Income Taxes
The provisions for income taxes from continuing operations consisted of the following:
|
| | | | | | | | | | | |
| Fiscal Year |
| 2017 | | 2016 | | 2015 |
Currently payable: | | | | | |
United States - Federal | $ | 0.5 |
| | $ | 2.6 |
| | $ | 12.0 |
|
State | 0.2 |
| | 3.0 |
| | (1.0 | ) |
Foreign | 27.0 |
| | 24.4 |
| | 45.3 |
|
Total current | 27.7 |
| | 30.0 |
| | 56.3 |
|
Deferred: | | | | | |
United States - Federal | (79.3 | ) | | 4.6 |
| | (194.8 | ) |
State | (3.8 | ) | | 2.5 |
| | 0.5 |
|
Foreign | (3.2 | ) | | 4.1 |
| | (24.6 | ) |
Total deferred | (86.3 | ) | | 11.2 |
| | (218.9 | ) |
Provision for income taxes | $ | (58.6 | ) | | $ | 41.2 |
| | $ | (162.6 | ) |
The source of pre-tax earnings (loss) was:
|
| | | | | | | | | | | |
| Fiscal Year |
| 2017 | | 2016 | | 2015 |
United States | $ | (230.5 | ) | | $ | 53.3 |
| | $ | (589.3 | ) |
Foreign | 177.6 |
| | 166.6 |
| | 130.6 |
|
Pre-tax earnings (loss) | $ | (52.9 | ) | | $ | 219.9 |
| | $ | (458.7 | ) |
A reconciliation of income taxes with the amounts computed at the statutory federal income tax rate follows:
|
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Year |
| 2017 | | 2016 | | 2015 |
Computed tax at federal statutory rate | $ | (18.5 | ) | | 35.0 | % | | $ | 77.0 |
| | 35.0 | % | | $ | (160.5 | ) | | 35.0 | % |
State income taxes, net of federal tax benefit | (2.0 | ) | | 3.9 |
| | 1.3 |
| | 0.6 |
| | (9.9 | ) | | 2.2 |
|
Foreign tax less than the federal rate | (38.0 | ) | | 71.8 |
| | (32.5 | ) | | (14.8 | ) | | (32.2 | ) | | 7.0 |
|
Adjustments to prior years' tax accruals | (6.2 | ) | | 11.8 |
| | (4.8 | ) | | (2.2 | ) | | (3.2 | ) | | 0.7 |
|
Other taxes including repatriation of foreign earnings | 5.0 |
| | (9.5 | ) | | 4.4 |
| | 2.0 |
| | 5.4 |
| | (1.2 | ) |
Nontaxable share option | — |
| | — |
| | — |
| | — |
| | (0.2 | ) | | — |
|
Venezuela deconsolidation | — |
| | — |
| | — |
| | — |
| | 27.7 |
| | (6.0 | ) |
Other, net | 1.1 |
| | (2.2 | ) | | (4.2 | ) | | (1.9 | ) | | 10.3 |
| | (2.3 | ) |
Total | $ | (58.6 | ) | | 110.8 | % | | $ | 41.2 |
| | 18.7 | % | | $ | (162.6 | ) | | 35.4 | % |
The deferred tax assets and deferred tax liabilities recorded on the balance sheet were as follows, and include current and noncurrent amounts:
|
| | | | | | | |
| September 30, |
| 2017 | | 2016 |
Deferred tax liabilities: | | | |
Depreciation and property differences | $ | (57.0 | ) | | $ | (65.2 | ) |
Intangible assets | (355.0 | ) | | (457.3 | ) |
Other tax liabilities | (5.8 | ) | | (4.0 | ) |
Gross deferred tax liabilities | (417.8 | ) | | (526.5 | ) |
Deferred tax assets: | | | |
Accrued liabilities | 57.3 |
| | 66.2 |
|
Deferred and share-based compensation | 31.5 |
| | 47.6 |
|
Tax loss carryforwards and tax credits | 84.7 |
| | 72.6 |
|
Postretirement benefits other than pensions | 4.4 |
| | 4.6 |
|
Pension plans | 59.5 |
| | 73.7 |
|
Inventory differences | 4.5 |
| | 6.8 |
|
Other tax assets | 20.4 |
| | 26.9 |
|
Gross deferred tax assets | 262.3 |
| | 298.4 |
|
Valuation allowance | (8.4 | ) | | (8.5 | ) |
Net deferred tax liabilities | $ | (163.9 | ) | | $ | (236.6 | ) |
There were no material tax loss carryforwards that expired in fiscal 2017. Future expirations of tax loss carryforwards and tax credits, if not utilized, are not material from 2018 through 2021. For years subsequent to 2021 or for tax loss carryforwards and tax credits that have no expiration, $76.7 of the value at September 30, 2017 is primarily due to the fiscal 2015 domestic loss which has a 20 year carryforward period and is expected to be fully utilized. The valuation allowance is primarily attributable to tax loss carryforwards and certain deferred tax assets impacted by the deconsolidation of the Company's Venezuelan subsidiaries.
The Company generally repatriates a portion of current year earnings from select non-US subsidiaries only if the economic cost of the repatriation is not considered material. The Company's intention is to reinvest earnings of other foreign subsidiaries indefinitely as the repatriation of cash balances could have adverse tax consequences or be subject to regulatory capital requirements; however, those balances are generally available without legal restrictions to fund ordinary business operations. No provision is made for additional taxes on undistributed earnings of foreign affiliates that are intended and planned to be indefinitely invested in the affiliate. The Company intends to, and has plans to, reinvest these earnings indefinitely in its foreign subsidiaries to, amongst other things, fund local operations, fund pension and other post retirement obligations, fund capital projects and to support foreign growth initiatives including potential acquisitions. At September 30, 2017, approximately $1,167.9 of foreign subsidiary earnings were considered indefinitely invested in those businesses. The Company estimates that the U.S. federal income tax liability that could potentially arise if indefinitely invested earnings of foreign subsidiaries were repatriated in full to the U.S. would be significant. While it is not practical to calculate a specific potential U.S. tax exposure due to changing statutory rates in foreign jurisdictions over time, as well as other factors, the Company estimates the range of potential U.S. tax may be in excess of $279.6, if all undistributed earnings were repatriated assuming foreign cash was available to do so. Applicable U.S. income and foreign withholding taxes would be provided on these earnings in the periods in which they are no longer considered indefinitely reinvested.
Unrecognized tax benefits activity are summarized below:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Unrecognized tax benefits, beginning of year | $ | 27.9 |
| | $ | 47.1 |
| | $ | 37.8 |
|
Additions based on current year tax positions and acquisitions | 1.8 |
| | 6.0 |
| | 17.6 |
|
Reductions for prior year tax positions and dispositions | (0.6 | ) | | (8.5 | ) | | (8.0 | ) |
Settlements with taxing authorities and statute expirations | (6.4 | ) | | (16.7 | ) | | (0.3 | ) |
Unrecognized tax benefits, end of year | $ | 22.7 |
| | $ | 27.9 |
| | $ | 47.1 |
|
Included in the unrecognized tax benefits noted above was $19.2 of uncertain tax positions that would affect the Company's effective tax rate, if recognized. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within twelve months of this reporting date. In the Consolidated Balance Sheets, unrecognized tax benefits are classified as Other liabilities (non-current) to the extent that payments are not anticipated within one year.
The Company classifies accrued interest and penalties related to unrecognized tax benefits in the income tax provision. The accrued interest and penalties are not included in the table above. The Company accrued approximately $3.8 of interest, (net of the deferred tax asset of $1.8) at September 30, 2017, and $6.0 of interest, (net of the deferred tax asset of $1.7) at September 30, 2016. Interest was computed on the difference between the tax position recognized in accordance with GAAP and the amount previously taken or expected to be taken in the Company's tax returns.
The Company files income tax returns in the U.S. federal jurisdiction, various cities and states, and more than 50 foreign jurisdictions where the Company has operations. U.S. federal income tax returns for tax years ended September 30, 2014 and after remain subject to examination by the Internal Revenue Service (the "IRS"). With few exceptions, the Company is no longer subject to state and local income tax examinations for years before September 30, 2007. The status of international income tax examinations varies by jurisdiction. At this time, the Company does not anticipate any material adjustments to its financial statements resulting from tax examinations currently in progress.