the Company's domestic deferred tax assets starting in 2006. As of December 31, 2012, based on its evaluation of all evidence available, the Company determined that a portion of its domestic deferred tax assets would be realized. Accordingly, $21,614 of the Company's domestic valuation allowance was released and recorded as an income tax benefit for the year ended December 31, 2012. |
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For the three months ended December 31, 2013, the Company again evaluated its ability to realize the benefit of its domestic deferred tax assets. Consideration was given to negative evidence such as: the duration and severity of losses in prior years, high seasonal revenue concentrations, increasing competitive pressures, and a challenging retail environment. However, after considering four consecutive years of profitability and a significant three year cumulative domestic income position as of December 31, 2013, the Company believed the weight of the objectively verifiable positive evidence was sufficient to overcome the weight of the existing negative evidence. Accordingly, the Company determined that the benefit of a signification portion of its domestic deferred tax assets would be realized and $62,759 of the Company's domestic deferred tax valuation allowance was released and recorded as an income tax benefit for the quarter ended December 31, 2013. |
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For the three months ended December 31, 2014, the Company again evaluated its ability to realize the benefit of its domestic deferred tax assets. The Company considered existing positive evidence available such as: historic profitability, lack of expiring net operating loss and tax credit carryforwards, and viable tax strategies that could potentially impact the likelihood of realizing its deferred tax assets. However, the Company's performance during the 2014 holiday season was significantly lower than anticipated and the underperformance of products and product lines newly introduced to the market had a considerable impact on its projections of future taxable income. Consequently, the Company anticipates a three year cumulative domestic loss position within the current fiscal year. In determining if sufficient projected future taxable income exists to realize the benefit of its deferred tax assets, the Company considers cumulative losses in recent years as significant negative evidence that is difficult to overcome. In addition, the goodwill impairment recorded in the quarter ended December 31, 2014 was considered additional significant negative evidence indicating the benefit of its deferred tax assets would not be realized. After weighing all evidence available, the Company believed there was not sufficient positive evidence to overcome the significant negative evidence and so determined that sufficient projected future taxable income did not exist to realize the full benefit of its domestic deferred tax assets before expiration. As a result, the Company concluded a full valuation allowance against its domestic deferred tax assets was warranted. Accordingly, the Company established an additional valuation allowance of $101,773, of which $90,769 was recorded as an income tax provision and impacted the Company's effective tax rate for the three and nine months ended December 31, 2014. The remaining $11,004 of additional valuation allowance was established against deferred tax assets attributable to current period losses, the respective tax expense and tax benefits of which were fully offset during the period, and therefore did not impact the Company's effective tax rate for the three and nine months period ended December 31, 2014. |
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The Company maintained a valuation allowance of $109,961, $8,065 and $8,188 against its domestic deferred tax assets as of December 31, 2014 and 2013, and March 31, 2014, respectively. The Company also maintained a valuation allowance of $1,502, $1,676, and $1,697 against the deferred tax assets of its subsidiary in Mexico as of December 31, 2014 and 2013, and March 31, 2014, respectively, which was initially established during 2012. As of December 31, 2014, the Company also evaluated the deferred tax assets associated with its other foreign jurisdictions, and believes that the benefit of these deferred tax assets will be realized. Therefore, no valuation allowance has been established against such deferred tax assets as of December 31, 2014. The Company will continue to evaluate all evidence, positive and negative, in all jurisdictions in future periods, to determine if a change in valuation allowance against its deferred tax assets is warranted. Any changes to the Company's valuation allowance will affect its effective tax rate, but will not affect the amount of cash paid for income taxes in the foreseeable future. |
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The consolidated current and non-current deferred tax assets were $661 and $1,498 at December 31, 2014, respectively, as compared to $25,639 and $49,053 at December 31, 2013, respectively, and $22,553 and $57,810 at March 31, 2014, respectively. The decreases in the current period were primarily due to the full valuation allowance recorded against the Company's domestic deferred tax assets as of December 31, 2014. |
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The Company's effective tax rates and income tax provisions for the three and nine months ended December 31, 2014 were primarily attributable to recording a full non-cash valuation allowance against its domestic deferred tax assets during the periods, partially offset by a tax benefit of $3,812 associated with the non-cash goodwill impairment charge as described in Note 4. The Company's effective tax rates and income tax benefits for the same periods in 2013 were primarily attributable to the release of a substantial portion of its valuation allowance previously recorded against its domestic deferred tax assets. The Company excludes jurisdictions with tax assets for which no benefit can be recognized from the computation of its effective tax rate. Accordingly, the Company's domestic loss was excluded from the computation of its effective tax rates for the three and nine months ended December 31, 2014, and the Company's subsidiary in Mexico was excluded from the computation of its effective tax rates for the three and nine months ended December 31, 2014 and 2013. |
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During the three and nine months ended December 31, 2014, the Company recognized $154 and $604, respectively, of certain previously unrecognized tax benefits, including a release of $37 and $195 of accrued interest and penalties, respectively, due to the expiration of the statutes of limitations in some of its foreign jurisdictions. During the three and nine months ended December 31, 2013, the Company recognized $401 of certain previously unrecognized tax benefits, including a release of $312 of accrued interest, due to the expiration of statutes of limitations in some of its foreign jurisdictions. As of December 31, 2014 and 2013, and March 31, 2014, the Company had $15,880, $20,319 and $16,280, respectively, of unrecognized income tax benefits. The Company believes it is reasonably possible that the total amount of unrecognized income tax benefits could decrease by up to $7,033 over the course of the next twelve months, due to expiring domestic statutes of limitations, which would not affect its effective tax rate due to the full valuation allowance recorded against its domestic deferred tax assets. As of December 31, 2014, the Company had no accrued interest and penalties related to uncertain tax positions. As of December 31, 2013 and March 31, 2014, the Company had approximately $362 and $187, respectively, of accrued interest and penalties related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The recognition of previously unrecognized tax benefits and the release of associated accrued interest reduced other non-current tax liabilities. |
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As of December 31, 2014, the Company had current deferred tax liabilities of $1,290 reported as current liabilities on the consolidated balance sheet, and had no non-current deferred tax liabilities or other non-current tax liabilities. As of December 31, 2013 and March 31, 2014, the Company had no current deferred tax liabilities and had non-current deferred tax liabilities of $3,801 and 3,812, respectively, which were netted against non-current deferred tax assets on the consolidated balance sheet. As of December 31, 2013 and March 31, 2014, the Company had other non-current tax liabilities of $832 and $607, respectively, reported as long-term liabilities on the consolidated balance sheet. |