Income Taxes

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income from continuing operations before income tax expense. The sources and tax effects of the differences were as follows:



	Year Ended March 31,
	2017			2016			2015
Expected tax at 35%	$	4,560		$	11,068		$	12,605
State income taxes net of federal benefit	893			717			721
Foreign taxes less than statutory federal rate	(1,921		)	(2,370		)	(2,471		)
Permanent items	2,521			1,187			(264		)
Valuation allowance	(829		)	2,860			(18		)
(Utilization)/Expiration of foreign tax credits	—			(945		)	—
Research and development credits	(643		)	(200		)	(1,641		)
Other	(538		)	(272		)	(107		)
Actual tax provision expense (benefit)	$	4,043		$	12,045		$	8,825

The provision for income tax expense (benefit) consisted of the following:



	Year Ended March 31,
	2017			2016		2015
Current income tax expense (benefit):
United States Federal	$	41		$	1,905	$	2,853
State taxes	217			441		257
Foreign	3,296			2,363		3,641
Deferred income tax expense (benefit):
United States	5,797			7,235		5,098
Foreign	(5,308		)	101		(3,024		)
	$	4,043		$	12,045	$	8,825

The Company applies the liability method of accounting for income taxes as required by ASC Topic 740, “Income Taxes.” The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:



	March 31,
	2017			2016
Deferred tax assets:
Federal net operating loss carryforwards	$	50,786		$	56,142
State and foreign net operating loss carryforwards	12,151			11,797
Employee benefit plans	42,694			38,146
Insurance reserves	5,355			6,144
Accrued vacation and incentive costs	3,984			3,038
Federal tax credit carryforwards	1,601			517
Equity compensation	3,711			3,213
Other	5,330			5,637
Valuation allowance	(4,585		)	(4,131		)
Deferred tax assets after valuation allowance	121,027			120,503
Deferred tax liabilities:
Property, plant, and equipment	(4,016		)	(3,448		)
Intangible assets	(83,843		)	(43,956		)
Total deferred tax liabilities	(87,859		)	(47,404		)
Net deferred tax assets (liabilities)	$	33,168		$	73,099

The net deferred tax asset decreased in fiscal 2017 primarily as a result of deferred tax liabilities related to the acquisition of STAHL.

The gross amount of the Company’s deferred tax assets were $125,612,000 and $124,634,000 at March 31, 2017 and 2016, respectively.

The valuation allowance includes $4,370,000, $3,426,000, and $1,207,000 related to foreign net operating losses at March 31, 2017, 2016, and 2015, respectively. The increase in the foreign valuation allowance is primarily due to recording a valuation allowance on the deferred tax assets of certain foreign subsidiaries of the Company. The Company’s foreign subsidiaries have net operating loss carryforwards that expire in periods ranging from five years to indefinite.

The federal net operating losses arose from the acquisition of Magnetek and have expiration dates ranging from 2020 through 2035. The state net operating losses have expiration dates ranging from 2021 through 2035. The federal tax credits have indefinite expiration dates.

Deferred income taxes are classified within the consolidated balance sheets based on the following breakdown:



	March 31,
	2017			2016
Net non-current deferred tax assets	$	61,857		$	73,158
Net non-current deferred tax liabilities	(28,689		)	(59		)
Net deferred tax assets (liabilities)	$	33,168		$	73,099

Net non-current deferred tax liabilities are included in other non-current liabilities.

Income from continuing operations before income tax expense includes foreign subsidiary income of $3,071,000, $5,448,000, and $10,570,000 for the years ended March 31, 2017, 2016, and 2015, respectively. As of March 31, 2017, the Company had unrecognized deferred tax liabilities related to approximately $116,000,000 of cumulative undistributed earnings of foreign subsidiaries. These earnings are considered to be permanently invested in operations outside the United States. Determination of the amount of unrecognized deferred U.S. income tax liability with respect to such earnings is not practicable.

There were shares of common stock issued through restricted stock units, the exercise of non-qualified stock options, or through the disqualifying disposition of incentive stock options in the years ended March 31, 2017 and 2016. The tax effects to the Company from these transactions, recorded in additional paid-in capital rather than recognized as an increase in (reduction to) income tax expense, were $(197,000) and $118,000 in fiscal 2017 and 2016, respectively. The fiscal 2017 and 2016 tax windfall (shortfall) was also recognized in the consolidated balance sheet as an increase (decrease) in deferred tax assets.

Changes in the Company’s uncertain income tax positions, excluding the related accrual for interest and penalties, are as follows:



	2017			2016			2015
Beginning balance	$	1,092		$	1,833		$	2,357
Reductions for prior year tax positions	—			—			(198		)
Settlements	—			(771		)	(50		)
Foreign currency translation	(9		)	30			(276		)
Lapses in statutes of limitation	(108		)	—			—
Ending balance	$	975		$	1,092		$	1,833

The Company had $21,000 and $14,000 accrued for the payment of interest and penalties at March 31, 2017 and 2016, respectively. The Company recognizes interest expense or penalties related to uncertain tax positions as a part of income tax expense in its consolidated statements of operations.

All of the unrecognized tax benefits as of March 31, 2017 would impact the effective tax rate if recognized.

The Company and its subsidiaries file income tax returns in the U.S., various state, local, and foreign jurisdictions. The Internal Revenue Service has completed an examination of the Company’s U.S. income tax returns for fiscal 2009 and 2010 resulting in no adjustments. Current examinations include an IRS audit for the fiscal year 2015 U.S. income tax return and various state audits.

The Company’s major tax jurisdictions are the United States and Germany. With few exceptions, the Company is no longer subject to tax examinations by tax authorities in the United States for tax years prior to March 31, 2014 and in Germany for tax years prior to March 31, 2011.

The Company does not anticipate that total unrecognized tax benefits will change significantly due to the settlement of audits or the expiration of statutes of limitation prior to March 31, 2018.