INCOME TAXES
The domestic (Singapore) and foreign components of income before income taxes were comprised of the following:
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Domestic | $ | 435,709 |
| | $ | 199,283 |
| | $ | 67,482 |
|
Foreign | (64,861 | ) | | 255,392 |
| | 603,173 |
|
Total | $ | 370,848 |
| | $ | 454,675 |
| | $ | 670,655 |
|
The provision for income taxes consisted of the following:
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Current: | | | | | |
Domestic | $ | 1,037 |
| | $ | 56 |
| | $ | 87 |
|
Foreign | 71,773 |
| | 74,706 |
| | 129,863 |
|
| 72,810 |
| | 74,762 |
| | 129,950 |
|
Deferred: | | | | | |
Domestic | 350 |
| | 3,779 |
| | (4,734 | ) |
Foreign | (21,876 | ) | | (67,947 | ) | | (55,362 | ) |
| (21,526 | ) | | (64,168 | ) | | (60,096 | ) |
Provision for income taxes | $ | 51,284 |
| | $ | 10,594 |
| | $ | 69,854 |
|
The domestic statutory income tax rate was approximately 17.0% in fiscal years 2017, 2016 and 2015. The reconciliation of the income tax expense expected based on domestic statutory income tax rates to the expense for income taxes included in the consolidated statements of operations is as follows:
|
| | | | | | | | | | | |
| Fiscal Year Ended March 31, |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Income taxes based on domestic statutory rates | $ | 63,044 |
| | $ | 77,295 |
| | $ | 114,011 |
|
Effect of tax rate differential | (85,132 | ) | | (62,072 | ) | | (75,699 | ) |
Change in liability for uncertain tax positions | 684 |
| | (13,724 | ) | | 29,729 |
|
Change in valuation allowance | 78,728 |
| | 1,049 |
| | 2,495 |
|
Other | (6,040 | ) | | 8,046 |
| | (682 | ) |
Provision for income taxes | $ | 51,284 |
| | $ | 10,594 |
| | $ | 69,854 |
|
A number of countries in which the Company is located allow for tax holidays or provide other tax incentives to attract and retain business. In general, these holidays were secured based on the nature, size and location of the Company’s operations. The aggregate dollar effect on the Company’s income resulting from tax holidays and tax incentives to attract and retain business for the fiscal years ended March 31, 2017, 2016 and 2015 was $15.5 million, $6.6 million and $9.8 million, respectively. For fiscal year ended March 31, 2017, the effect on basic and diluted earnings per share was $0.03 and $0.03, respectively, and the effect on basic and diluted earnings per share were $0.01 and $0.01 during fiscal year 2016, and $0.02 and $0.02 during fiscal year 2015, respectively. Unless extended or otherwise renegotiated, the Company's existing holidays will expire in the fiscal year ending March 31, 2018 through fiscal year 2022.
For fiscal years ended March 31, 2017, 2016 and 2015, the Company released valuation allowances totaling $39.6 million, $63.3 million and $55.0 million, respectively. For the fiscal year ended March 31, 2017, these valuation allowance releases were primarily related to our operations in Austria, China, Ireland and Canada that were deemed to be more likely than not to realize the respective deferred tax assets due to sustained profitability during the prior three fiscal years as well as continued forecasted profitability of those subsidiaries. However, these valuation allowance eliminations were offset by other current period valuation allowance movements primarily related to current period valuation allowance additions due to increased deferred tax assets related to current period losses in legal entities with existing full valuation allowance positions. In addition, due to increased negative evidence during the fiscal year ended March 31, 2017, the Company added a valuation allowance of $14.4 million for a Chinese subsidiary which did not previously have a valuation allowance recorded. For fiscal years ended March 31, 2017, 2016 and 2015, the offsetting amounts totaled $103.9 million, $64.3 million and $57.5 million, respectively.
Under its territorial tax system, Singapore generally does not tax foreign sourced income until repatriated to Singapore. The Company has included the effects of Singapore's territorial tax system in the rate differential line above. The tax effect of foreign income not repatriated to Singapore for the fiscal years 2017, 2016 and 2015 were $67.9 million, $36.6 million and $0.0 million, respectively.
The components of deferred income taxes are as follows:
|
| | | | | | | |
| As of March 31, |
| 2017 | | 2016 |
| (In thousands) |
Deferred tax liabilities: | | | |
Fixed assets | $ | (40,324 | ) | | $ | (74,316 | ) |
Intangible assets | (76,432 | ) | | (88,760 | ) |
Others | (20,702 | ) | | (29,472 | ) |
Total deferred tax liabilities | (137,458 | ) | | (192,548 | ) |
Deferred tax assets: | | | |
Fixed assets | 57,869 |
| | 65,004 |
|
Intangible assets | 3,153 |
| | 3,795 |
|
Deferred compensation | 19,335 |
| | 15,892 |
|
Inventory valuation | 8,489 |
| | 10,124 |
|
Provision for doubtful accounts | 2,911 |
| | 1,300 |
|
Net operating loss and other carryforwards | 2,369,405 |
| | 2,332,894 |
|
Others | 266,367 |
| | 271,272 |
|
| 2,727,529 |
| | 2,700,281 |
|
Valuation allowances | (2,442,105 | ) | | (2,385,489 | ) |
Net deferred tax assets | 285,424 |
| | 314,792 |
|
Net deferred tax asset | $ | 147,966 |
| | $ | 122,244 |
|
The net deferred tax asset is classified as follows: | | | |
Current asset (classified as other current assets) | $ | — |
| | $ | — |
|
Long-term asset | 223,285 |
| | 222,772 |
|
Long-term liability | (75,319 | ) | | (100,528 | ) |
Total | $ | 147,966 |
| | $ | 122,244 |
|
Utilization of the Company's deferred tax assets is limited by the future earnings of the Company in the tax jurisdictions in which such deferred assets arose. As a result, management is uncertain as to when or whether these operations will generate sufficient profit to realize any benefit from the deferred tax assets. The valuation allowance provides a reserve against deferred tax assets that are not more likely than not to be realized by the Company. However, management has determined that it is more likely than not that the Company will realize certain of these benefits and, accordingly, has recognized a deferred tax asset from these benefits. The change in valuation allowance is net of certain increases and decreases to prior year losses and other carryforwards that have no current impact on the tax provision.
The Company has recorded deferred tax assets of approximately $2.4 billion related to tax losses and other carryforwards against which the Company has recorded a valuation allowance for all but $128.5 million of the deferred tax assets. These tax losses and other carryforwards will expire at various dates as follows:
|
| | | |
Expiration dates of deferred tax assets related to operating losses and other carryforwards | |
| (In thousands) |
2018 - 2023 | $ | 682,705 |
|
2024 - 2029 | 925,092 |
|
2030 and post | 378,047 |
|
Indefinite | 404,763 |
|
| $ | 2,390,607 |
|
The amount of deferred tax assets considered realizable, however, could be reduced or increased in the near-term if facts, including the amount of taxable income or the mix of taxable income between subsidiaries, differ from management’s estimates.
The Company does not provide for income taxes on approximately $1.2 billion of undistributed earnings of its subsidiaries which are considered to be indefinitely reinvested outside of Singapore as management has plans for the use of such earnings to fund certain activities outside of Singapore. Determination of the amount of the unrecognized deferred tax liability on these undistributed earnings is not practicable. As of March 31, 2017, we have provided for applicable foreign withholding taxes on $70.6 million of undistributed foreign earnings related to certain Chinese subsidiaries whose earnings are not intended to be permanently reinvested, and recorded an associate deferred tax liability of approximately $7.1 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
| | | | | | | |
| Fiscal Year Ended
March 31, |
| 2017 | | 2016 |
| (In thousands) |
Balance, beginning of fiscal year | $ | 212,326 |
| | $ | 222,373 |
|
Additions based on tax position related to the current year | 29,007 |
| | 21,273 |
|
Additions for tax positions of prior years | 9,728 |
| | 20,453 |
|
Reductions for tax positions of prior years | (22,065 | ) | | (9,578 | ) |
Reductions related to lapse of applicable statute of limitations | (13,390 | ) | | (22,312 | ) |
Settlements | (3,684 | ) | | (12,797 | ) |
Impact from foreign exchange rates fluctuation | (8,599 | ) | | (7,086 | ) |
Balance, end of fiscal year | $ | 203,323 |
| | $ | 212,326 |
|
The Company’s unrecognized tax benefits are subject to change over the next twelve months primarily as a result of the expiration of certain statutes of limitations and as audits are settled. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by an estimated range of an additional $9 million to $12 million within the next twelve months primarily due to potential settlements of various audits and the expiration of certain statutes of limitations.
The Company and its subsidiaries file federal, state, and local income tax returns in multiple jurisdictions around world. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2007.
Of the $203.3 million of unrecognized tax benefits at March 31, 2017, $185.4 million will affect the annual effective tax rate ("ETR") if the benefits are eventually recognized. The amount that doesn’t impact the ETR relates to positions that would be settled with a tax loss carryforward previously subject to a valuation allowance.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits within the Company's tax expense. During the fiscal years ended March 31, 2017, 2016 and 2015, the Company recognized interest and penalties of approximately ($1.6) million and ($2.4) million and $2.5 million, respectively. The Company had approximately $12.9 million, $14.6 million and $17.0 million accrued for the payment of interest and penalties as of the fiscal years ended March 31, 2017, 2016 and 2015, respectively.