Note 7: Income Taxes

The U.S. and foreign components of earnings from continuing operations before income taxes and the provision or benefit for income taxes consisted of the following:

	Years ended March 31,
	2017			2016			2015
Components of earnings (loss) from continuing operations before income taxes:
United States	$	(8.6	)	$	(15.4	)	$	31.1
Foreign		29.4			5.5			10.1
Total earnings (loss) from continuing operations before income taxes	$	20.8		$	(9.9	)	$	41.2

Income tax expense (benefit):
Federal:
Current	$	0.1		$	0.1		$	0.4
Deferred		(3.8	)		(13.0	)		7.1
State:
Current		0.3			0.2			-
Deferred		(0.2	)		(2.5	)		1.1
Foreign:
Current		10.1			9.6			12.7
Deferred		(0.6	)		(3.3	)		(2.3	)
Total income tax expense (benefit)	$	5.9		$	(8.9	)	$	19.0

The Company allocates income tax expense among continuing operations, discontinued operations, and other comprehensive income. The Company applies accounting for income taxes by tax jurisdiction, and in periods in which there is a loss from continuing operations before income taxes and pre-tax income in other categories (e.g., discontinued operations or other comprehensive income), it first allocates income tax expense to the other sources of income, and records a related tax benefit in continuing operations.

Income tax expense attributable to earnings from continuing operations before income taxes differed from the amounts computed by applying the statutory U.S. federal income tax rate as a result of the following:

	Years ended March 31,
	2017			2016			2015
Statutory federal tax		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		(3.3	)		11.5			2.4
Taxes on non-U.S. earnings and losses		(3.5	)		26.4			(4.9	)
Valuation allowance		1.2			(20.9	)		8.3
Tax credits		(9.0	)		20.5			(6.1	)
Compensation		2.9			(3.7	)		1.0
Tax rate or law changes		(2.5	)		1.3			1.2
Uncertain tax positions, net of settlements		5.6			(4.3	)		2.2
Notional interest deductions		(8.8	)		-			-
Dividend repatriation		7.1			16.0			2.4
Other		3.7			8.1			4.6
Effective tax rate		28.4	%		89.9	%		46.1	%

During fiscal 2017, the Company recorded a valuation allowance of $2.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would not be realized. Also during fiscal 2017, the Company recorded a net reduction of deferred tax asset valuation allowances totaling $1.8 million in other tax jurisdictions. During fiscal 2016, the Company reversed a valuation allowance of $3.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would be realized. In fiscal 2016 and 2015, the Company recorded a net increase in deferred tax asset valuation allowances totaling $5.0 million and $2.6 million, respectively, in other tax jurisdictions. The Company will continue to provide valuation allowances against its net deferred tax assets in each applicable tax jurisdiction until the need for a valuation allowance is eliminated. The need for a valuation allowance is eliminated when the Company determines it is more likely than not the deferred tax assets will be realized.

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities were as follows:

	March 31,
	2017			2016
Deferred tax assets:
Accounts receivable	$	0.4		$	0.1
Inventories		5.0			3.6
Plant and equipment		3.7			4.3
Pension and employee benefits		51.8			52.6
Net operating loss, capital loss, and credit carry-forwards		147.5			109.4
Other, principally accrued liabilities		10.9			7.5
Total gross deferred tax assets		219.3			177.5
Less: valuation allowances		(49.6	)		(50.8	)
Net deferred tax assets		169.7			126.7

Deferred tax liabilities:
Plant and equipment		21.2			5.5
Goodwill		4.7			0.6
Intangible assets		43.3			1.5
Other		1.8			0.2
Total gross deferred tax liabilities		71.0			7.8
Net deferred tax asset	$	98.7		$	118.9

Unrecognized tax benefits were as follows:

	Years ended March 31,
	2017			2016
Beginning balance	$	5.9		$	5.6
Gross increases - tax positions in prior period		0.3			-
Gross decreases - tax positions in prior period		(0.2	)		(0.1	)
Gross increases - due to acquisition		7.3			-
Gross increases - tax positions in current period		0.9			0.4
Ending balance	$	14.2		$	5.9

The Company’s liability for unrecognized tax benefits as of March 31, 2017 was $14.2 million, and if recognized, $11.9 million would have an effective tax rate impact. The Company estimates that reductions to unrecognized tax benefits in fiscal 2018 due to lapses in statutes of limitations and audit settlements will total $2.4 million, which, if recognized, would have a $1.6 million impact on the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. During fiscal 2017 and 2016, interest and penalties included within income tax expense in the consolidated statements of operations were not significant. At March 31, 2017, $0.8 million of accrued interest and penalties were included in the consolidated balance sheet. At March 31, 2016, accrued interest and penalties were not significant.

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. At March 31, 2017, the Company was under income tax examination in a number of foreign jurisdictions. The following tax years remain subject to examination for the Company’s major tax jurisdictions:

	Germany	Fiscal 2011 - Fiscal 2016
	Italy	Calendar 2011 - Fiscal 2016
	United States	Fiscal 2014 - Fiscal 2016

At March 31, 2017, the Company had federal and state tax credits of $27.4 million that, if not utilized against U.S. taxes, will expire between fiscal 2018 and 2037. The Company also had state and local tax loss carry-forwards of $212.7 million that, if not utilized against state apportioned taxable income, will expire at various times during fiscal 2018 and 2037. In addition, the Company had tax loss and foreign attribute carry-forwards of $485.0 million in various tax jurisdictions throughout the world. Certain of the carry-forwards in the U.S. and many in foreign jurisdictions are offset by a valuation allowance. If not utilized against taxable income, $167.0 million of these carry-forwards will expire at various times during fiscal 2018 through 2037, and $318.0 million, mainly related to Germany, Italy, and India, will not expire due to an unlimited carry-forward period.

At March 31, 2017, the Company provided $0.3 million of tax on undistributed earnings for certain subsidiaries not considered permanently reinvested. Undistributed earnings totaling $505.0 million are considered permanently reinvested in the Company’s remaining foreign operations, and no provision has been made for taxes that would be payable upon the distribution of such earnings. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings.