Note 11 - Income Taxes

The provisions for income taxes for the years ended April 30 were as follows (in thousands):

	2017	2016	2015
Current Provision
US – Federal	$912	$(5,365)	$27,137
International	105,228	31,958	27,613
State and Local	100	1,657	1,007
Total Current Provision	$106,240	$28,250	$55,757
Deferred Provision (Benefit)
US – Federal	$(13,852)	$6,625	$(7,554)
International	(15,330)	(6,459)	606
State and Local	415	595	(216)
Total Deferred (Benefit)	$(28,767)	$761	$(7,164)
Total Provision	$77,473	$29,011	$48,593

International and United States pretax income for the years ended April 30 were as follows (in thousands):

	2017	2016	2015
International	$192,910	$159,152	$165,085
United States	(1,794)	15,641	60,376
Total	$191,116	$174,793	$225,461

The Company’s effective income tax rate as a percentage of pretax income differed from the U.S. federal statutory rate as shown below:

	2017	2016	2015
U.S. Federal Statutory Rate	35.0%	35.0%	35.0%
German Tax Litigation Expense	25.7	-	-
Benefit from Lower Taxes on Non-U.S. Income	(12.7)	(14.6)	(11.9)
State Income Taxes, Net of U.S. Federal Tax Benefit	0.1	0.8	0.3
Deferred Tax Benefit From Statutory Tax Rate Change	(1.3)	(3.4)	-
Tax Credits and Related Benefits	(6.2)	(1.6)	(0.3)
Tax Adjustments and Other	(0.1)	0.4	(1.5)
Effective Income Tax Rate	40.5%	16.6%	21.6%

Note: A substantial portion of the Company’s income is earned outside the U.S. in jurisdictions with lower statutory income tax rates than the U.S. including: U.K. (62%), Germany (26%) and Australia (7%).

Deferred Tax Benefit from Statutory Tax Rate Change: In fiscal year 2016, the U.K. reduced its statutory rate to 19% beginning April 1, 2017 and 18% beginning April 1, 2020; and in fiscal year 2017, the U.K. further reduced its statutory rate beginning on April 1, 2020, from 18% to 17%. This resulted in a non-cash deferred tax benefit from the re-measurement of the Company’s applicable U.K. deferred tax balances of $5.9 million ($0.10 per share) in fiscal year 2016 and $2.6 million ($0.04 per share) in fiscal year 2017.

Tax Adjustments and Other: In fiscal year 2017, the Company did not record any tax benefits related to the expiration of the statute of limitations or favorable resolutions of federal, state and foreign tax matters with tax authorities. In fiscal years 2016 and 2015, the Company recorded tax benefits of $1.3 million and $0.7 million, respectively, related to such matters. In addition, in fiscal year 2015, the Company recognized a non-recurring tax benefit of $3.1 million related to tax deductions claimed on the write-up of certain foreign tax assets to fair market value.

Accounting for Uncertainty in Income Taxes:

As of April 30, 2017 and April 30, 2016, the total amount of unrecognized tax benefits were $6.1 million and $19.9 million, respectively, of which $0.4 million and $3.5 million represented accruals for interest and penalties recorded as additional tax expense in accordance with the Company’s accounting policy. Within the income tax provision for both fiscal years 2017 and 2016, the Company recorded net interest expense on reserves for unrecognized and recognized tax benefits of $0.3 million and $0.5 million respectively. As of April 30, 2017 and April 30, 2016, the total amount of unrecognized tax benefits that would reduce the Company’s income tax provision, if recognized, were approximately $6.1 million and $19.9 million, respectively. During the year ended April 30, 2017, the Company’s tax position with respect to certain assets in Germany was finally rejected by the German Federal Fiscal Court (see below). Substantially all of the reduction for prior year tax positions in the table below relates to the resolution of that matter. The Company does not expect any significant changes to the unrecognized tax benefits within the next twelve months.

A reconciliation of the unrecognized tax benefits included within the Other Long-Term Liabilities line item in the Consolidated Statements of Financial Position follows (in thousands):

	2017	2016
Balance at May 1st	$19,863	$19,349
Additions for Current Year Tax Positions	2,566	1,077
Additions for Prior Year Tax Positions	31,802	533
Reductions for Prior Year Tax Positions	-	(214)
Foreign Translation Adjustment	(419)	569
Payments and Settlements	(47,688)	(132)
Reductions for Lapse of Statute of Limitations	-	(1,319)
Balance at April 30th	$6,124	$19,863

Tax Audits:

The Company files income tax returns in the U.S. and various states and non-U.S. tax jurisdictions. The Company’s major taxing jurisdictions include the United States, the United Kingdom and Germany. The Company is no longer subject to income tax examinations for years prior to fiscal year (2010) in the major jurisdictions in which the Company is subject to tax. The Company’s last completed U.S. federal audit was for fiscal years 2011 through 2013, which resulted in minimal adjustments related to temporary differences.

In fiscal year 2003, the Company reorganized several of its German subsidiaries into a new operating entity which enabled the Company to increase (“step-up”) the tax deductible net asset basis in certain assets and claim additional tax amortization deductions over 15 years beginning that fiscal year.

In May 2012, as part of its routine tax audit process, the German tax authorities challenged the Company’s tax position. In September 2014, the Company filed an appeal with the local finance court. As required by German law, the Company paid all contested taxes and the related interest to avail itself of its right to defend its position. The Company made all required payments with cumulative total deposits of 56.6 million euros, including interest.

In October 2014, the Company received an unfavorable decision from the local finance court, which the Company appealed in January 2015 to the German Federal Fiscal Court. On September 26, 2016, the Company learned that the court denied the Company’s appeal and its tax position. No further appeals are available. As a result, the Company forfeited its deposit and incurred an income tax charge of approximately $49 million ($0.85 per share). This one-time charge is included in the Company’s income tax expense for fiscal year 2017.

Deferred Taxes:

Deferred taxes result from temporary differences in the recognition of revenue and expense for tax and financial reporting purposes. During the period ended April 30, 2017, the Company adopted ASU 2015-17 on a prospective basis. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company elected to adopt this standard prospectively and thus prior period balances were not adjusted. See Note 2 – Summary of Significant Accounting Policies – Recently Issued Accounting Standards.

It is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets. The significant components of deferred tax assets and liabilities at April 30 were as follows (in thousands):

	2017	2016
Net Operating Losses	$5,453	$3,148
Reserve for Sales Returns and Doubtful Accounts	8,331	6,075
Accrued Employee Compensation	34,305	29,550
Foreign and Federal Credits	15,472	-
Other Accrued Expenses	14,303	14,842
Retirement and Post-Employment Benefits	56,633	64,438
Total Gross Deferred Tax Assets	$134,497	$118,053
Less Valuation Allowance	(1,300)	-
Total Deferred Tax Assets	$133,197	$118,053

Prepaid Expenses and Other Current Assets	$(16,385)	$(5,349)
Intangible and Fixed Assets	(272,008)	(288,769)
Total Deferred Tax Liabilities	$(288,393)	$(294,118)

Net Deferred Tax Liabilities	$(155,196)	$(176,065)

Reported As
Current Deferred Tax Assets	$-	$11,126
Non-current Deferred Tax Assets	5,295	2,677
Non-current Deferred Tax Liabilities	160,491	189,868
Net Deferred Tax Liabilities	$155,196	$176,065

The decrease in net deferred tax liabilities is primarily attributable to foreign and federal credit carryforwards related to the fiscal year ended April 30, 2017. We have concluded that it is more likely than not that we will realize substantially all of the net deferred tax assets at April 30, 2017. In assessing the need for a valuation allowance, we take into account related deferred tax liabilities and estimated future reversals of existing temporary differences, future taxable earnings and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future. Changes to tax laws, statutory tax rates and future taxable earnings can have an impact on our valuation allowances.

A valuation allowance has been provided based on the uncertainty of utilizing the tax benefits related to our deferred tax assets for state net operating loss carry forwards. As of April 30, 2017, we have apportioned state net operating loss carryforwards totaling $51 million, with a tax effected value of $2.7 million net of federal benefits, expiring in various amounts over one to 20 years.

Pretax earnings of a non-U.S. subsidiary or affiliate are subject to U.S. taxation when repatriated. The Company intends to reinvest earnings outside the U.S. except in instances where repatriating such earnings would result in no additional tax. Accordingly, the Company has not recognized U.S. tax expense on non-U.S. earnings. At April 30, 2017, the accumulated undistributed earnings of non-U.S. subsidiaries approximated $275 million. If such earnings were repatriated, the Company estimates that the U.S. income tax liability could range from less than $1 million to as much as $20 million.