INCOME TAXES
The components of income tax expense were as follows:
|
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Current | | | | | | |
U.S. Federal | | $ | 119,601 |
| | $ | 61,339 |
| | $ | 133,400 |
|
State and local | | 24,273 |
| | 20,480 |
| | 22,492 |
|
Total current | | 143,874 |
| | 81,819 |
| | 155,892 |
|
Deferred | | | | | | |
U.S. Federal | | 18,451 |
| | 8,664 |
| | (2,938 | ) |
State and local | | (2,915 | ) | | (5,115 | ) | | 395 |
|
Total deferred | | 15,536 |
| | 3,549 |
| | (2,543 | ) |
Total | | $ | 159,410 |
| | $ | 85,368 |
| | $ | 153,349 |
|
A reconciliation of the provision for income tax to the amount computed by applying the statutory federal income tax rate to income from continuing operations before income taxes for each of the three years ended March 31 is as follows:
|
| | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
| | 2017 | | 2016 | | 2015 |
Income tax expense computed at U.S. federal statutory rate (35%) | | $ | 144,165 |
| | $ | 132,812 |
| | $ | 135,071 |
|
Increases (reductions) resulting from: | | | | | | |
Changes in uncertain tax positions | | (92 | ) | | (56,428 | ) | | 1,038 |
|
State and local income taxes, net of federal tax | | 13,882 |
| | 10,092 |
| | 15,039 |
|
Meals and entertainment | | 1,328 |
| | 1,321 |
| | 1,513 |
|
Other | | 127 |
| | (2,429 | ) | | 688 |
|
Income tax expense from operations | | $ | 159,410 |
| | $ | 85,368 |
| | $ | 153,349 |
|
The significant components of the Company’s deferred income tax assets and liabilties were as follows: |
| | | | | | | | |
| | March 31, |
| | 2017 | | 2016 |
Deferred income tax assets: | | | | |
Accrued expenses | | $ | 85,459 |
| | $ | 85,412 |
|
Accrued compensation | | 41,421 |
| | 35,950 |
|
Stock-based compensation | | 15,326 |
| | 20,032 |
|
Pension and postretirement benefits | | 48,672 |
| | 46,743 |
|
Property and equipment | | 3,885 |
| | 14,760 |
|
Capital loss carryforwards | | 246 |
| | 283 |
|
Deferred rent and tenant allowance | | 25,167 |
| | 20,964 |
|
Extended disability benefits | | 8,860 |
| | — |
|
Other | | 6,817 |
| | 4,793 |
|
Total gross deferred income tax assets | | 235,853 |
| | 228,937 |
|
Less: Valuation allowance | | — |
| | — |
|
Total net deferred income tax assets | | 235,853 |
| | 228,937 |
|
Deferred income tax liabilities: | | | | |
Unbilled receivables | | (141,357 | ) | | (122,744 | ) |
Intangible assets | | (78,871 | ) | | (80,604 | ) |
Debt issuance costs | | (4,709 | ) | | (3,354 | ) |
Other | | (91 | ) | | (181 | ) |
Total deferred income tax liabilities | | (225,028 | ) | | (206,883 | ) |
Net deferred income tax asset | | $ | 10,825 |
| | $ | 22,054 |
|
Deferred tax balances arise from temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. In determining if the Company's deferred tax assets are realizable, management considers all positive and negative evidence, including the history of generating financial reporting earnings, future reversals of existing taxable temporary differences, projected future taxable income, as well as any tax planning strategies. As discussed in Note 2, the Company recognized deferred income tax assets of $8.9 million associated with the correction of an immaterial misstatement with the medical and dental benefits provided to employees and their eligible dependents on long-term disability. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.
As of March 31, 2017, the Company has no State net operating loss or NOL carryforwards.
Uncertain Tax Positions
The Company maintains reserves for uncertain tax positions related to income tax benefits recognized. These reserves involve considerable judgment and estimation and are evaluated by management based on the best information available including changes in tax laws and other information. As of March 31, 2017, 2016, and 2015, the Company has recorded $11.6 million, $1.5 million, and $58.4 million, respectively, of reserves for uncertain tax positions which includes potential tax benefits of $1.4 million, $1.4 million, and $55.2 million respectively, that, when recognized, impact the effective tax rate. As discussed in Note 4, the Company has a pre-acquisition tax uncertainty that was recorded in purchase accounting in the amount of $10.2 million.
For the fiscal year ended March 31, 2016, the Company's reserves for uncertain tax positions decreased primarily as a result of expired statute of limitations for a prior tax year and management's conclusion that the uncertain tax positions related to the statute lapse were effectively settled. The Company released approximately $56.9 million of its pre-acquisition uncertain tax positions during fiscal 2016, including $3.2 million of net interest and penalties that were incurred by the Company subsequent to the acquisition. This resulted in a decrease in the Company's effective tax rate for fiscal 2016. As part of this settlement, an amount of $21.4 million, previously indemnified under the remaining available DPO was relieved. As of March 31, 2016, there were no estimated tax indemnified amounts recorded against the DPO.
A reconciliation of the beginning and ending amount of potential tax benefits for the periods presented is as follows:
|
| | | | | | | | | | | | |
| | March 31, |
| | 2017 | | 2016 | | 2015 |
Beginning of year | | $ | 1,449 |
| | $ | 55,164 |
| | $ | 54,966 |
|
Increases in prior year position | | 127 |
| | 79 |
| | 27 |
|
Increases in current year position | | 10,278 |
| | — |
| | 203 |
|
Settlements with taxing authorities | | — |
| | (2,581 | ) | | (32 | ) |
Lapse of statute of limitations | | (266 | ) | | (51,213 | ) | | — |
|
End of year | | $ | 11,588 |
| | $ | 1,449 |
| | $ | 55,164 |
|
The Company recognized accrued (released) interest and penalties of $(9) thousand, $(3.2) million and $0.8 million for fiscal 2017, 2016, and 2015, respectively, related to the reserves for uncertain tax positions in the income tax provision. Included in the total reserve for uncertain tax positions are accrued penalties and interest of approximately $0.1 million, $0.1 million and $3.3 million at March 31, 2017, 2016, and 2015 respectively.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of March 31, 2017, the Company's tax years ended March 31, 2013 and forward are open and subject to examination by the federal tax authorities. The other jurisdictions currently open or under examination are not considered to be material.