Income Taxes
The provisions for income taxes consisted of the following:
|
| | | | | | | | | | | |
| For the Years Ended September 30, |
| 2017 | | 2016 | | 2015 |
Currently payable: | | | | | |
United States - Federal | $ | 39.4 |
| | $ | 9.5 |
| | $ | (20.6 | ) |
State | 4.2 |
| | 3.0 |
| | (1.4 | ) |
Foreign | 32.6 |
| | 21.3 |
| | 32.4 |
|
Total current | 76.2 |
| | 33.8 |
| | 10.4 |
|
Deferred: | | | | | |
United States - Federal | (7.4 | ) | | 5.5 |
| | (3.5 | ) |
State | (0.2 | ) | | (2.4 | ) | | (0.2 | ) |
Foreign | 3.2 |
| | 1.1 |
| | (3.4 | ) |
Total deferred | (4.4 | ) | | 4.2 |
| | (7.1 | ) |
Provision for income taxes | $ | 71.8 |
| | $ | 38.0 |
| | $ | 3.3 |
|
The source of pre-tax earnings/(loss) was:
|
| | | | | | | | | | | |
| For the Years Ended September 30, |
| 2017 | | 2016 | | 2015 |
United States | $ | 96.4 |
| | $ | 40.2 |
| | $ | (144.5 | ) |
Foreign | 176.9 |
| | 125.5 |
| | 143.8 |
|
Pre-tax earnings/(loss) | $ | 273.3 |
| | $ | 165.7 |
| | $ | (0.7 | ) |
A reconciliation of income taxes with the amounts computed at the statutory federal income tax rate follows:
|
| | | | | | | | | | | | | | | | | | | | |
| For the Years Ended September 30, |
| 2017 | | 2016 | | 2015 |
Computed tax at federal statutory rate | $ | 95.7 |
| | 35.0 | % | | $ | 58.0 |
| | 35.0 | % | | $ | (0.3 | ) | | 35.0 | % |
State income taxes, net of federal tax benefit | 2.8 |
| | 1.0 |
| | 1.7 |
| | 1.0 |
| | (1.6 | ) | | N/M |
|
Foreign tax less than the federal rate | (26.5 | ) | | (9.7 | ) | | (21.7 | ) | | (13.1 | ) | | (20.8 | ) | | N/M |
|
Other taxes including repatriation of foreign earnings | 2.2 |
| | 0.8 |
| | 5.7 |
| | 3.4 |
| | 2.2 |
| | N/M |
|
Nondeductible spin costs | — |
| | — |
| | — |
| | — |
| | 2.0 |
| | N/M |
|
Deconsolidation of Venezuela operations | — |
| | — |
| | — |
| | — |
| | 22.8 |
| | N/M |
|
Other, net | (2.4 | ) | | (0.8 | ) | | (5.7 | ) | | (3.4 | ) | | (1.0 | ) | | N/M |
|
Total | $ | 71.8 |
| | 26.3 | % | | $ | 38.0 |
| | 22.9 | % | | $ | 3.3 |
| | 455.1 | % |
N/M - The percentage rate reconciliation of income taxes is not meaningful.
The deferred tax assets and deferred tax liabilities at the end of each year are as follows:
|
| | | | | | | |
| September 30, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Accrued liabilities | $ | 57.3 |
| | $ | 45.6 |
|
Deferred and stock-related compensation | 25.0 |
| | 26.8 |
|
Tax loss carryforwards and tax credits | 18.3 |
| | 19.9 |
|
Intangible assets | 0.8 |
| | 1.6 |
|
Pension plans | 24.3 |
| | 41.9 |
|
Inventory differences and other tax assets | 10.2 |
| | 13.0 |
|
Gross deferred tax assets | 135.9 |
| | 148.8 |
|
Deferred tax liabilities: | | | |
Depreciation and property differences | (16.2 | ) | | (16.2 | ) |
Intangible assets | (65.6 | ) | | (62.3 | ) |
Other tax liabilities | (3.6 | ) | | (3.0 | ) |
Gross deferred tax liabilities | (85.4 | ) |
| (81.5 | ) |
Valuation allowance | (19.3 | ) | | (19.7 | ) |
Net deferred tax assets | $ | 31.2 |
| | $ | 47.6 |
|
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 $11.1 between 2018 and 2021 at September 30, 2017. In addition, there are $4.6 of tax loss carryforwards and credits with no expiration at September 30, 2017. The valuation allowance is attributed to tax loss carryforwards and tax credits outside the U.S.
The Company has repatriated a portion of current year earnings from select non-U.S. subsidiaries. Generally, these non-U.S. subsidiaries are in tax jurisdictions with effective tax rates that do not result in materially higher U.S. tax provisions related to the repatriated earnings. No provision has been made for additional taxes on undistributed earnings of foreign affiliates that the Company intended and planned to be indefinitely invested in the affiliate. At September 30, 2017, approximately $800 of foreign subsidiary earnings related to Energizer was considered indefinitely invested in those businesses. We estimate 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 practicable to calculate a specific potential U.S. tax exposure due to changing statutory rates in foreign jurisdictions over time, as well as other factors, we estimate the range of potential U.S. tax may be in excess of $110, 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.
The unrecognized tax benefits activity is summarized below:
|
| | | | | | | | | | | |
| For the Years Ended September 30, |
| 2017 | | 2016 | | 2015 |
Unrecognized tax benefits, beginning of year | $ | 9.4 |
| | $ | 8.5 |
| | $ | 12.7 |
|
Additions based on current year tax positions and acquisitions | 1.3 |
| | 0.9 |
| | 6.1 |
|
Reductions for prior year tax positions | — |
| | — |
| | (10.3 | ) |
Settlements with taxing authorities/statute expirations | (1.2 | ) | | — |
| | — |
|
Unrecognized tax benefits, end of year | $ | 9.5 |
| | $ | 9.4 |
| | $ | 8.5 |
|
Included in the unrecognized tax benefits noted above are $9.5 of uncertain tax positions that would affect Energizer’s effective tax rate, if recognized. Energizer does not expect any significant increases or decreases to their 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 fiscal 2015 reduction to prior year tax positions was related to transfers of the unrecognized tax benefits to Edgewell as of the date of the Spin-off.
Energizer 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. Energizer has accrued $1.8 of interest (net of the deferred tax asset of $0.3) and penalties of $2.3 at September 30, 2017, $1.4 of interest (net of the deferred tax asset of $0.3) and penalties of $1.5 at September 30, 2016, and $0.7 of interest (net of the deferred tax asset of $0.2) and penalties of $1.3 at September 30, 2015. Interest was computed on the difference between the tax position recognized in accordance with GAAP and the amount expected to be taken in the Company's tax return.
The Company has a Tax Matters Agreement with Edgewell which provides that Edgewell shall be liable for and shall indemnify Energizer against all U.S. federal income taxes as well as various foreign legal entities, where Edgewell has retained the legal entity past separation, resulting from tax obligations arising from operations prior to July 1, 2015. In addition, Energizer is liable for and shall indemnify Edgewell against tax obligations arising from operations prior to July 1, 2015 for certain foreign legal entities where the Company has retained the legal entity past separation.
The Company files income tax returns in the U.S. federal jurisdiction, various cities and states, and more than 50 foreign jurisdictions where Energizer has operations. U.S. federal, state and local income tax returns for tax years ended September 30, 2015 and after remain subject to examination by the Internal Revenue Service. There are open examinations at some of the foreign entities and the status of international income tax examinations varies by jurisdiction. At this time, Energizer does not anticipate any material adjustments to its financial statements resulting from tax examinations currently in progress.