Income Taxes
Passage of the 2017 Tax Cuts and Jobs Act (the "Tax Act") required a revaluation of net deferred tax assets that increased the 2017 tax provision by $29.0 million and instituted a transition tax on un-repatriated foreign earnings that increased the tax provision by $6.6 million. Those adjustments increased the effective income tax rate by 10 percentage points. Adjustments recorded in 2017 were prepared on a provisional basis using estimates based on reasonable and supportable assumptions and available inputs and underlying information. The ultimate impact of the Tax Act may differ from those estimates due to continuing analysis or further regulatory guidance that may be issued. Any adjustments to the provisional amounts recorded as of December 29, 2017 that are identified within one year of the Tax Act enactment date will be included as an adjustment to tax expense in the period the amounts are determined.
Adoption of a new accounting standard, requiring excess tax benefits related to stock option exercises to be credited to the income tax provision (formerly credited to equity), reduced the 2017 tax provision by $36.3 million, decreasing the effective tax rate by 10 percentage points.
No additional income or withholding taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax as these amounts continue to be indefinitely reinvested in foreign operations. As of December 29, 2017, the amount of cash held outside the U.S. was not significant to the Company’s liquidity and was available to fund investments abroad.
Earnings before income tax expense (income) consist of (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Domestic | $ | 269,258 |
| | $ | 107,440 |
| | $ | 402,453 |
|
Foreign | 77,836 |
| | (10,785 | ) | | 72,260 |
|
Total | $ | 347,094 |
| | $ | 96,655 |
| | $ | 474,713 |
|
Income tax expense (income) consists of (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Current | | | | | |
Federal | $ | 41,996 |
| | $ | 67,126 |
| | $ | 117,883 |
|
State and local | 3,088 |
| | 4,868 |
| | 4,576 |
|
Foreign | 19,486 |
| | 18,195 |
| | 18,115 |
|
Current income tax expense | 64,570 |
| | 90,189 |
| | 140,574 |
|
Deferred | | | | | |
Domestic | 35,782 |
| | (27,509 | ) | | (10,175 | ) |
Foreign | (5,670 | ) | | (6,699 | ) | | (1,399 | ) |
Deferred income tax expense (benefit) | 30,112 |
| | (34,208 | ) | | (11,574 | ) |
Total | $ | 94,682 |
| | $ | 55,981 |
| | $ | 129,000 |
|
Income taxes paid were $61.0 million in 2017, $78.6 million in 2016 and $150.5 million in 2015.
A reconciliation between the U.S. federal statutory tax rate and the effective tax rate follows:
|
| | | | | | | | |
| 2017 | | 2016 | | 2015 |
Statutory tax rate | 35 | % | | 35 | % | | 35 | % |
Tax effect of international operations | (6 | ) | | 4 |
| | (3 | ) |
State taxes, net of federal effect | 1 |
| | 1 |
| | 1 |
|
U.S. general business tax credits | (1 | ) | | (3 | ) | | (1 | ) |
Domestic production deduction | (2 | ) | | (7 | ) | | (2 | ) |
Stock compensation excess tax benefit
| (10 | ) | | — |
| | — |
|
Impact of 2017 Tax Cuts and Jobs Act
| 10 |
| | — |
| | — |
|
Impairment | — |
| | 28 |
| | — |
|
Dividends from Liquid Finishing | — |
| | — |
| | (3 | ) |
Effective tax rate | 27 | % | | 58 | % | | 27 | % |
Deferred income taxes are provided for temporary differences between the financial reporting and the tax basis of assets and liabilities. The deferred tax assets (liabilities) resulting from these differences were as follows (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Inventory valuations | $ | (1,686 | ) | | $ | 9,845 |
|
Self-insurance retention accruals | 1,264 |
| | 1,836 |
|
Warranty reserves | 1,658 |
| | 2,390 |
|
Vacation accruals | 1,942 |
| | 3,343 |
|
Bad debt reserves | 2,620 |
| | 3,824 |
|
Excess of tax over book depreciation and amortization | (30,381 | ) | | (31,849 | ) |
Pension liability | 31,220 |
| | 43,924 |
|
Postretirement medical | 4,313 |
| | 6,856 |
|
Acquisition costs | 680 |
| | 1,052 |
|
Stock compensation | 14,185 |
| | 24,521 |
|
Deferred compensation | 1,801 |
| | 1,495 |
|
Foreign tax credit carryforward
| 5,000 |
| | — |
|
Other | 1,047 |
| | 1,744 |
|
Net deferred tax assets | $ | 33,663 |
| | $ | 68,981 |
|
Total deferred tax assets were $68.8 million and $103.4 million, and total deferred tax liabilities were $35.1 million and $34.5 million on December 29, 2017 and December 30, 2016. The difference between the deferred income tax provision and the change in net deferred income taxes is due to the change in other comprehensive income (loss) items.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2011.
The Company records penalties and accrued interest related to uncertain tax positions in income tax expense. Total reserves for uncertain tax positions were not material.