HAYNES INTERNATIONAL INC

Note 6. Income Taxes

The components of income (loss) before provision for income taxes and the provision for income taxes are as follows:


	Year Ended September 30,
	2015		2016		2017
Income (loss) before income taxes:
U.S.	$	36,327	$	(4,160)	$	(25,090)
Foreign		10,849		7,911		7,873
Total	$	47,176	$	3,751	$	(17,217)
Provision for (benefit from) income taxes:
Current:
U.S. Federal	$	11,207	$	(4,427)	$	933
Foreign		1,690		1,368		1,652
State		686		(141)		401
Total		13,583		(3,200)		2,986
Deferred:
U.S. Federal		(79)		4,582		(8,781)
Foreign		690		(105)		—
State		2,368		(2,954)		(1,427)
Valuation allowance		128		408		195
Total		3,107		1,931		(10,013)
Total provision for (benefit from) income taxes	$	16,690	$	(1,269)	$	(7,027)

The provision for income taxes applicable to results of operations differed from the U.S. federal statutory rate as follows:


	Year Ended September 30,
	2015			2016			2017
Statutory federal tax rate		35	%		35	%		35	%
Tax provision for income taxes at the statutory rate	$	16,512		$	1,313		$	(6,026)
Foreign tax rate differentials		(1,417)			(1,505)			(1,103)
Provision for state taxes, net of federal taxes		818			778			(371)
U.S. tax on distributed and undistributed earnings of foreign subsidiaries		419			523			452
Manufacturer’s deduction		(1,213)			(98)			—
Tax credits		(240)			(1,198)			(409)
State tax rate change impact on deferred tax asset		1,565			(1,819)			192
Change in valuation allowance		128			408			195
Other, net		118			329			43
Provision for income taxes at effective tax rate	$	16,690		$	(1,269)		$	(7,027)
Effective tax rate		35.4	%		(33.8)	%		40.8	%

During fiscal 2015, the Company’s effective tax rate was higher than the statutory rate, primarily due to a change in the Indiana tax law that was enacted in May 2015, which decreased the deferred tax asset and increased tax expense.

During fiscal 2016, the Company’s effective tax rate was negative relative to the statutory rate, primarily due to an increase in the value of the Company’s deferred tax assets driven by a higher state tax rate and research credits. Additionally, the Company earned a greater proportion of profitability in foreign jurisdictions.

During fiscal 2017, the Company’s effective tax rate was higher than the statutory rate, primarily due to the Company incurring a pre-tax loss in the United States and pre-tax income in the United Kingdom which has a lower effective tax rate than the statutory rate. When incurring a pre-tax loss, the effective tax rate of the Company will be higher than the statutory rate if certain tax jurisdictions with lower tax rates incur pre-tax income as a partial offset to the pre-tax loss in the United States.

Deferred tax assets (liabilities) are comprised of the following:


	September 30,
	2016		2017
Deferred tax assets:
Pension and postretirement benefits	$	93,238	$	74,602
TIMET Agreement		9,361		8,417
Inventories		3,405		2,080
Accrued compensation and benefits		2,264		2,107
Accrued expenses and other		3,132		5,277
Tax attributes		1,642		11,579
Valuation allowance		(532)		(1,017)
Total deferred tax assets	$	112,510	$	103,045
Deferred tax liabilities:
Property, plant and equipment, net	$	(41,645)	$	(45,155)
Intangible and other		(1,433)		(1,498)
Total deferred tax liabilities	$	(43,078)	$	(46,653)

Net deferred tax assets (liabilities)	$	69,432	$	56,392

As of September 30, 2017, the Company had federal net operating loss carryforwards of $21,530, state tax net operating loss carryforwards of $11,666, tax credits of $3,205 and foreign net operating loss carryforwards of $2,249. As of September 30, 2016, the Company had state tax net operating loss carryforwards of $3,453, tax credits of $1,198 and foreign net operating loss carryforwards of $349. The Company has recorded a valuation allowance against the foreign net operating loss carryforwards of $1,539 and U.S. tax credits of $504 because management does not believe that it is more likely than not that net operating loss carryforwards will be realized prior to their expiration.

Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $62,497 at September 30, 2017. The Company considers those earnings reinvested indefinitely and, accordingly, no provision for U.S. income taxes has been provided. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

As of September 30, 2017, the Company was open to examination in the U.S. federal income tax jurisdiction for the 2014 through 2017 tax years and in various foreign jurisdictions from 2012 through 2017. The Company is also open to examination in various states in the U.S., none of which were individually material.