INCOME TAXES
The Company’s income tax provision on income from continuing operations consists of the following for the periods shown below (in thousands):
|
| | | | | | | | | | | |
| Fiscal Years Ended September 30, |
| 2017 | | 2016 | | 2015 |
Current | | | | | |
Federal | $ | 179,884 |
| | $ | 153,957 |
| | $ | 163,182 |
|
State | 8,596 |
| | 9,234 |
| | 7,823 |
|
Foreign | 21,327 |
| | 12,703 |
| | 17,947 |
|
| 209,807 |
| | 175,894 |
| | 188,952 |
|
Deferred | (918 | ) | | 5,808 |
| | 660 |
|
| $ | 208,889 |
| | $ | 181,702 |
| | $ | 189,612 |
|
The differences between the income tax provision on income from continuing operations at the federal statutory income tax rate and the tax provision shown in the accompanying consolidated statements of income for the periods shown below are as follows (in thousands):
|
| | | | | | | | | | | |
| Fiscal Years Ended September 30, |
| 2017 | | 2016 | | 2015 |
Tax at statutory rate of 35% | $ | 293,129 |
| | $ | 268,841 |
| | $ | 222,888 |
|
State and local income taxes, net of federal benefit | 4,042 |
| | 2,677 |
| | 4,931 |
|
Stock compensation | (50,314 | ) | | (43,565 | ) | | — |
|
Foreign rate differential | (29,685 | ) | | (30,079 | ) | | (14,332 | ) |
Domestic manufacturing deduction | (17,832 | ) | | (16,902 | ) | | (17,834 | ) |
Other—net | 9,549 |
| | 730 |
| | (6,041 | ) |
Income tax provision | $ | 208,889 |
| | $ | 181,702 |
| | $ | 189,612 |
|
The components of the deferred taxes consist of the following at September 30 (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Deferred tax liabilities: | | | |
Intangible assets | $ | (647,140 | ) | | $ | (627,633 | ) |
Property, plant and equipment | (29,240 | ) | | (31,438 | ) |
Unremitted foreign earnings | (10,784 | ) | | (9,434 | ) |
Employee benefits, compensation and other accrued obligations | 107,195 |
| | 86,229 |
|
Inventory | 31,077 |
| | 22,382 |
|
Net operating losses | 33,462 |
| | 29,266 |
|
Interest rate swaps and caps | 15,961 |
| | 36,478 |
|
Environmental | 15,518 |
| | 16,958 |
|
Product warranties | 7,419 |
| | 9,007 |
|
Other | 8,797 |
| | 3,216 |
|
Total | (467,735 | ) | | (464,969 | ) |
Add: Valuation allowance | (33,214 | ) | | (27,286 | ) |
Total net deferred tax liabilities | $ | (500,949 | ) | | $ | (492,255 | ) |
At September 30, 2017, the Company has United Kingdom net operating loss carryforwards of approximately $23.3 million, German net operating loss carryforwards of approximately $4.3 million and state net operating loss carryforwards of approximately $819.5 million that expire in various years from 2017 to 2034. A valuation allowance has been established equal to the amount of the net operating losses that the Company believes will not be utilized. The Company had state tax credit carryforwards of $2.6 million that expire from 2023 to 2029.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions, as well as foreign jurisdictions located in Belgium, Canada, China, France, Germany, Hong Kong, Hungary, Malaysia, Mexico, Norway, Singapore, Sri Lanka, Sweden and the United Kingdom. The Company is no longer subject to U.S. federal examinations for years before fiscal 2014. The Company is currently under examination in the U.S. for its fiscal 2014 federal taxes. The Company expects the examinations to be completed during fiscal 2018. In addition, the Company is subject to state income tax examinations for fiscal years 2009 and later.
The cumulative amount of the Company’s foreign undistributed net earnings for which no deferred taxes have been provided is approximately $176.0 million at September 30, 2017. The Company has no plans to repatriate such earnings in the foreseeable future.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Balance at beginning of period | $ | 8,706 |
| | $ | 6,859 |
|
Additions based on tax positions related to the prior year | 500 |
| | 2,014 |
|
Additions based on tax positions related to the current year | 1,643 |
| | 913 |
|
Reductions based on tax positions related to the prior year | (963 | ) | | (801 | ) |
Lapse in statute of limitations | (1,231 | ) | | (1,483 | ) |
Acquisitions | — |
| | 1,204 |
|
Balance at end of period | $ | 8,655 |
| | $ | 8,706 |
|
Unrecognized tax benefits at September 30, 2017 and 2016, the recognition of which would have an effect on the effective tax rate for each fiscal year, amounted to $8.7 million in each period. The Company classifies all income tax related interest and penalties as income tax expense, which were not significant for the years ended September 30, 2017, 2016 and 2015. As of September 30, 2017 and 2016, the Company accrued $1.2 million and $1.1 million, respectively, for the potential payment of interest and penalties. The Company anticipates no significant changes to its total unrecognized tax benefits through fiscal 2017.