Income Taxes
The reconciliation of the provision for income taxes to the amount computed by applying the U.S. federal statutory tax rate to earnings before income taxes is as follows: |
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
Earnings before income taxes: | | | | | | |
Domestic | | $ | 77,007 |
| | $ | 82,848 |
| | $ | 78,074 |
|
Foreign | | 104,704 |
| | 90,012 |
| | 105,760 |
|
Total | | $ | 181,711 |
| | $ | 172,860 |
| | $ | 183,834 |
|
Federal statutory income tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
Increase (decrease) in income taxes resulting from: | | | | | | |
R&D and foreign tax credits | | (3.8 | )% | | (30.6 | )% | | (2.7 | )% |
Divestiture impacts | | (3.2 | )% | | — | % | | — | % |
Foreign tax rates | | (2.4 | )% | | (2.7 | )% | | (4.8 | )% |
Equity-based compensation | | (1.2 | )% | | — | % | | — | % |
Export and manufacturing incentives | | (0.9 | )% | | (1.0 | )% | | (0.7 | )% |
Change in valuation allowance for deferred taxes | | (0.4 | )% | | 0.9 | % | | 1.1 | % |
Change in enacted tax rates | | — | % | | (0.9 | )% | | (0.3 | )% |
Repatriated earnings | | — | % | | 26.8 | % | | — | % |
State taxes, net of federal benefit | | 0.4 | % | | 0.5 | % | | 0.8 | % |
Other | | (0.8 | )% | | 0.5 | % | | (0.1 | )% |
Effective income tax rate | | 22.7 | % | | 28.5 | % | | 28.3 | % |
At September 30, 2017, foreign tax benefit carryforwards total $15,300. Domestic benefit carryforwards representing state tax losses total $15,856. We also have $3,388 of state tax credit carryforwards. Some of these tax benefit carryforwards do not expire and can be used to reduce current taxes otherwise due on future earnings of those subsidiaries. The change in the valuation allowance relates to tax benefit carryforwards reflecting recent and projected financial performance, tax planning strategies and statutory tax carryforward periods.
During 2016, we repatriated $90,937 of earnings from various foreign subsidiaries and the tax expense was completely offset by foreign tax credits.
No provision has been made for U.S. federal or foreign taxes on that portion of certain foreign subsidiaries’ undistributed earnings ($923,602 at September 30, 2017) considered to be permanently reinvested. It is not practicable to determine the amount of tax that would be payable if these amounts were repatriated to the U.S.
The components of income taxes are as follows: |
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
Current: | | | | | | |
Federal | | $ | 6,259 |
| | $ | 12,812 |
| | $ | 12,065 |
|
Foreign | | 24,162 |
| | 29,794 |
| | 25,844 |
|
State | | 122 |
| | 2,373 |
| | 1,051 |
|
Total current | | 30,543 |
| | 44,979 |
| | 38,960 |
|
Deferred: | | | | | | |
Federal | | 11,624 |
| | 10,078 |
| | 10,800 |
|
Foreign | | (1,986 | ) | | (4,734 | ) | | 882 |
|
State | | 1,120 |
| | (1,096 | ) | | 1,309 |
|
Total deferred | | 10,758 |
| | 4,248 |
| | 12,991 |
|
Income taxes | | $ | 41,301 |
| | $ | 49,227 |
| | $ | 51,951 |
|
Realization of deferred tax assets is dependent, in part, upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making its assessment of the recoverability of deferred tax assets.
The tax effects of temporary differences that generated deferred tax assets and liabilities are as follows: |
| | | | | | | | |
| | September 30,
2017 | | October 1,
2016 |
Deferred tax assets: | | | | |
Benefit accruals | | $ | 204,017 |
| | $ | 237,261 |
|
Inventory reserves | | 33,879 |
| | 33,950 |
|
Tax benefit carryforwards | | 9,598 |
| | 17,349 |
|
Contract loss reserves not currently deductible | | 15,994 |
| | 10,931 |
|
Other accrued expenses | | 17,689 |
| | 17,669 |
|
Total gross deferred tax assets | | 281,177 |
| | 317,160 |
|
Less valuation allowance | | (4,775 | ) | | (10,938 | ) |
Total net deferred tax assets | | $ | 276,402 |
| | $ | 306,222 |
|
Deferred tax liabilities: | | | | |
Differences in bases and depreciation of property, plant and equipment | | $ | 169,562 |
| | $ | 163,977 |
|
Pension | | 93,602 |
| | 77,471 |
|
Total gross deferred tax liabilities | | 263,164 |
| | 241,448 |
|
Net deferred tax assets | | $ | 13,238 |
| | $ | 64,774 |
|
Deferred tax assets and liabilities are reported in separate captions on the consolidated balance sheets.
We have unrecognized tax benefits which, if ultimately recognized, will reduce our annual effective tax rate. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows: |
| | | | | | | | |
| | September 30,
2017 | | October 1,
2016 |
Balance at beginning of year | | $ | 498 |
| | $ | 1,184 |
|
Reductions as a result of lapse of statute of limitations | | (498 | ) | | (686 | ) |
Balance at end of year | | $ | — |
| | $ | 498 |
|
We are subject to income taxes in the U.S. and in various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in significant jurisdictions for years before 2014. The statute of limitations in several jurisdictions will expire in the next twelve months and we will have no unrecognized tax benefits recognized if the statute of limitations expires without the relevant taxing authority examining the applicable returns.
We record interest and penalties related to unrecognized tax benefits in income tax expense. We had accrued interest and penalties of $567 and $469 at September 30, 2017 and October 1, 2016, respectively. We expensed interest of $106 and $276 for 2017 and 2016, respectively.