Earnings before income taxes were as follows:
|
| | | | | | | | | | | | |
Fiscal Years Ended October 31 | | 2017 | | 2016 | | 2015 |
Earnings before income taxes: | | |
| | |
| | |
|
U.S. | | $ | 307,136 |
| | $ | 292,184 |
| | $ | 254,276 |
|
Foreign | | 46,048 |
| | 38,276 |
| | 36,755 |
|
Total earnings before income taxes | | $ | 353,184 |
| | $ | 330,460 |
| | $ | 291,031 |
|
A reconciliation of the statutory federal income tax rate to the company's consolidated effective tax rate is summarized as follows:
|
| | | | | | | | | |
Fiscal Years Ended October 31 | | 2017 | | 2016 | | 2015 |
Statutory federal income tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
Excess deduction for stock compensation | | (5.3 | ) | | — |
| | — |
|
Domestic manufacturer's deduction | | (1.2 | ) | | (0.8 | ) | | (1.7 | ) |
State and local income taxes, net of federal benefit | | 0.5 |
| | 1.5 |
| | 2.2 |
|
Foreign taxes | | (2.3 | ) | | (1.8 | ) | | (3.1 | ) |
Federal research tax credit | | (1.5 | ) | | (1.5 | ) | | (0.9 | ) |
Other, net | | (1.0 | ) | | (2.3 | ) | | (0.8 | ) |
Consolidated effective tax rate | | 24.2 | % | | 30.1 | % | | 30.7 | % |
Components of the provision for income taxes were as follows:
|
| | | | | | | | | | | | |
Fiscal Years Ended October 31 | | 2017 | | 2016 | | 2015 |
Current provision: | | |
| | |
| | |
|
Federal | | $ | 83,091 |
| | $ | 77,685 |
| | $ | 75,496 |
|
State | | 3,036 |
| | 6,929 |
| | 9,389 |
|
Foreign | | 8,166 |
| | 6,295 |
| | 6,219 |
|
Total current provision | | $ | 94,293 |
| | $ | 90,909 |
| | $ | 91,104 |
|
Deferred provision (benefit): | | |
| | |
| | |
|
Federal | | $ | (8,774 | ) | | $ | 7,283 |
| | $ | 430 |
|
State | | (101 | ) | | 297 |
| | — |
|
Foreign | | 49 |
| | 977 |
| | (2,094 | ) |
Total deferred provision (benefit) | | (8,826 | ) | | 8,557 |
| | (1,664 | ) |
Total provision for income taxes | | $ | 85,467 |
| | $ | 99,466 |
| | $ | 89,440 |
|
The tax effects of temporary differences that give rise to deferred income tax assets, net, are presented below:
|
| | | | | | | | |
October 31 | | 2017 | | 2016 |
Deferred income tax assets: | | |
| | |
|
Compensation and benefits | | $ | 38,753 |
| | $ | 37,200 |
|
Warranty and insurance | | 23,993 |
| | 17,443 |
|
Advertising and sales allowance | | 10,428 |
| | 11,185 |
|
Other | | 12,234 |
| | 10,327 |
|
Valuation allowance | | (1,951 | ) | | (1,867 | ) |
Total deferred income tax assets | | $ | 83,457 |
| | $ | 74,288 |
|
Deferred income tax liabilities: | | | | |
Depreciation | | $ | (13,259 | ) | | $ | (13,578 | ) |
Amortization | | (7,841 | ) | | (3,482 | ) |
Total deferred income tax liabilities | | (21,100 | ) | | (17,060 | ) |
Deferred income tax assets, net | | $ | 62,357 |
| | $ | 57,228 |
|
The valuation allowance as of October 31, 2017 and 2016 principally applies to capital loss carryforwards, state credit carryforwards, and foreign net operating loss carryforwards that are expected to expire prior to utilization.
As of October 31, 2017, the company had net operating loss carryforwards of approximately $6,569 in foreign jurisdictions. The carryforward periods are as follows: $3,327 that do not expire; and $3,242 that expire between fiscal years 2018 and 2026.
No provision has been made for U.S. federal income taxes on certain undistributed earnings of foreign subsidiaries the company intends to permanently invest or that may be remitted substantially tax-free. The total of undistributed earnings that would be subject to federal income tax if remitted under existing law is approximately $159,003 as of October 31, 2017. Determination of the unrecognized deferred tax liability related to these earnings is not practicable because of the complexities with its hypothetical calculation. Upon distribution of these earnings, the company will be subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid would be available to reduce the U.S. tax liability.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
| | | | |
Unrecognized tax benefits as of October 31, 2016 | | $ | 5,175 |
|
Increase as a result of tax positions taken during a prior period | | 432 |
|
Increase as a result of tax positions taken during the current period | | 948 |
|
Decrease relating to settlements with taxing authorities | | (2,673 | ) |
Reductions as a result of statute of limitations lapses | | (769 | ) |
Unrecognized tax benefits as of October 31, 2017 | | $ | 3,113 |
|
The company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. In addition to the liability of $3,113 for unrecognized tax benefits as of October 31, 2017, the company had an amount of approximately $236 of accrued interest and penalties.
Included in the balance of unrecognized tax benefits as of October 31, 2017 are potential benefits of $2,177 that, if recognized, would affect the effective tax rate from continuing operations.
The company and its wholly owned subsidiaries file income tax returns in the U.S. federal jurisdiction, and numerous state and foreign jurisdictions. With few exceptions, the company is no longer subject to U.S. federal, state and local, and foreign income tax examinations by tax authorities for taxable years before fiscal 2013. The Internal Revenue Service is completing an audit of fiscal 2015, with no material adjustments to tax expense or unrecognized tax benefits expected. The company is under audit in several state jurisdictions and one foreign jurisdiction, and expects various statutes of limitation to expire during the next 12 months. Due to the uncertain response of taxing authorities, a range of outcomes cannot be reasonably estimated at this time.