XML 46 R18.htm IDEA: XBRL DOCUMENT v3.8.0.1
INCOME TAXES
9 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES

The Company and its subsidiaries are subject to taxation in the U.S. and in various foreign and state jurisdictions. The effective tax rates for the three months ended December 31, 2016 and 2017 were 11.0% and 255.1%, respectively. The effective tax rates for the nine months ended December 31, 2016 and 2017 were 18.4% and 114.6%, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Act”) was signed into law in the United States.  The Act includes several changes to existing tax law, including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21% and the move from a worldwide to a territorial tax system.

The move to a territorial tax system was accompanied by federal taxation of a one-time deemed repatriation of accumulated unremitted earnings (hereafter, the "toll charge"), which the Company will elect to pay over an eight-year period as permitted under the Act.  The Company recorded a $69.3 million toll charge as part of income tax expense in the quarter ended December 31, 2017, representing a provisional estimate based on a 15.5% tax applied to foreign unremitted cash and cash equivalents and an 8% tax applied to permanently reinvested foreign assets. The provisional toll charge increased our effective tax rate by 217.2% and 94.1% for the three and nine months ended December 30, 2017, respectively. As part of the Act, the Company also completed its remeasurement of deferred tax assets as of December 31, 2017 to the new future federal tax rate of 21%, thereby reducing the Company’s deferred tax assets by $2.1 million. The rate change resulted in an overall increase to the Company’s effective tax rate by 6.6% and 2.9% for the three and nine months ended December 31, 2017, respectively. In addition, prior to its third quarter of Fiscal Year 2018, the Company did not recognize a deferred tax liability related to unremitted foreign earnings because its plans did not require the Company to repatriate earnings from foreign operations to fund U.S. operations.  The Company expects to fund payment of the toll charge by repatriating a portion of its foreign earnings and as such, has recorded a deferred tax liability of $5.0 million related to state income taxes and foreign withholding taxes that will become due as the Company repatriates foreign earnings. This increased the Company’s effective tax rate by 15.6% and 6.8% for the three and nine months ended December 31, 2017, respectively. Finally, the Company files its federal tax return on a fiscal year-end and is therefore required to pro-rate the new and old tax rates during Fiscal Year 2018.  The blended, annualized tax rate applied to Fiscal Year 2018 income is 31.56%.  This reduction in the federal tax rate reduced the Company’s global tax rate by 2.3% and 1.0% for the three and nine months ended December 31, 2017, respectively.

The provisional estimate for the toll charge will be finalized when the Company completes its substantive review of unremitted foreign earnings through examination of statutory filings and tax returns of the Company's foreign subsidiaries and fiscal branches that span a 30-year period. The Company must also analyze the impact of foreign exchange rates and inflation on the historical information to support foreign tax credits available to offset the toll charge. In addition, the Company's estimate of the toll charge obligation may change due to legislative technical corrections, the IRS' promulgation of regulations to interpret the Act, and changes in accounting standards for income taxes or related interpretations in response to the Act. This review and finalization of the toll charge provisional estimate will be completed within a twelve month measurement period from the date of enactment.

The Company recorded a correction to the geographic mix of income during the three months ended June 30, 2017 related to Fiscal Year 2017, which reduced income in a high tax jurisdiction and increased income in a low tax jurisdiction. This correction resulted in a reduction to the Company’s effective tax rate by 3.5 percentage points for the nine months ended December 31, 2017 as compared to the prior year period and had no impact on the three months ended December 31, 2017. For additional details regarding this correction refer to Note 1, Basis of Presentation.

The Company adopted new stock-based compensation accounting guidance effective the beginning of Fiscal Year 2018. Excess tax benefits associated with employee equity plans were previously recorded in additional paid-in capital and the adoption of this guidance had an immaterial impact on the Company's effective tax rate for the three months ended December 31, 2017, but resulted in a reduction to the Company's effective tax rate by 2.6 percentage points for the nine months ended December 31, 2017. The amount of excess tax benefits or deficiencies will fluctuate from period-to-period based on the price of the Company’s stock, the volume of share-based instruments settled or vested, and the value assigned to employee equity awards under U.S. GAAP.

Included in long-term income taxes payable in the condensed consolidated balance sheets as of March 31, 2017 and December 31, 2017 were unrecognized tax benefits of $12.9 million and $12.3 million, respectively, which would favorably impact the effective tax rate in future periods if recognized. The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense in the condensed consolidated statements of operations.  The accrued interest related to unrecognized tax benefits was $1.7 million and $1.4 million as of March 31, 2017 and December 31, 2017, respectively.  No penalties have been accrued.

The Company and its subsidiaries are subject to taxation in the U.S. federal and various foreign and state jurisdictions. The Company’s Fiscal Year 2016 federal income tax return is currently under examination by the Internal Revenue Service. Foreign income tax matters for material tax jurisdictions have been concluded for tax years prior to Fiscal Year 2012.

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations; however, the outcome of such examinations cannot be predicted with certainty. If any issues addressed in the tax examinations are resolved in a manner inconsistent with the Company's expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. The timing of any resolution and/or closure of tax examinations is not certain.