STERIS plc

Income from continuing operations before income taxes was as follows:



Years Ended March 31,	2017			2016			2015
United States operations	$	189,429		$	105,758		$	161,165
United Kingdom operations	(36,420		)	(20,553		)	15,824
Other Foreign Locations operations	31,637			86,679			31,831
	$	184,646		$	171,884		$	208,820

The components of the provision for income taxes related to income from continuing operations consisted of the following:



Years Ended March 31,	2017			2016			2015
Current:
United States federal	$	43,900		$	41,653		$	52,234
United States state and local	8,171			7,943			8,551
United Kingdom	362			2,194			3,633
Other foreign locations	21,094			13,924			8,842
	73,527			65,714			73,260
Deferred:
United States federal	10,293			1,427			1,436
United States state and local	2,131			299			214
United Kingdom	(2,292		)	(6,973		)	(676		)
Other foreign locations	(9,644		)	(168		)	(478		)
	488			(5,415		)	496
Total Provision for Income Taxes	$	74,015		$	60,299		$	73,756

The total provision for income taxes can be reconciled to the tax computed at the United Kingdom federal statutory tax rate for 2017 and the United States federal statutory tax rate for 2016 and 2015 as follows:



Years Ended March 31,	2017		2016		2015
Federal statutory tax rate	20.0	%	35.0	%	35.0	%
Increase (decrease) in accruals for uncertain tax positions	0.3	%	0.2	%	—	%
State and local taxes, net of federal income tax benefit	3.8	%	3.3	%	2.8	%
Increase in valuation allowances	0.1	%	1.0	%	2.1	%
Research and development credit	(1.1	)%	—	%	—	%
Foreign income tax credit	—	%	(0.6	)%	(1.0	)%
Difference in non-United States tax rates	—	%	(8.5	)%	(3.6	)%
Difference in non-United Kingdom tax rates	6.0	%	—	%	—	%
Excise tax gross-up	—	%	3.4	%	—	%
U.S. manufacturing deduction	(2.5	)%	(2.5	)%	(1.6	)%
Excess tax benefit for equity compensation	(2.8	)%	—	%	—	%
Rate changes on deferred tax assets and liabilities	(2.3	)%	—	%	—	%
Acquisitions and divestitures	9.0	%	—	%	—	%
Goodwill impairment on divestitures	7.9	%	—	%	—	%
Capitalized acquisition costs	0.2	%	5.3	%	2.2	%
All other, net	1.5	%	(1.5	)%	(0.6	)%
Total Provision for Income Taxes	40.1	%	35.1	%	35.3	%

Unrecognized Tax Benefits. We classify uncertain tax positions and related interest and penalties as long-term liabilities within “Other liabilities” in our accompanying Consolidated Balance Sheets, unless they are expected to be paid within 12 months, in which case, the uncertain tax positions would be classified as current liabilities within “Accrued income taxes.” We recognize interest and penalties related to unrecognized tax benefits within “Income tax expense” in our accompanying Consolidated Statements of Income.

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:



	2017			2016
Unrecognized Tax Benefits Balance at April 1	$	3,527		$	—
Increases for tax provisions of current year	510			316
Balances related to acquired/disposed businesses	(1,502		)	3,422
Other decreases, including currency translation	(651		)	(211		)
Unrecognized Tax Benefits Balance at March 31	$	1,884		$	3,527

We recognized interest and penalties related to uncertain tax positions in the provision for income taxes. As of March 31, 2017, we had $184 accrued for interest and penalties. The decrease during fiscal 2017 is primarily associated with the release of prior year uncertain tax positions. If all unrecognized tax benefits were recognized, the net impact on the provision for income tax expense would be $2,068. It is reasonably possible that during the next twelve months, there will be no material reductions in unrecognized tax benefits as a result of the expiration of various statutes of limitations or matters related to transfer pricing.

We operate in numerous taxing jurisdictions and are subject to regular examinations by various United States federal, state and local, as well as foreign jurisdictions. We are no longer subject to United States federal examinations for years before fiscal 2014 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax examinations by tax authorities for years before fiscal 2012. We remain subject to tax authority audits in various jurisdictions wherever we do business. We do not expect the results of these examinations to have a material adverse effect on our consolidated financial statements.

We estimate that the tax benefit from our Costa Rican Tax Holiday is $933 (or $0.01 per fully diluted share), annually. The Tax Holiday runs fully exempt, from income tax, through 2025 and partially exempt through 2029.

Deferred Taxes. The significant components of the deferred tax assets and liabilities recorded in our accompanying balance sheets at March 31, 2017 and 2016 were as follows:



March 31,	2017			2016
Deferred Tax Assets:
Post-retirement benefit accrual	$	6,116		$	7,016
Compensation	17,196			25,436
Net operating loss carryforwards	35,129			26,151
Accrued expenses	7,807			7,521
Insurance	4,957			4,226
Deferred income	8,962			7,910
Bad debt	1,740			2,059
Pension	4,647			5,155
Other	781			2,208
Deferred Tax Assets	87,335			87,682
Less: Valuation allowance	16,366			16,435
Total Deferred Tax Assets	70,969			71,247
Deferred Tax Liabilities:
Depreciation and depletion	74,092			85,807
Intangibles	156,291			226,809
Other	3,631			3,744
Total Deferred Tax Liabilities	234,014			316,360
Net Deferred Tax Assets (Liabilities)	$	(163,045	)	$	(245,113	)

At March 31, 2017, we had U.S. federal operating loss carryforwards of $44,112, which if unused, these U.S. federal operating loss carryforwards will expire between fiscal years 2031 and 2037. Additionally, we had non-U.S. operating loss carry forwards of $57,574. Although the majority of the non-U.S. carryforwards have indefinite expiration periods, those carryforwards that have definite expiration periods will expire if unused between fiscal years 2018 and 2026. In addition, we have recorded tax benefits of $2,177 related to state operating loss carryforwards. If unused, these state operating loss carryforwards will expire between fiscal years 2018 and 2037. At March 31, 2017, we had $1,810 of tax credit carryforwards. These credit carryforwards can be used through fiscal 2026.

We review the need for a valuation allowance against our deferred tax assets. A valuation allowance of $16,366 has been applied to a portion of the net deferred tax assets because we do not believe it is more-likely-than-not that we will receive future benefit. The valuation allowance decreased during fiscal 2017 by $69.

No provision has been made for income taxes on undistributed earnings of foreign subsidiaries of approximately $954.1 million at March 31, 2017, since it is our intention to indefinitely reinvest undistributed earnings of our foreign subsidiaries. It is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on the remittance of such undistributed earnings.

In October 2015, the Organization for Economic Cooperation and Development (OECD), in conjunction with the G20, finalized broad-based international tax policy guidelines that involve transfer pricing and other international tax subjects. While some member jurisdictions automatically adopt the new OECD guidelines, most member countries can adopt the guidelines only by new law or regulations. We are currently adopting processes to comply with the reporting requirements specified by the guidelines and are evaluating the other parts of the guidelines.