INCOME TAXES
The components of pretax (loss) income are as follows:
|
| | | | | | | | | | | |
| Year ended March 31, |
| 2017 | | 2016 | | 2015 |
Foreign | $ | 23,398 |
| | $ | (13,673 | ) | | $ | (429 | ) |
Domestic | (47,010 | ) | | (1,145,474 | ) | | 349,723 |
|
| $ | (23,612 | ) | | $ | (1,159,147 | ) | | $ | 349,294 |
|
The components of income tax expense are as follows:
|
| | | | | | | | | | | |
| Year ended March 31, |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | 5,074 |
| | $ | 2,074 |
| | $ | 391 |
|
State | 445 |
| | 615 |
| | 178 |
|
Foreign | 4,341 |
| | 4,426 |
| | 4,751 |
|
| 9,860 |
| | 7,115 |
| | 5,320 |
|
Deferred: | | | | | |
Federal | 9,782 |
| | (148,069 | ) | | 114,260 |
|
State | (3,166 | ) | | 29,020 |
| | (1,857 | ) |
Foreign | 2,864 |
| | 747 |
| | (7,126 | ) |
| 9,480 |
| | (118,302 | ) | | 105,277 |
|
| $ | 19,340 |
| | $ | (111,187 | ) | | $ | 110,597 |
|
A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows:
|
| | | | | | | | |
| Year ended March 31, |
| 2017 | | 2016 | | 2015 |
Statutory federal income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State and local income taxes, net of federal tax benefit | 12.2 |
| | 1.8 |
| | 0.5 |
|
Goodwill impairment | (394.7 | ) | | (15.8 | ) | | — |
|
Disposition of business | 40.8 |
| | — |
| | — |
|
Domestic production activities deduction | 9.6 |
| | — |
| | — |
|
Miscellaneous permanent items and nondeductible accruals | (18.0 | ) | | (0.2 | ) | | (0.7 | ) |
Research and development tax credit | 43.5 |
| | 0.7 |
| | (1.9 | ) |
Foreign tax credits | 40.9 |
| | 0.2 |
| | (0.2 | ) |
Valuation allowance | 106.3 |
| | (13.4 | ) | | — |
|
Other (including foreign rate differential and FIN 48) | 42.5 |
| | 1.3 |
| | (1.0 | ) |
Effective income tax rate | (81.9 | )% | | 9.6 | % | | 31.7 | % |
The components of deferred tax assets and liabilities are as follows:
|
| | | | | | | |
| March 31, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Net operating loss and other credit carryforwards | $ | 113,440 |
| | $ | 105,731 |
|
Inventory | 92,718 |
| | 139,006 |
|
Accruals and reserves | 53,264 |
| | 45,343 |
|
Pension and other postretirement benefits | 227,487 |
| | 252,234 |
|
Acquired contract liabilities, net | 143,443 |
| | 191,061 |
|
| 630,352 |
| | 733,375 |
|
Valuation allowance | (141,214 | ) | | (157,246 | ) |
Net deferred tax assets | 489,138 |
| | 576,129 |
|
Deferred tax liabilities: | | | |
Deferred revenue | 207,966 |
| | 253,705 |
|
Property and equipment | 123,250 |
| | 140,781 |
|
Goodwill and other intangible assets | 211,981 |
| | 219,120 |
|
Prepaid expenses and other | 2,236 |
| | 6,754 |
|
| 545,433 |
| | 620,360 |
|
Net deferred tax liabilities | $ | 56,295 |
| | $ | 44,231 |
|
A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carry-back and carry-forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.
Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the activity surrounding the Company's prior earnings history, including the forward losses and intangible impairments previously recognized, management determined that it was necessary to establish a valuation allowance against principally all of its net deferred tax assets at March 31, 2016. Given the objectivity verifiable negative evidence of a three-year cumulative loss and the weighting of all available positive evidence, the Company excluded projected taxable income (aside from reversing taxable temporary differences) from the assessment of income that could be used as a source of taxable income to realize the deferred tax assets. Valuation allowances recorded against the consolidated net deferred tax asset in fiscal 2016 were $155,774.
During the fiscal year ended March 31, 2017, the Company reduced the valuation allowance against the consolidated net deferred tax asset by $16,032. The reduction resulted from the net deferred tax liabilities generated from the current year book/tax differences and the utilization of the deferred tax assets of NOL carryforward and R&D credit carryforward. As of March 31, 2017, management determined that it was necessary to maintain a valuation allowance against principally all of its net deferred tax assets.
As of March 31, 2017, the Company has state net operating loss carryforwards of $650,734 expiring in various years through 2037. The Company also has a foreign net operating loss carryforward of $109,165.
The effective income tax rate for the fiscal year ended March 31, 2017, was (81.9)% as compared to 9.6% for the fiscal year ended March 31, 2016. The effective income tax rate for the fiscal year ended March 31, 2017, included the benefit of the R&D tax credit of $10,269, the benefit of the foreign tax credit of $9,667 and the benefit of the reduction of the valuation allowance of $25,086. The effective tax rate was also impacted by the non-deductible portion of the goodwill impairment of $93,204. Due to the current year pre-tax loss, the effective tax rate drivers on a percentage basis are amplified. Accordingly, a year over year comparison of the effective tax rate may not be indicative of changes in the Company's tax position.
The Company has been granted income tax holiday as an incentive to attract foreign investment by the Government of Thailand. The tax holidays expire in various years through 2026. We do not have any other tax holidays in the jurisdictions in which we operate. The income tax benefit attributable to the tax status of our subsidiaries in Thailand was approximately $928 or $0.02 per diluted share in fiscal 2017, $(439) or $(0.01) per diluted share in fiscal 2016 and $1,930 or $0.04 per diluted share in fiscal 2015.
At March 31, 2017, cumulative undistributed earnings of foreign subsidiaries, for which no U.S. income or foreign withholding taxes have been recorded is $74,270. As the Company currently intends to indefinitely reinvest all such earnings, no provision has been made for income taxes that may become payable upon distribution of such earnings, and it is not practicable to determine the amount of the related unrecognized deferred income tax liability.
The Company has classified uncertain tax positions as noncurrent income tax liabilities unless expected to be paid in one year. Penalties and tax-related interest expense are reported as a component of income tax expense. As of March 31, 2017 and 2016, the total amount of accrued income tax-related interest and penalties was $282 and $239, respectively.
During the fiscal years ended March 31, 2017, 2016 and 2015, the Company added $43, $32 and $4 of interest and penalties related to activity for identified uncertain tax positions, respectively.
As of March 31, 2017 and 2016, the total amount of unrecognized tax benefits was $10,266 and $9,212, respectively, all of which would impact the effective rate, if recognized. The Company anticipates that total unrecognized tax benefits may be reduced by zero in the next 12 months.
With a few exceptions, the Company is no longer subject to U.S. federal income tax examinations for fiscal years ended before March 31, 2011, state or local examinations for fiscal years ended before March 31, 2013, or foreign income tax examinations by tax authorities for fiscal years ended before March 31, 2011.
As of March 31, 2017, the Company is subject to examination in one state and no foreign jurisdictions. The Company has filed appeals in a prior state examination related to fiscal years ended March 31, 1999 through March 31, 2005. Because of net operating losses acquired as part of the acquisition of Vought, the Company is subject to U.S. federal income tax examinations and various state jurisdiction examinations for the years ended December 31, 2001, and after related to previously filed Vought tax returns. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.
A reconciliation of the liability for uncertain tax positions, which are included in noncurrent liabilities for the fiscal years ended March 31, 2017 and 2016 follows:
|
| | | | | | | | | | | |
| Year ended March 31, |
| 2017 | | 2016 | | 2015 |
Beginning balance | $ | 9,670 |
| | $ | 8,826 |
| | $ | 9,293 |
|
Additions for tax positions related to the current year | 730 |
| | 669 |
| | 962 |
|
Additions for tax positions of prior years | 296 |
| | 175 |
| | 178 |
|
Reductions for tax positions of prior years | — |
| | — |
| | (1,607 | ) |
Ending Balance | $ | 10,696 |
| | $ | 9,670 |
| | $ | 8,826 |
|