Entity information:
Income Taxes    

The components of income (loss) from continuing operations before income taxes are as follows (in millions):
 
Year Ended September 30,
 
2017
 
2016
 
2015
United States
$
481.9

 
$
(25.1
)
 
$
571.3

Foreign
375.7

 
269.7

 
162.9

Income from continuing operations before income taxes
$
857.6

 
$
244.6

 
$
734.2



The loss from continuing operations in the U.S. in fiscal 2016 was primarily the result of the pension risk transfer expense and restructuring charges. See “Note 15. Retirement Plans” and “Note 9. Restructuring and Other Costs, Net”.

Income tax expense (benefit) from continuing operations consists of the following components (in millions):
 
Year Ended September 30,
 
2017
 
2016
 
2015
Current income taxes:
 
 
 
 
 
Federal
$
80.8

 
$
98.3

 
$
31.6

State
3.3

 
12.8

 
7.3

Foreign
95.3

 
87.0

 
38.6

Total current expense
179.4

 
198.1

 
77.5

Deferred income taxes:
 
 
 
 
 
Federal
15.2

 
(131.5
)
 
157.8

State
(22.8
)
 
6.9

 
(10.8
)
Foreign
(12.8
)
 
16.3

 
8.5

Total deferred (benefit) expense
(20.4
)
 
(108.3
)
 
155.5

Total income tax expense
$
159.0

 
$
89.8

 
$
233.0



The differences between the statutory federal income tax rate and our effective income tax rate from continuing operations are as follows:
 
Year Ended September 30,
 
2017
 
2016
 
2015
Statutory federal tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
Foreign rate differential
(4.9
)
 
(5.5
)
 
(1.6
)
Adjustment and resolution of federal, state and foreign tax uncertainties
(0.3
)
 
0.2

 
0.3

State taxes, net of federal benefit
3.3

 
4.9

 
1.2

Research and development and other tax credits, net of valuation allowances and reserves
(0.8
)
 
(6.1
)
 
(0.1
)
Income attributable to noncontrolling interest
0.4

 
0.8

 
(0.4
)
Domestic manufacturer’s deduction
(2.0
)
 
(4.4
)
 
(2.6
)
Sale of HH&B
(5.0
)
 
—

 
—

U.S. legal entity restructuring
(3.3
)
 
—

 
—

Change in valuation allowance
(3.3
)
 
6.3

 
(0.8
)
Nondeductible transaction costs
1.0

 
0.4

 
1.0

Contribution of assets to Grupo Gondi joint venture
—

 
3.4

 
—

Nontaxable increased cash surrender value
(1.5
)
 
(4.6
)
 
(0.1
)
Withholding taxes
0.4

 
2.0

 
—

Brazilian net worth deduction
(0.8
)
 
(2.0
)
 
(0.1
)
Other, net
0.3

 
6.3

 
(0.1
)
Effective tax rate
18.5
 %
 
36.7
 %
 
31.7
 %


The tax effects of temporary differences that give rise to deferred income tax assets and liabilities consist of the following (in millions):
 
 
September 30,
 
2017
 
2016
Deferred income tax assets:
 
 
 
Accruals and allowances
$
40.6

 
$
12.2

Employee related accruals and allowances
265.1

 
217.6

Pension obligations
—

 
15.5

State net operating loss carryforwards
70.6

 
82.3

State credit carryforwards, net of federal benefit
54.4

 
56.1

U.S. and foreign tax credit carryforwards
135.9

 
185.1

Federal and foreign net operating loss carryforwards
204.1

 
119.3

Restricted stock and options
81.0

 
94.9

Other
32.8

 
44.4

Total
884.5

 
827.4

Deferred income tax liabilities:
 
 
 
Property, plant and equipment
2,154.1

 
2,124.0

Deductible intangibles and goodwill
1,091.4

 
891.3

Inventory reserves
236.1

 
205.6

Deferred gain
405.2

 
432.1

Pension obligations
90.8

 
—

Basis difference in joint ventures
57.1

 
96.0

Other
8.3

 
1.0

Total
4,043.0

 
3,750.0

Valuation allowances
219.1

 
177.2

Net deferred income tax liability
$
3,377.6

 
$
3,099.8



Deferred taxes are recorded as follows in the consolidated balance sheet (in millions):
 
September 30,
 
2017
 
2016
Long-term deferred tax asset (1)
$
32.6

 
$
30.9

Long-term deferred tax liability
3,410.2

 
3,130.7

Net deferred income tax liability
$
3,377.6

 
$
3,099.8



(1) 
The long-term deferred tax asset is presented in Other assets on the Consolidated Balance Sheets.

At September 30, 2017 and September 30, 2016, we had gross federal net operating losses of approximately $61.2 million and $85.3 million, respectively. These loss carryforwards generally expire between fiscal 2030 and 2037.

At September 30, 2017 and September 30, 2016, we had alternative minimum tax credits of $132.2 million and $185.1 million, respectively. Under current tax law, the alternative minimum tax credit carryforwards do not expire. We had research and development tax credits and general business credits of $3.2 million and $0.5 million, respectively, at September 30, 2017.

At September 30, 2017 and September 30, 2016, we had gross state and local net operating losses, of approximately $1,885 million and $1,899 million, respectively. These loss carryforwards generally expire between fiscal 2018 and 2037. The tax effected values of these net operating losses are $70.6 million and $82.3 million at September 30, 2017 and 2016, respectively, exclusive of valuation allowances of $15.9 million and $14.2 million at September 30, 2017 and 2016, respectively.

At September 30, 2017 and September 30, 2016, gross net operating losses for foreign reporting purposes of approximately $673.7 million and $448.7 million, respectively, were available for carryforward. A majority of these loss carryforwards generally expire between fiscal 2018 and 2037, while a portion have an indefinite carryforward. The tax effected values of these net operating losses are $182.6 million and $119.3 million at September 30, 2017 and 2016, respectively, exclusive of valuation allowances of $149.6 million and $92.5 million at September 30, 2017 and 2016, respectively.

At September 30, 2017 and 2016, we had state tax credit carryforwards of $54.4 million and $56.1 million, respectively. These state tax credit carryforwards generally expire within 5 to 10 years; however, certain state credits can be carried forward indefinitely. Valuation allowances of $47.3 million and $51.2 million at September 30, 2017 and 2016, respectively, have been provided on these assets. These valuation allowances have been recorded due to uncertainty regarding our ability to generate sufficient taxable income in the appropriate taxing jurisdiction.

The following table represents a summary of the valuation allowances against deferred tax assets for fiscal 2017, 2016 and 2015 (in millions):
 
2017
 
2016
 
2015
Balance at beginning of fiscal year
$
177.2

 
$
100.2

 
$
65.1

Increases
54.3

 
24.8

 
2.7

Allowances related to purchase accounting (1)
12.4

 
63.0

 
40.0

Reductions
(24.8
)
 
(10.8
)
 
(7.6
)
Balance at end of fiscal year
$
219.1

 
$
177.2

 
$
100.2


(1) 
Adjustments in fiscal 2017 relate to the MPS Acquisition. Adjustments in fiscal 2016 relate to the Combination and the SP Fiber Acquisition. Adjustments in fiscal 2015 relate to the Combination.

Consistent with prior years, we consider a portion of our earnings from certain foreign subsidiaries as subject to repatriation and we provide for taxes accordingly. However, we consider the unremitted earnings and all other outside differences from all other foreign subsidiaries to be indefinitely reinvested. Accordingly, we have not provided for any taxes that would be due.

As of September 30, 2017, we estimate our outside basis difference in foreign subsidiaries that are considered indefinitely reinvested to be approximately $2.3 billion. The components of the outside basis difference are comprised of purchase accounting adjustments, undistributed earnings, and equity components. We have not provided for any taxes that would be due upon the reversal of the outside basis differences. However, in the event of a distribution in the form of dividends or dispositions of the subsidiaries, we may be subject to incremental U.S. income taxes, subject to an adjustment for foreign tax credits, and withholding taxes or income taxes payable to the foreign jurisdictions. As of September 30, 2017, the determination of the deferred tax liability is not practicable.


A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions):
 
2017
 
2016
 
2015
Balance at beginning of fiscal year
$
166.8

 
$
106.6

 
$
36.5

Additions related to purchase accounting (1)
7.7

 
16.5

 
82.9

Additions for tax positions taken in current year
5.0

 
30.3

 
2.4

Additions for tax positions taken in prior fiscal years
15.2

 
20.6

 
—

Reductions for tax positions taken in prior fiscal years
(25.6
)
 
(9.7
)
 
(3.7
)
Reductions due to settlement (2)
(14.1
)
 
(1.3
)
 
—

Additions (reductions) for currency translation adjustments
2.0

 
7.0

 
(11.5
)
Reductions as a result of a lapse of the applicable statute of limitations
(8.1
)
 
(3.2
)
 
—

Balance at end of fiscal year
$
148.9

 
$
166.8

 
$
106.6


(1) 
Adjustments in fiscal 2017 relate to the MPS Acquisition. Adjustments in fiscal 2016 relate to the Combination and the SP Fiber Acquisition. Adjustments in fiscal 2015 relate to the Combination.
(2) 
Reductions due to settlement in fiscal 2017 relate to the settlement of federal and state audit examinations with taxing authorities.

As of September 30, 2017 and 2016, the total amount of unrecognized tax benefits was approximately $148.9 million and $166.8 million, respectively, exclusive of interest and penalties. Of these balances, as of September 30, 2017 and 2016, if we were to prevail on all unrecognized tax benefits recorded, approximately $138.0 million and $138.6 million, respectively, would benefit the effective tax rate. We regularly evaluate, assess and adjust the related liabilities in light of changing facts and circumstances, which could cause the effective tax rate to fluctuate from period to period.

We recognize estimated interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of operations. As of September 30, 2017, we had liabilities of $81.7 million related to estimated interest and penalties for unrecognized tax benefits. As of September 30, 2016, we had liabilities of $60.2 million, net of indirect benefits, related to estimated interest and penalties for unrecognized tax benefits. Our results of operations for the fiscal year ended September 30, 2017 include expense of $5.4 million related to estimated interest and penalties with respect to the liability for unrecognized tax benefits. Our results of operations for the fiscal years ended September 30, 2016 and 2015 include expense of $7.4 million and $2.9 million, respectively, net of indirect benefits, related to estimated interest and penalties with respect to the liability for unrecognized tax benefits. As of September 30, 2017, it is reasonably possible that our unrecognized tax benefits will decrease by up to $29.6 million in the next twelve months due to expiration of various statues of limitations and settlement of issues.

We file federal, state and local income tax returns in the U.S. and various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal and state and local income tax examinations by tax authorities for years prior to fiscal 2014 and fiscal 2007, respectively. We are no longer subject to non-U.S. income tax examinations by tax authorities for years prior to fiscal 2010, except for Brazil for which we are not subject to tax examinations for years prior to 2004. While we believe our tax positions are appropriate, they are subject to audit or other modifications and there can be no assurance that any modifications will not materially and adversely affect our results of operations, financial condition or cash flows.