Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.19.3
INCOME TAXES
 12 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES:

The income tax provision (benefit) consisted of the following:
 
2019
 
2018
 
2017
Current:
 
 
 
 
 
Federal
$
3,308

 
$
(2,577
)
 
$
1,542

State
2,232

 
1,051

 
628

Foreign
2,049

 
15,533

 
10,459

 
7,589

 
14,007

 
12,629

Deferred:
 
 
 
 
 
Federal
(5,472
)
 
(24,094
)
 
11,887

State
(2,782
)
 
1,315

 
905

Foreign
1,471

 
(346
)
 
(3,067
)
 
(6,783
)
 
(23,125
)
 
9,725

Total
$
806

 
$
(9,118
)
 
$
22,354



The U.S. Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35.0% to 21.0% effective January 1, 2018, which resulted in a blended U.S. statutory tax rate of 24.5% for the Company
in fiscal 2018, and a 21.0% rate for the Company in 2019. The Act also required a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, and created new taxes on certain foreign-sourced earnings.

Foreign tax effects: The Company completed the estimate for its one-time transition tax for all of its foreign subsidiaries, resulting in a decrease in income tax expense of $300 for the year ended September 30, 2019. The one-time transition tax was calculated using an estimate of the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes.

Global intangible low taxed income ("GILTI"): The Act also created a new requirement that certain income earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes. The Company has made the election to treat taxes due on future inclusions related to GILTI as current period expense. The Company was able to make reasonable estimates to calculate a provision that is included in the current period expense.

The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows:
 
2019
 
2018
 
2017
Federal statutory tax rate
21.0
 %
 
24.5
 %
 
35.0
 %
Effect of state income taxes, net of federal deduction
2.7
 %
 
2.2
 %
 
1.4
 %
Foreign statutory taxes compared to federal statutory rate
(0.8
)%
 
1.4
 %
 
(7.2
)%
Share-based compensation
(3.1
)%
 
(0.6
)%
 
(1.2
)%
U.S. manufacturing incentive
—
 %
 
(1.3
)%
 
(1.8
)%
Tax credits
4.9
 %
 
(2.7
)%
 
(2.6
)%
Tax basis difference
9.8
 %
 
(1.5
)%
 
—
 %
Transition tax
—
 %
 
9.0
 %
 
—
 %
U.S. statutory tax rate change on temporary differences
—
 %
 
(38.7
)%
 
—
 %
Goodwill write-down
(40.2
)%
 
—
 %
 
—
 %
Other
3.6
 %
 
(1.6
)%
 
(0.4
)%
Effective tax rate
(2.1
)%
 
(9.3
)%
 
23.2
 %


The Company's consolidated income taxes for the year ended September 30, 2019 were a charge of $806, compared to income tax benefit of $9,118 for fiscal 2018. The increase in the fiscal 2019 effective tax rate, compared to fiscal 2018, primarily reflected the fiscal 2018 U.S. deferred tax benefit from the Act enactment. For 2019 the Company’s effective tax rate was unfavorable compared to the U.S. federal statutory rate primarily due to the 2019 goodwill write-down, the majority of which did not have an accompanying tax benefit. The 2019 effective tax rate benefited from research and development and foreign tax credits and the elimination, achieved through tax planning, of a taxable basis difference.

The Company's foreign subsidiaries had income before income taxes for the years ended September 30, 2019, 2018 and 2017 of approximately $11,042, $56,424 and $24,118, respectively. Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries since they have either been previously taxed, or are now exempt from tax, under the U.S. Tax Cuts and Jobs Act, and such earnings are considered to be reinvested indefinitely in foreign operations. At September 30, 2019, undistributed earnings of foreign subsidiaries for which deferred income taxes have not been provided approximated $256,695. 

The components of deferred tax assets and liabilities at September 30, 2019 and 2018 are as follows:
 
2019
 
2018
Deferred tax assets:
 
 
 
Pension and postretirement benefits
$
37,587

 
$
24,597

Accruals and reserves not currently deductible
10,400

 
9,596

Income tax credit carryforward
3,204

 
3,216

Operating and capital loss carryforwards
21,896

 
21,858

Stock options
4,778

 
5,157

Other
5,381

 
3,963

Total deferred tax assets
83,246

 
68,387

Valuation allowances
(15,352
)
 
(15,188
)
Net deferred tax assets
67,894

 
53,199

 
 
 
 
Deferred tax liabilities:
 

 
 

Depreciation
(24,792
)
 
(16,156
)
Unrealized gains and losses
(565
)
 
(8,637
)
Goodwill and intangible assets
(138,952
)
 
(147,571
)
Other
(1,035
)
 
(517
)
 
(165,344
)
 
(172,881
)
 
 
 
 
Net deferred tax liability
$
(97,450
)
 
$
(119,682
)


At September 30, 2019, the Company had foreign net operating loss carryforwards of $65,002 and foreign capital loss carryforwards of $19,223. The Company has recorded deferred tax assets of $4,033 for state net operating loss carryforwards, which will be available to offset future income tax liabilities. If not used, state net operating losses will begin to expire in 2020.  Certain of the foreign net operating losses begin to expire in 2020 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 $15,352 at September 30, 2019. 

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

 
2019
 
2018
 
2017
Balance, beginning of year
$
14,827

 
$
7,968

 
$
13,820

Increases for tax positions of prior years
—

 
7,886

 
839

Decreases for tax positions of prior years
—

 
—

 
(5,890
)
Increases based on tax positions related to the current year
1,420

 
882

 
378

Decreases due to lapse of statute of limitation
(721
)
 
(1,909
)
 
(1,179
)
Balance, end of year
$
15,526

 
$
14,827

 
$
7,968



The Company had unrecognized tax benefits of $11,417 at September 30, 2019, which would impact the annual effective tax rate.  It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $4,910 in the next 12 months primarily due to the completion of audits and the expiration of the statute 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 $2,880 and $2,229 at September 30, 2019 and 2018, 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, 2019, the tax years that remain subject to examination by major jurisdiction generally are:
United States - Federal
2015 and forward
United States - State
2015 and forward
Canada
2015 and forward
Germany
2015 and forward
United Kingdom
2018 and forward
Australia
2015 and forward
Singapore
2014 and forward