Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.10.0.1
INCOME TAXES
 12 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES:

The income tax (benefit) provision consisted of the following:
 
2018
 
2017
 
2016
Current:
 
 
 
 
 
Federal
$
(2,577
)
 
$
1,542

 
$
18,733

State
1,051

 
628

 
1,829

Foreign
15,533

 
10,459

 
12,482

 
14,007

 
12,629

 
33,044

Deferred:
 
 
 
 
 
Federal
(24,094
)
 
11,887

 
(3,066
)
State
1,315

 
905

 
(2,412
)
Foreign
(346
)
 
(3,067
)
 
1,507

 
(23,125
)
 
9,725

 
(3,971
)
Total
$
(9,118
)
 
$
22,354

 
$
29,073




The U.S. Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35.0% to 21.0% effective January 1, 2018, which results in a blended U.S. statutory tax rate of 24.5% for the Company in fiscal 2018. The Act also requires a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, and creates new taxes on certain foreign-sourced earnings. At September 30, 2018, the Company has not finalized its accounting for the tax effects of the Act; however, as described below, management has made a reasonable estimate of the effects on existing deferred tax balances and has recorded an estimated amount for its one-time transition tax. For the items for which the Company was able to determine a reasonable estimate, a provisional net tax benefit of $29,150 was recognized, which is included entirely as a component of income tax benefit (provision) for the year ended September 30, 2018. The two main components of this provisional amount are discussed below. The Company continues to await additional guidance on certain aspects of the Act which could have a significant effect upon its income tax expense.

Provisional amounts

Deferred tax assets and liabilities: The Company re-measured certain deferred tax assets and liabilities based on the rates at which these deferred tax amounts are expected to reverse in the future, which is generally 21.0% or 24.5%. This re-measurement resulted in a tax benefit of $38,010 being recognized during the year ended September 30, 2018. The Company is still analyzing certain aspects of the Act, estimating the timing of reversals, and refining its calculations, which could potentially affect the measurement of these balances, or potentially generate new deferred tax amounts.

Foreign tax effects: The Company recorded a provisional amount for its one-time transition tax for all of its foreign subsidiaries, resulting in an increase in income tax expense of $8,860 for the year ended September 30, 2018. 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. The Company has not yet finalized its determination of the total post-1986 E&P and tax pools for its foreign subsidiaries and has not fully analyzed the state income tax effects. The calculation of the one-time transition tax is also impacted by the amount of foreign E&P held in cash and other specified assets. The tax amount may change when the Company finalizes its calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and upon finalization of the calculation of cash and other specified assets.

The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows:
 
2018
 
2017
 
2016
Federal statutory tax rate
24.5
 %
 
35.0
 %
 
35.0
 %
Effect of state income taxes, net of federal deduction
2.2
 %
 
1.4
 %
 
(0.6
)%
Foreign taxes greater (less) than federal statutory rate
1.4
 %
 
(7.2
)%
 
(3.5
)%
Share-based compensation
(0.6
)%
 
(1.2
)%
 
—
 %
U.S. manufacturing incentive
(1.3
)%
 
(1.8
)%
 
(0.9
)%
Tax credits
(2.7
)%
 
(2.6
)%
 
0.9
 %
Tax deductible basis difference
(1.5
)%
 
—
 %
 
—
 %
Transition tax
9.0
 %
 
—
 %
 
—
 %
U.S. statutory tax rate change on temporary differences
(38.7
)%
 
—
 %
 
—
 %
Other
(1.6
)%
 
(0.4
)%
 
(0.4
)%
Effective tax rate
(9.3
)%
 
23.2
 %
 
30.5
 %

The Company's consolidated income taxes for the year ended September 30, 2018 were a benefit of $9,118, compared to income tax expense of $22,354 for fiscal 2017. Fiscal 2018 primarily reflects the benefits from the U.S. tax reform enactment discussed above. The difference between the Company's fiscal 2018 effective tax rate and the blended U.S. federal statutory rate of 24.5% primarily reflected the re-measurement of U.S. deferred taxes and the benefit of credits and incentives, partially offset by the one-time transition tax and the impact of state taxes.

The Company's foreign subsidiaries had income before income taxes for the years ended September 30, 2018, 2017 and 2016 of approximately $56,424, $24,118 and $48,864, respectively.  Deferred income taxes have not been provided on certain undistributed earnings of foreign subsidiaries since they have been included as a component of the U.S. Tax Cuts and Jobs Act transition tax, and such earnings are considered to be reinvested indefinitely. At September 30, 2018, undistributed earnings of foreign subsidiaries for which deferred income taxes have not been provided approximated $289,702. 

The components of deferred tax assets and liabilities at September 30, 2018 and 2017 are as follows:
 
2018
 
2017
Deferred tax assets:
 
 
 
Pension and postretirement benefits
$
24,597

 
$
45,654

Accruals and reserves not currently deductible
9,596

 
20,579

Income tax credit carryforward
3,216

 
3,313

Operating and capital loss carryforwards
20,807

 
23,610

Stock options
5,157

 
8,614

Other
3,963

 
2,782

Total deferred tax assets
67,336

 
104,552

Valuation allowances
(14,137
)
 
(20,866
)
Net deferred tax assets
53,199

 
83,686

 
 
 
 
Deferred tax liabilities:
 

 
 

Depreciation
(16,156
)
 
(4,763
)
Unrealized gains and losses
(8,637
)
 
(10,446
)
Goodwill and intangible assets
(147,571
)
 
(203,957
)
Other
(517
)
 
(1,494
)
 
(172,881
)
 
(220,660
)
 
 
 
 
Net deferred tax liability
$
(119,682
)
 
$
(136,974
)


At September 30, 2018, the Company had foreign net operating loss carryforwards of $60,705 and foreign capital loss carryforwards of $20,370. The Company has recorded deferred tax assets of $4,684 for state net operating loss carryforwards, and various non-U.S. income tax credit carryforwards of $2,934 which will be available to offset future income tax liabilities. If not used, state net operating losses will begin to expire in 2019.  Certain of the foreign net operating losses begin to expire in 2019 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 $14,137 at September 30, 2018. 

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

 
2018
 
2017
 
2016
Balance, beginning of year
$
7,968

 
$
13,820

 
$
4,086

Increases for tax positions of prior years
7,886

 
839

 
5,762

Decreases for tax positions of prior years
—

 
(5,890
)
 
(166
)
Increases based on tax positions related to the current year
882

 
378

 
5,456

Decreases due to lapse of statute of limitation
(1,909
)
 
(1,179
)
 
(1,318
)
Balance, end of year
$
14,827

 
$
7,968

 
$
13,820



The Company had unrecognized tax benefits of $10,718 at September 30, 2018, which would impact the annual effective tax rate.  It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $2,786 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 $2,229 and $1,779 at September 30, 2018 and 2017, 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, 2018, the tax years that remain subject to examination by major jurisdiction generally are:
United States - Federal
2015 and forward
United States - State
2014 and forward
Canada
2014 and forward
Germany
2015 and forward
United Kingdom
2017 and forward
Australia
2014 and forward
Singapore
2013 and forward