Income Taxes
Income (loss) before benefit or provision for income taxes for the years ended September 30, 2017, 2016 and 2015 was as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
U.S. (loss) income | $ | (261,594 | ) | | $ | 63,614 |
| | $ | (242,864 | ) |
Foreign income | 13,347 |
| | 61,976 |
| | 1,248 |
|
Total | $ | (248,247 | ) | | $ | 125,590 |
| | $ | (241,616 | ) |
The components of our income tax provision (benefit) for the years ended September 30, 2017, 2016 and 2015 were as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Current provision | | | | | |
Federal | $ | (2,536 | ) | | $ | 7,315 |
| | $ | 24,797 |
|
State and local | (591 | ) | | 1,134 |
| | 1,726 |
|
Foreign | 12,999 |
| | 12,482 |
| | 13,247 |
|
Subtotal | 9,872 |
| | 20,931 |
| | 39,770 |
|
Deferred (benefit) provision | | | | | |
Federal | (14,730 | ) | | 10,979 |
| | (105,748 | ) |
State and local | (2,738 | ) | | 1,108 |
| | (12,543 | ) |
Foreign | (3,305 | ) | | 1,194 |
| | (8,351 | ) |
Subtotal | (20,773 | ) | | 13,281 |
| | (126,642 | ) |
(Benefit) provision for income taxes | $ | (10,901 | ) | | $ | 34,212 |
| | $ | (86,872 | ) |
The tax impact associated with the exercise of employee stock options and vesting of restricted stock units for the year ended September 30, 2017 will be recognized in the current tax return. For the year ended September 30, 2017, $0.9 million of tax benefit was recorded as a decrease to our provision for income tax due to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, as discussed in Note 3. For the years ended September 30, 2016 and 2015, a reduction to paid in capital of $1.1 million of tax benefit was recorded as an increase to additional paid in capital, and $0.1 million of tax benefit was recorded as a decrease to additional paid in capital, respectively.
A reconciliation of our (benefit) provision for income taxes to the U.S. federal statutory rate is as follows for the years ended September 30, 2017, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Provision (benefit) for income taxes at statutory rate | $ | (84,404 | ) | | 34.00 | % | | $ | 43,956 |
| | 35.00 | % | | $ | (84,566 | ) | | 35.00 | % |
State taxes, net of tax benefit | (4,559 | ) | | 1.84 | % | | 1,458 |
| | 1.16 | % | | (7,002 | ) | | 2.90 | % |
Deemed foreign dividends | 6,099 |
| | (2.46 | )% | | 3,963 |
| | 3.16 | % | | 4,289 |
| | (1.78 | )% |
Nondeductible items | 283 |
| | (0.11 | )% | | (1,912 | ) | | (1.52 | )% | | (642 | ) | | 0.27 | % |
Impact of foreign operations | (3,526 | ) | | 1.42 | % | | (8,015 | ) | | (6.38 | )% | | 2,125 |
| | (0.88 | )% |
Foreign tax credit | (6,197 | ) | | 2.50 | % | | (4,313 | ) | | (3.43 | )% | | (4,205 | ) | | 1.74 | % |
Valuation allowance | 15,057 |
| | (6.07 | )% | | — |
| | — | % | | — |
| | — | % |
Non-deductible goodwill impairment | 23,644 |
| | (9.52 | )% | | — |
| | — | % | | — |
| | — | % |
Unremitted earnings of foreign subsidiaries | 37,537 |
| | (15.12 | )% | | — |
| | — | % | | — |
| | — | % |
Tax contingencies | 4,123 |
| | (1.66 | )% | | (674 | ) | | (0.54 | )% | | 772 |
| | (0.32 | )% |
Other | 1,042 |
| | (0.43 | )% | | (251 | ) | | (0.21 | )% | | 2,357 |
| | (0.98 | )% |
Actual (benefit) provision for income taxes | $ | (10,901 | ) | | 4.39 | % | | $ | 34,212 |
| | 27.24 | % | | $ | (86,872 | ) | | 35.95 | % |
As of September 30, 2017 and 2016, the components of deferred income tax assets (liabilities) were as follows (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Deferred tax assets - Non-current | | | |
Inventories | $ | 92,711 |
| | $ | 88,000 |
|
Reserves and other accruals | 1,692 |
| | 412 |
|
Compensation accruals | 2,308 |
| | 1,060 |
|
Goodwill and intangible assets | 20,101 |
| | — |
|
Stock options | 3,197 |
| | 3,674 |
|
Net operating losses and tax credits | 19,345 |
| | 16,827 |
|
Other | 2,611 |
| | 2,119 |
|
Total deferred tax assets | 141,965 |
| | 112,092 |
|
Deferred tax (liabilities) - Non-current | | | |
Property and equipment | (3,505 | ) | | (355 | ) |
Deferred debt issuance costs | — |
| | (38 | ) |
Unremitted earnings of foreign subsidiaries | (40,009 | ) | | — |
|
Goodwill and intangible assets | — |
| | (52,072 | ) |
Other | (7,008 | ) | | — |
|
Total deferred tax liabilities - non-current | (50,522 | ) | | (52,465 | ) |
Valuation allowance | (18,602 | ) | | (5,548 | ) |
Net deferred tax assets (liabilities) | $ | 72,841 |
| | $ | 54,079 |
|
We had deferred tax assets of $20.1 million and deferred tax liabilities of $52.1 million with respect to goodwill and other intangible assets as of September 30, 2017 and September 30, 2016, respectively. The change is primarily due to the $311.1 million goodwill impairment charge during the year ended September 30, 2017, as discussed in Note 2, a portion of which will be deductible for tax purposes.
As of September 30, 2017, we had state net operating loss carryforwards of $3.0 million, which will begin to expire in 2026, and foreign net operating loss carryforwards of $9.7 million which will begin to expire in 2021. As of September 30, 2017, we had U.S. foreign tax credit carryforwards of $17.4 million which will begin to expire in 2021.
We are subject to U.S. federal income tax as well as income taxes in various state and foreign jurisdictions. The earliest tax year still subject to examination by a significant taxing jurisdiction is September 30, 2013.
During the year ended September 30, 2017, we reassessed the potential need to repatriate foreign earnings based on our current long-range outlook, the current imbalance between cash generated and used in the U.S., and the increase in the percentage of excess cash that must be used to repay debt. We determined it was likely that we would, in the future, repatriate certain previously undistributed foreign earnings. Accordingly, we recorded a deferred tax liability for U.S. federal and state taxes of $40.0 million, which equals a $38.7 million deferred tax liability after taking into account the federal tax benefit of state taxes. Of this amount, $37.5 million was provided for through the deferred tax provision and the remaining $1.2 million is a cumulative translation adjustment to reflect currency fluctuation related to the previously undistributed earnings. The remaining undistributed earnings of foreign subsidiaries, which amount to $26.1 million are considered to be indefinitely reinvested and no provision for federal or state and local taxes or foreign withholding taxes has been provided on such earnings. The taxes associated with these undistributed earnings would be between $7.0 million and $8.0 million.
We determine whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. We classify gross interest and penalties and unrecognized tax benefits as non-current liabilities in the consolidated balance sheets. As of September 30, 2017, the total amount of gross unrecognized tax benefits was $6.5 million, including $1.0 million of interest and $0.3 million of penalties, all of which would impact the effective tax rate if recognized. It is reasonably possible that within the next twelve months, $0.1 million of benefit may be recognized as a result of the lapsing of the statute of limitations.
The unrecognized tax benefits, which exclude interest and penalties, for the years ended September 30, 2017, 2016 and September 30, 2015 are as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Beginning balance | $ | 2,166 |
| | $ | 2,725 |
| | $ | 1,901 |
|
Increases related to tax positions taken during a prior year | 3,250 |
| | — |
| | 1,716 |
|
Decreases related to tax positions taken during a prior year | — |
| | — |
| | — |
|
Increases related to tax positions taken during the current year | — |
| | — |
| | — |
|
Decreases related to settlements with taxing authorities | — |
| | (579 | ) | | — |
|
Decreases related to expiration of statute of limitations | (51 | ) | | (113 | ) | | (892 | ) |
Changes due to translation of foreign currencies | (133 | ) | | 133 |
| | — |
|
Ending balance | $ | 5,232 |
| | $ | 2,166 |
| | $ | 2,725 |
|
We determine whether it is more likely than not that some or all of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which temporary differences become deductible or includible in taxable income. We consider projected future taxable income and tax planning strategies in our assessment. Based upon the level of historical income and projections for future taxable income, we believe it is more likely than not that we will not realize the benefits of the temporary differences related to certain Haas foreign tax credits and Haas foreign net operating losses. Therefore, a valuation allowance has been recorded against these deferred tax assets (in thousands).
|
| | | | | | | | | | | |
| Beginning Balance | | Valuation Allowance Recorded During The Period | | Ending Balance |
Valuation allowance for deferred tax assets: | | | | | |
Year ended September 30, 2017 | $ | 5,548 |
| | $ | 13,054 |
| | $ | 18,602 |
|
Year ended September 30, 2016 | 5,961 |
| | (413 | ) | | 5,548 |
|
Year ended September 30, 2015 | 4,930 |
| | 1,031 |
| | 5,961 |
|