|6 Months Ended|
Mar. 31, 2018
|Income Tax Disclosure [Abstract]|
Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's consolidated income taxes for the six months ended March 31, 2018 were a benefit of $23,015, compared to income tax expense of $8,462 for the first six months of fiscal 2017. The differences between the Company's fiscal 2018 six month effective tax rate and the fiscal 2017 six month effective tax rate, as well as the Company’s fiscal 2018 blended U.S. Federal statutory rate of 24.5% primarily resulted from the impacts of the U.S. tax reform enactment discussed below.
The U.S. Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35.0% to 21.0% effective January 1, 2018, which results in a blended U.S. statutory tax rate of 24.5% for the Company in fiscal 2018. The Act also requires a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, and creates new taxes on certain foreign-sourced earnings. At March 31, 2018, the Company has not finalized its accounting for the tax effects of the Act; however, as described below, management has made a reasonable estimate of the effects on existing deferred tax balances and has recorded an estimated amount for its one-time transition tax. For the items for which the Company was able to determine a reasonable estimate, a provisional net tax benefit of $29,921 was recognized, which is included entirely as a component of income tax benefit (provision) for the six months ended March 31, 2018. The two main components of this provisional amount are discussed below.
Deferred tax assets and liabilities: The Company remeasured certain deferred tax assets and liabilities based on the rates at which these deferred tax amounts are expected to reverse in the future, which is generally 21.0% or 24.5%. This remeasurement resulted in a tax benefit of $38,010 being recognized during the six months ended March 31, 2018. The Company is still analyzing certain aspects of the Act, estimating the timing of reversals, and refining its calculations, which could potentially affect the measurement of these balances, or potentially generate new deferred tax amounts.
Foreign tax effects: The Company previously recorded a provisional amount for its one-time transition tax for all of its foreign subsidiaries, resulting in an increase in income tax expense of $13,457 for the three months ended December 31, 2017. The one-time transition tax was calculated using an estimate of the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. During the Company’s second quarter, the IRS issued additional proposed regulations regarding the determination of the transition tax. This resulted in the recognition of a tax benefit during the quarter of $5,368, reducing the Company’s provisional estimate of total transition tax to an income tax expense of $8,089. The Company has not yet finalized its determination of the total post-1986 E&P and tax pools for its foreign subsidiaries and has not fully analyzed the state income tax effects. The calculation of the one-time transition tax is also impacted by the amount of foreign E&P held in cash and other specified assets. The tax amount may change when the Company finalizes its calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and upon finalization of the calculation of cash and other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.
The Company had unrecognized tax benefits (excluding penalties and interest) of $8,122 and $7,968 on March 31, 2018 and September 30, 2017, respectively, which would impact the annual effective rate. It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $3,635 in the next 12 months primarily due to the completion of an audit and the expiration of statute of limitations.
The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. Total penalties and interest accrued were $1,793 and $1,779 at March 31, 2018 and September 30, 2017, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.
Note 10. Income Taxes (continued)
The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions. As of March 31, 2018, the tax years that remain subject to examination by major jurisdiction generally are:
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef