| Income Taxes | Note L – Income
Taxes Earnings before income taxes for the fiscal years ended
May 31 include the following components:
(in
thousands) 2017 2016 2015
United States based
operations $ 266,222 $ 180,467 $ 104,732
Non – United States
based operations 30,905 36,148 8,296
Earnings before income
taxes 297,127 216,615 113,028
Less: Net earnings
attributable to noncontrolling interests* 13,422 13,913 10,471
Earnings before income
taxes attributable to controlling interest $ 283,705 $ 202,702 $ 102,557
*
Net earnings attributable to noncontrolling interests are not
taxable to Worthington. Significant components of income tax expense (benefit) for the
fiscal years ended May 31 were as follows:
(in
thousands) 2017 2016 2015
Current
Federal $ 50,200 $ 42,837 $ 57,511
State and local 2,954 2,157 2,731
Foreign 7,593 6,639 5,490
60,747 51,633 65,732
Deferred
Federal 18,177 7,584 (37,839 )
State and local 476 934 (754 )
Foreign (210 ) (1,164 ) (1,367 )
18,443 7,354 (39,960 )
$ 79,190 $ 58,987 $ 25,772
Due to the adoption of amended accounting guidance related to
the accounting for share-based payments in fiscal 2016, as
described in “Note A – Summary of Significant
Accounting Policies – Recently Adopted Accounting
Standards,” no tax benefits related to stock-based
compensation were credited to additional paid-in capital in fiscal
2017 or fiscal 2016. The tax benefit related to stock-based
compensation that was credited to additional paid-in capital was
$6,179,000 for fiscal 2015. The tax benefit related to the purchase
of noncontrolling interest in dHybrid credited to additional
paid-in capital was $539,000 for fiscal 2017. Tax benefits
(expense) related to defined benefit pension liability that were
credited to (deducted from) OCI were $(1,158,000), $1,175,000, and
$1,914,000 for fiscal 2017, fiscal 2016 and fiscal 2015,
respectively. Tax benefits (expenses) related to cash flow hedges
that were credited to (deducted from) OCI were $1,700,000,
$(13,316,000), and $6,952,000 for fiscal 2017, fiscal 2016 and
fiscal 2015, respectively.
A reconciliation of the 35% federal statutory tax rate to total
tax provision follows:
2017 2016 2015
Federal statutory
rate 35.0 % 35.0 % 35.0 %
State and local income
taxes, net of federal tax benefit 1.8 2.6 3.0
Change in state and local
valuation allowances (0.3 ) (1.1 ) (1.1 )
Non-U.S. income taxes at
other than 35% (2.1 ) (3.5 ) (0.7 )
Change in Non-U.S.
valuation allowances 0.7 0.5 1.2
Qualified production
activities deduction (1.9 ) (2.2 ) (5.9 )
Research &
development credits (0.1 ) (0.2 ) (0.2 )
Benefit related to foreign
tax credits (0.5 ) - (5.3 )
Excess benefit related to
share-based payment awards (5.7 ) (1.6 ) -
Other 1.0 (0.4 ) (0.9 )
Effective tax rate
attributable to controlling interest 27.9 % 29.1 % 25.1 %
The above effective tax rate attributable to controlling
interest excludes any impact from the inclusion of net earnings
attributable to noncontrolling interests in our consolidated
statements of earnings. The effective tax rates upon inclusion of
net earnings attributable to noncontrolling interests were 26.7%,
27.2% and 22.8% for fiscal 2017, fiscal 2016 and fiscal 2015,
respectively. Net earnings attributable to noncontrolling interests
are primarily a result of our WSP, Spartan, Worthington Aritas, and
TWB consolidated joint ventures. The earnings attributable to the
noncontrolling interests in WSP, Spartan and TWB’s U.S.
operations do not generate tax expense to Worthington since the
investors in WSP, Spartan and TWB’s U.S. operations are taxed
directly based on the earnings attributable to them. The tax
expense of Worthington Aritas (a foreign corporation), and
TWB’s wholly-owned foreign corporations, is reported in our
consolidated tax expense. Under applicable accounting guidance, a tax benefit may be
recognized from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by
the taxing authorities, including resolution of any related appeals
or litigation processes, based on the technical merits of the
position. Any tax benefits recognized in our financial statements
from such a position were measured based on the largest benefit
that has a greater than fifty percent likelihood of being realized
upon ultimate settlement. The total amount of unrecognized tax benefits were $2,975,000,
$2,827,000, and $3,530,000 as of May 31, 2017, 2016 and 2015,
respectively. The total amount of unrecognized tax benefits that,
if recognized, would affect the effective tax rate attributable to
controlling interest was $2,225,000 as of May 31, 2017.
Unrecognized tax benefits are the differences between a tax
position taken, or expected to be taken in a tax return, and the
benefit recognized for accounting purposes. Accrued amounts of
interest and penalties related to unrecognized tax benefits are
recognized as part of income tax expense within our consolidated
statements of earnings. As of May 31, 2017, 2016 and 2015, we
had accrued liabilities of $307,000, $538,000 and $947,000,
respectively, for interest and penalties related to unrecognized
tax benefits. A tabular reconciliation of unrecognized tax benefits
follows:
(In
thousands)
Balance at May 31,
2016 $ 2,827
Decreases – tax
positions taken in prior years (206 )
Increases – current
tax positions 617
Settlements (227 )
Lapse of statutes of
limitations (36 )
Balance at May 31,
2017
$ 2,975
Approximately $673,000 of the liability for unrecognized tax
benefits is expected to be settled in the next twelve months due to
the expiration of statutes of limitations in various tax
jurisdictions and as a result of expected settlements with various
tax jurisdictions. While it is expected that the amount of
unrecognized tax benefits will change in the next twelve months,
any change is not expected to have a material impact on our
consolidated financial position, results of operations or cash
flows. The following is a summary of the tax years open to examination
by major tax jurisdiction: U.S. Federal –2014 and forward U.S. State and Local – 2013 and forward Austria –
2013 and forward Canada – 2013 and forward Mexico – 2011 and forward Earnings before income taxes attributable to foreign sources
for fiscal 2017, fiscal 2016 and fiscal 2015 were as noted above.
As of May 31, 2017, and based on the tax laws in effect at
that time, it remains our intention to continue to indefinitely
reinvest our undistributed foreign earnings, except for the foreign
earnings of our TWB joint venture. Accordingly, no deferred tax
liability has been recorded for our foreign earnings, except those
that pertain to TWB. Excluding TWB, the undistributed earnings of
our foreign subsidiaries at May 31, 2017 were approximately
$241,000,000. If such earnings were not permanently reinvested, a
deferred tax liability of approximately $12,000,000 would have been
required.
The components of our deferred tax assets and liabilities as of
May 31 were as follows:
(in
thousands) 2017 2016
Deferred tax
assets
Accounts
receivable $ 2,157 $ 2,786
Inventories 6,624 6,418
Accrued expenses 30,065 34,035
Net operating loss carry
forwards 13,256 12,756
Tax credit carry
forwards 3,206 3,127
Stock-based
compensation 17,668 22,452
Other 205 210
Total deferred tax
assets 73,181 81,784
Valuation allowance for
deferred tax assets (12,987 ) (11,796 )
Net deferred tax
assets 60,194 69,988
Deferred tax
liabilities
Property, plant and
equipment (42,599 ) (35,521 )
Investment in affiliated
companies, principally due to undistributed earnings (46,001 ) (42,967 )
Derivative
contracts (1,745 ) (6,395 )
Other (4,149 ) (2,484 )
Total deferred tax
liabilities (94,494 ) (87,367 )
Net deferred tax
liability $ (34,300 ) $ (17,379 )
During fiscal 2016, the Company adopted amended accounting
guidance that requires all deferred tax assets and liabilities to
be classified as noncurrent on the balance sheet. The above net
deferred tax liability amounts are classified in the consolidated
balance sheets as noncurrent liabilities as of May 31, 2017
and May 31, 2016. At May 31, 2017, we had tax benefits
for state net operating loss carry forwards of $8,470,000 that
expire from fiscal 2018 to the fiscal year ending May 31,
2037, tax benefits for foreign net operating loss carry forwards of
$4,786,000 that expire from fiscal 2018 to the fiscal year ending
May 31, 2036, and a tax benefit for foreign income tax credit
carry forwards of $3,206,000, that expires in the fiscal year
ending May 31, 2025. The valuation allowance for deferred tax assets of $12,987,000
at May 31, 2017 is associated primarily with the net operating
loss carry forwards. The valuation allowance includes $8,548,000
for state and $4,439,000 for foreign deferred tax assets. The
majority of the state valuation allowance relates to our facility
in Decatur, Alabama. The foreign valuation allowance relates to the
Company’s operations in Turkey. Based on our history of
profitability, the scheduled reversal of deferred tax liabilities,
and taxable income projections, we have determined that it is more
likely than not that the remaining deferred tax assets are
otherwise realizable. |
