Income Taxes
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2017 | | 2016 | | 2015 |
Current income tax expense | | | | | | |
Current: | | | | | | |
Federal | | $ | 30,362 |
| | $ | 29,082 |
| | $ | 12,299 |
|
State | | 4,855 |
| | 4,750 |
| | 3,044 |
|
Foreign | | 17,800 |
| | 17,034 |
| | 20,585 |
|
Total current income tax expense | | 53,017 |
| | 50,866 |
| | 35,928 |
|
Deferred income tax expense (benefit) | | | | | | |
Federal | | 857 |
| | (3,706 | ) | | 25,113 |
|
State | | 590 |
| | 124 |
| | 1,771 |
|
Foreign | | 8 |
| | 2,829 |
| | 5,002 |
|
Total deferred income tax expense (benefit) | | 1,455 |
| | (753 | ) | | 31,886 |
|
Total income tax expense | | $ | 54,472 |
| | $ | 50,113 |
| | $ | 67,814 |
|
Earnings before income taxes consists of the following:
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2017 | | 2016 | | 2015 |
United States | | $ | 80,436 |
| | $ | 64,235 |
| | $ | 76,327 |
|
Foreign | | 132,259 |
| | 117,702 |
| | 173,012 |
|
Earnings before income taxes | | $ | 212,695 |
| | $ | 181,937 |
| | $ | 249,339 |
|
Income taxes paid by the Company for the fiscal years ended March 31, 2017, 2016 and 2015 were $45,332, $44,625 and $42,404, respectively.
The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:
|
| | | | | | | | |
| | March 31, |
| | 2017 | | 2016 |
Deferred tax assets: | | | | |
Accounts receivable | | $ | 2,419 |
| | $ | 1,450 |
|
Inventories | | 6,521 |
| | 6,596 |
|
Net operating loss carryforwards | | 46,178 |
| | 50,094 |
|
Accrued expenses | | 29,783 |
| | 25,436 |
|
Other assets | | 20,282 |
| | 22,551 |
|
Gross deferred tax assets | | 105,183 |
| | 106,127 |
|
Less valuation allowance | | (27,053 | ) | | (25,416 | ) |
Total deferred tax assets | | 78,130 |
| | 80,711 |
|
Deferred tax liabilities: | | | | |
Property, plant and equipment | | 24,319 |
| | 25,302 |
|
Other intangible assets | | 67,388 |
| | 65,879 |
|
Other liabilities | | 759 |
| | 2,008 |
|
Total deferred tax liabilities | | 92,466 |
| | 93,189 |
|
Net deferred tax liabilities | | $ | (14,336 | ) | | $ | (12,478 | ) |
The Company has approximately $1,797 in United States federal net operating loss carryforwards, all of which are limited by Section 382 of the Internal Revenue Code, with expirations between 2023 and 2027. The Company has approximately $151,340 of foreign net operating loss carryforwards, of which $110,506 may be carried forward indefinitely and $40,834 expire between fiscal 2018 and fiscal 2034. In addition, the Company also had approximately $33,263 of state net operating loss carryforwards with expirations between fiscal 2018 and fiscal 2037.
As of March 31, 2017 and 2016, the federal valuation allowance was $1,050. As of March 31, 2017 and 2016, the valuation allowance associated with the state tax jurisdictions was $705 and $656, respectively. As of March 31, 2017 and 2016, the valuation allowance associated with certain foreign tax jurisdictions was $25,298 and $23,710, respectively. The change includes an increase of $2,001 to tax expense primarily related to net operating loss carryforwards generated in the current year that the Company believes are not more likely than not to be realized, and a decrease of $413 primarily related to currency fluctuations.
A reconciliation of income taxes at the statutory rate to the income tax provision is as follows:
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2017 | | 2016 | | 2015 |
United States statutory income tax expense (at 35%) | | $ | 74,444 |
| | $ | 63,678 |
| | $ | 87,269 |
|
Increase (decrease) resulting from: | | | | | | |
State income taxes, net of federal effect | | 3,677 |
| | 3,282 |
| | 3,206 |
|
Nondeductible expenses, domestic manufacturing deduction and other | | 1,993 |
| | (1,407 | ) | | 8,128 |
|
Legal proceedings charge - European Competition Investigations - See Note 18 | | 7,873 |
| | 668 |
| | — |
|
Goodwill impairment - See Note 5 | | 3,812 |
| | 6,475 |
| | 5,194 |
|
Effect of foreign operations | | (39,377 | ) | | (28,845 | ) | | (37,775 | ) |
Valuation allowance | | 2,050 |
| | 6,262 |
| | 1,792 |
|
Income tax expense | | $ | 54,472 |
| | $ | 50,113 |
| | $ | 67,814 |
|
The effective income tax rates for the fiscal years ended March 31, 2017, 2016 and 2015 were 25.6%, 27.5% and 27.2%, respectively. The effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which the Company operates and the amount of its consolidated income before taxes.
In fiscal 2017, the foreign effective income tax rate on foreign pre-tax income of $132,259 was 13.5%. In fiscal 2016, the foreign effective income tax rate on foreign pre-tax income of $117,702 was 16.9% and in fiscal 2015, the foreign effective income tax rate on foreign pre-tax income of $173,012 was 14.8%. The rate decrease in fiscal 2017 compared to fiscal 2016 is primarily due to changes in the mix of earnings among tax jurisdictions and a decrease in non-deductible goodwill impairment charges compared to fiscal 2016, partially offset by an increase in non-deductible legal proceedings charge relating to the European competition investigation in fiscal 2017 compared to fiscal 2016. The rate increase in fiscal 2016 compared to fiscal 2015 is primarily due to changes in the mix of earnings among tax jurisdictions and an increase in non-deductible goodwill impairment charges compared to fiscal 2015.
Income from the Company's Swiss subsidiary comprised a substantial portion of its overall foreign mix of income for the fiscal years ended March 31, 2017, 2016 and 2015 and was taxed at approximately 5%, 7% and 7%, respectively.
The Company has not recorded United States income or foreign withholding taxes on approximately $960,000 and $878,225 of undistributed earnings of foreign subsidiaries for fiscal years 2017 and 2016, respectively, that could be subject to taxation if remitted to the United States because the Company currently plans to keep these amounts indefinitely invested overseas. It is not practical to calculate the income tax expense that would result upon repatriation of these earnings.
Uncertain Tax Positions
The following table summarizes activity of the total amounts of unrecognized tax benefits:
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2017 | | 2016 | | 2015 |
Balance at beginning of year | | $ | 2,375 |
| | $ | 4,112 |
| | $ | 3,743 |
|
Increases related to current year tax positions | | 252 |
| | 422 |
| | 3,241 |
|
Increases related to prior year tax positions | | 31 |
| | 470 |
| | 9 |
|
Decreases related to prior tax positions due to foreign currency translation | | (352 | ) | | — |
| | (85 | ) |
Decreases related to prior year tax positions settled | | (678 | ) | | (2,315 | ) | | (2,695 | ) |
Lapse of statute of limitations | | (178 | ) | | (314 | ) | | (101 | ) |
Balance at end of year | | $ | 1,450 |
| | $ | 2,375 |
| | $ | 4,112 |
|
All of the balance of unrecognized tax benefits at March 31, 2017, if recognized, would be included in the Company’s Consolidated Statements of Income and have a favorable impact on both the Company’s net earnings and effective tax rate.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014.
While the net effect on total unrecognized tax benefits cannot be reasonably estimated, approximately $284 is expected to reverse in fiscal 2017 due to expiration of various statute of limitations.
The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statements of Income. As of March 31, 2017 and 2016, the Company had an accrual of $112 and $310, respectively, for interest and penalties.