Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.8.0.1
INCOME TAXES
 12 Months Ended
Sep. 30, 2017
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES:

The provision for income taxes consisted of the following:
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal
$
1,542

 
$
18,733

 
$
655

State
628

 
1,829

 
1,466

Foreign
10,459

 
12,482

 
10,599

 
12,629

 
33,044

 
12,720

Deferred:
 
 
 
 
 
Federal
11,887

 
(3,066
)
 
13,279

State
905

 
(2,412
)
 
645

Foreign
(3,067
)
 
1,507

 
(280
)
 
9,725

 
(3,971
)
 
13,644

Total
$
22,354

 
$
29,073

 
$
26,364



During 2017, the Company adopted ASU 2016-09 and recorded current year tax benefits related to share-based payments as a component of income tax expense (See Note 3, Accounting Pronouncements). The tax benefits related to share-based payments recorded as a component of income tax expense for the year ended September 30, 2017 were $1,234. The tax benefits related to share-based payments recorded directly to additional paid-in capital for the years ended September 30, 2016, and 2015 were $1,720, and $418, respectively.
The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows:
 
2017
 
2016
 
2015
Federal statutory tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
Effect of state income taxes, net of federal deduction
1.4
 %
 
(0.6
)%
 
1.8
 %
Foreign taxes less than federal statutory rate
(7.2
)%
 
(3.5
)%
 
(3.2
)%
Share-based compensation
(1.2
)%
 
—
 %
 
—
 %
Other
(4.8
)%
 
(0.4
)%
 
(4.2
)%
Effective tax rate
23.2
 %
 
30.5
 %
 
29.4
 %


The Company's effective tax rate for fiscal 2017 was 23.2%, compared to 30.5% for fiscal 2016. Fiscal 2017 reflects the benefits from lower foreign taxes, organizational structure changes, primarily initiated in connection with acquisition integration, increased benefits from credits and incentives, and the impact of other tax benefits specific to the current year. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected lower foreign income taxes and the benefit of credits and incentives, offset by the impact of state taxes.

The Company's foreign subsidiaries had income before income taxes for the years ended September 30, 2017, 2016 and 2015 of approximately $24,118, $48,864 and $40,024, respectively.  Deferred income taxes for U.S. tax purposes have not been provided on certain undistributed earnings of foreign subsidiaries, as such earnings are considered to be reinvested indefinitely. At September 30, 2017, undistributed earnings of foreign subsidiaries for which deferred U.S. income taxes have not been provided approximated $596,281.  The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable due to the complexity of the hypothetical calculation.

The components of deferred tax assets and liabilities at September 30, 2017 and 2016 are as follows:
 
2017
 
2016
Deferred tax assets:
 
 
 
Pension and postretirement benefits
$
45,654

 
$
46,282

Accruals and reserves not currently deductible
20,579

 
26,214

Income tax credit carryforward
3,313

 
10,080

Operating and capital loss carryforwards
23,610

 
25,258

Stock options
8,614

 
6,544

Other
2,782

 
5,246

Total deferred tax assets
104,552

 
119,624

Valuation allowances
(20,866
)
 
(22,412
)
Net deferred tax assets
83,686

 
97,212

 
 
 
 
Deferred tax liabilities:
 

 
 

Depreciation
(4,763
)
 
(5,207
)
Unrealized gains and losses
(10,446
)
 
(5,640
)
Goodwill and intangible assets
(203,957
)
 
(190,541
)
Other
(1,494
)
 
(2,087
)
 
(220,660
)
 
(203,475
)
 
 
 
 
Net deferred tax liability
$
(136,974
)
 
$
(106,263
)


At September 30, 2017, the Company had foreign net operating loss carryforwards of $84,175 and foreign capital loss carryforwards of $20,930. The Company has recorded deferred tax assets of $2,232 for state net operating loss carryforwards, and various non-U.S. income tax credit carryforwards of $3,080 which will be available to offset future income tax liabilities. If not used, state net operating losses will begin to expire in 2018.  Certain of the foreign net operating losses begin to expire in 2018 while the majority of the Company's foreign net operating losses have no expiration period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes, loss sharing between group members, and business continuation.  Therefore, the Company has established tax-effected valuation allowances against these tax benefits in the amount of $20,866 at September 30, 2017. 

Changes in the total amount of gross unrecognized tax benefits (excluding penalties and interest) are as follows:

 
2017
 
2016
 
2015
Balance, beginning of year
$
13,820

 
$
4,086

 
$
4,311

Increase from acquisition
—

 
—

 
—

Increases for tax positions of prior years
839

 
5,762

 
475

Decreases for tax positions of prior years
(5,890
)
 
(166
)
 
(155
)
Increases based on tax positions related to the current year
378

 
5,456

 
635

Decreases due to settlements with taxing authorities
—

 
—

 
(27
)
Decreases due to lapse of statute of limitation
(1,179
)
 
(1,318
)
 
(1,153
)
Balance, end of year
$
7,968

 
$
13,820

 
$
4,086



The Company had unrecognized tax benefits of $7,968 at September 30, 2017, which would impact the annual effective tax rate.  It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $3,587 in the next 12 months primarily due to the expiration of statutes of limitation related to specific tax positions.

The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes.  Total penalties and interest accrued were $1,779 and $2,088 at September 30, 2017 and 2016, respectively.  These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.

The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitation expires for those tax jurisdictions. 

As of September 30, 2017, the tax years that remain subject to examination by major jurisdiction generally are:
United States - Federal
2013 and forward
United States - State
2013 and forward
Canada
2013 and forward
Germany
2009 and forward
United Kingdom
2015 and forward
Australia
2013 and forward
Singapore
2012 and forward