XML 36 R25.htm IDEA: XBRL DOCUMENT v3.8.0.1
Income Taxes
9 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
During the three and nine months ended December 31, 2017, the Company recorded an income tax expense of $101.0 million and $100.0 million, respectively. The Company recorded an income tax benefit of $4.1 million and $7.5 million in the three and nine months ended January 1, 2017, respectively.
The income tax expense recorded in the three and nine months ended December 31, 2017 was primarily due to the impacts of the Tax Cuts and Jobs Act (“TCJA”). Additionally, the Company recorded a tax expense for potential withholding taxes on its historical unremitted earnings as they are no longer permanently reinvested. The tax expense was partially offset by tax benefits from the reduction to the deferred tax liability related to amortization of acquired intangible assets as well as the tax benefit from excess tax benefits on stock based compensation.
The income tax benefit recorded in the nine months ended January 1, 2017 was primarily due to the tax benefit from the reduction to the deferred tax liability related to amortization of acquired intangible assets, the tax benefit arising from deductible severance costs, as well as the tax benefit from excess tax benefits on stock based compensation.
Excluding the impacts of the TCJA, the Company’s effective tax rate was significantly less than the U.S. federal statutory rate of 35% in all periods primarily due to the benefits of lower-taxed earnings in foreign jurisdictions, including Malaysia, where a tax holiday is in effect through fiscal 2021.
On December 22, 2017, the TCJA was enacted into law. The TCJA provides for numerous significant tax law changes and modifications including, among other things, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; requiring companies to pay a one-time transition tax on certain unremitted earnings of foreign subsidiaries; generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; and creating a new limitation on deductible interest expense. Certain provisions of the TCJA began to impact the Company in the third quarter of fiscal year 2018, while other provisions will impact the Company beginning in fiscal year 2019.
The corporate tax rate reduction is effective as of January 1, 2018. Since the Company has a fiscal year rather than a calendar year, it is subject to rules relating to transitional tax rates. As a result, the Company’s fiscal year 2018 federal statutory rate will be a blended rate of 31.5%.
ASC 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118 which allows companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. As of December 31, 2017, the Company has made reasonable estimates of the effects on its existing deferred tax balances and the one-time repatriation tax recording provisional charges of $10.2 million and $91.7 million, respectively, as a component of income tax expense from continuing operations.
The $10.2 million charge for the effect on the Companies deferred tax balances resulted from the reduction of the corporate income tax rate to 21%. U.S. GAAP requires companies to remeasure their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment. The Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The Company’s actual remeasurement may vary from the provisional amount because the final analysis will be based on balances as of April 1, 2018 and actual activities of the fourth quarter of fiscal year 2018.
The $91.7 million charge for the one-time repatriation tax increased other accrued liabilities by $2.8 million, increased long-term income taxes payable by $29.8 million, and reduced deferred tax assets, for the utilization of tax attributes, by $59.1 million. The liabilities resulting from the repatriation tax are payable over a period of up to eight years. The provisional amount was based on the Company’s total post-1986 earnings and profits (“E&P”) of its foreign subsidiaries. The majority of these earnings were historically permanently reinvested outside the U.S., thus no taxes had previously been provided for these earnings. The provisional amount includes U.S. federal and state taxes and was based on estimated E&P for the Company’s foreign subsidiaries. In addition, the one-time repatriation tax is based in part on the amount of those earnings held in cash and other specified assets either as of the end of fiscal year 2018 or the average of the year-end balances for fiscal years 2016 and 2017. The Company's calculation of this amount may change with further analysis, fourth quarter activities, and further guidance from the U.S. federal and state tax authorities about the application of these new rules.
The TCJA creates a new Global Intangible Low-Taxed Income (“GILTI”) requirement under which certain income earned by controlled foreign corporations (“CFC”s) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.
Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the TCJA and the application of ASC 740. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing the Company’s global income to determine what the impact is expected to be. The Company is not yet able to reasonably estimate the effect of this provision of the TCJA. Therefore, the Company has not made any adjustments related to potential GILTI tax in its financial statements and has not made a policy decision regarding whether to record deferred taxes on GILTI.
As of December 31, 2017, the Company had not fully completed its accounting for the tax effects of the enactment of the TCJA. The Company’s provision for income taxes for the three and nine months ended December 31, 2017 is based in part on a reasonable estimate of the effects on its transition tax and existing deferred tax balances. The Company will continue to assess the impact of the recently enacted tax law and expected further guidance from federal and state tax authorities as well as further guidance for the associated income tax accounting on its business and consolidated financial statements.
In connection with the TCJA and review of the Company’s projected offshore cash flows, and global cash requirements, the Company determined that historical foreign earnings would no longer be permanently reinvested. Accordingly, a tax expense of $6.0 million was accrued during the three and nine months ended December 31, 2017, for withholding taxes on potential distributions from the Company’s foreign subsidiaries.
During the nine months ended December 31, 2017, the Company recorded a deferred tax charge of $9.9 million in prepayments and other current assets and other assets, which represents the tax expense that was deferred, in accordance with ASC 740-10-25-3(e), on the intercompany transfer of intangible assets in connection with a change to the Company’s corporate structure. The deferred tax charge is being amortized over the tax life of the intangible assets.
As of December 31, 2017, the Company continues to maintain a valuation allowance against the Company's net deferred tax assets in certain foreign and state jurisdictions, as the Company is not able to conclude that it is more likely than not that these deferred tax assets will be realized. The Company reached this decision based on judgment, which included consideration of historical operating results and projections of future profits. The Company will continue to monitor the need for the valuation allowance on a quarterly basis.
The Company benefits from tax incentives granted by local tax authorities in certain foreign jurisdictions. In the fourth quarter of fiscal 2011, the Company agreed with the Malaysia Industrial Development Board to enter into a new tax incentive agreement which is a full tax exemption on statutory income for a period of 10 years commencing April 4, 2011. This tax incentive agreement is subject to the Company meeting certain financial targets, investments, headcounts and activities in Malaysia.
During the nine months ended December 31, 2017, the Company closed out all positions as part of the examinations of the Company's India income tax returns through fiscal 2016, Italy’s income tax returns for fiscal years 2015 and 2016, and New York state income tax returns for fiscal years 2013 through 2016. The outcome of the examinations did not have a material effect on the Company’s financial position, cash flows or results of operations.
As of December 31, 2017, the Company is under examination in Malaysia for fiscal years 2012 through 2015. Although the final outcome of each examination is uncertain, based on currently available information, the Company believes that the ultimate outcome will not have a material adverse effect on its financial position, cash flows or results of operations.
The Company's open years in the U.S. federal jurisdiction are calendar year 2014 and later years. In addition, the Company is effectively subject to federal tax examination adjustments for tax years ended on or after fiscal year 1999, in that the Company has tax attribute carryforwards from these years that could be subject to adjustments, if and when utilized. The Company's open years in various state and foreign jurisdictions are fiscal years 2010 and later.
The Company does not expect a material change in unrecognized tax benefits within the next twelve months.