Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
12 Months Ended
Sep. 30, 2012
Income Taxes  
Income Taxes

8.              Income Taxes

 

The components of earnings before income taxes and the consolidated income tax provision consist of the following:

 

 

 

Fiscal Year Ended September 30,

 

 

 

2012

 

2011

 

2010

 

Domestic

 

$

116.3

 

$

140.5

 

$

141.2

 

Foreign

 

18.6

 

17.3

 

5.2

 

Total earnings before income taxes

 

$

134.9

 

$

157.8

 

$

146.4

 

 

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

 

 

Current provision:

 

 

 

 

 

 

 

Federal

 

$

27.1

 

$

45.4

 

$

62.6

 

State

 

4.0

 

6.1

 

8.9

 

Foreign

 

4.0

 

4.7

 

1.1

 

Total current provision

 

35.1

 

56.2

 

72.6

 

 

 

 

 

 

 

 

 

Deferred provision (benefit):

 

 

 

 

 

 

 

Federal

 

(4.1

)

(1.6

)

(15.5

)

State

 

0.3

 

(2.4

)

(3.3

)

Foreign

 

(1.2

)

(0.5

)

0.3

 

Total deferred provision (benefit)

 

(5.0

)

(4.5

)

(18.5

)

Income tax expense

 

$

30.1

 

$

51.7

 

$

54.1

 

 

The following is a reconciliation of the effective income tax rate with the U.S. federal statutory income tax rate for the years ended September 30, 2012, 2011, and 2010:

 

 

 

Fiscal Year Ended September 30,

 

 

 

2012

 

2011

 

2010

 

Federal statutory rates

 

35.0

%

35.0

%

35.0

%

Adjustments resulting from the tax effect of:

 

 

 

 

 

 

 

Permanent reinvestment of unremitted earnings

 

(8.1

)

 

 

State and income taxes, net of federal benefit

 

2.6

 

1.8

 

3.1

 

Foreign income tax rate differential

 

(3.1

)

(1.2

)

(0.3

)

Domestic manufacturer’s deduction

 

(2.6

)

(2.7

)

(2.0

)

Non-deductible acquisition costs

 

 

 

0.5

 

Valuation allowance

 

 

(0.6

)

(0.8

)

Other, net

 

(1.5

)

0.5

 

1.5

 

Effective income tax rate

 

22.3

%

32.8

%

37.0

%

 

The components of deferred taxes consist of the following:

 

 

 

September 30,

 

 

 

2012

 

2011

 

Deferred tax assets:

 

 

 

 

 

Employee benefit accruals

 

$

64.1

 

$

67.7

 

Rebates and other discounts

 

4.4

 

7.5

 

Self-insurance reserves

 

5.9

 

5.9

 

Casket pricing obligation

 

2.9

 

3.3

 

Allowance for doubtful accounts

 

1.2

 

2.4

 

Inventory

 

2.0

 

2.8

 

Other, net

 

7.3

 

10.5

 

Total deferred tax assets before valuation allowance

 

87.8

 

100.1

 

Less valuation allowance

 

(0.9

)

(1.0

)

Total deferred tax assets, net

 

86.9

 

99.1

 

Deferred tax liabilities:

 

 

 

 

 

Depreciation

 

(12.4

)

(11.1

)

Amortization

 

(71.8

)

(69.9

)

Unremitted earnings of foreign operations

 

(0.1

)

(11.0

)

Other, net

 

(1.8

)

(6.1

)

Total deferred tax liabilities

 

(86.1

)

(98.1

)

Deferred tax assets and liabilities, net

 

$

0.8

 

$

1.0

 

 

 

 

 

 

 

Amounts recorded in the consolidated balance sheets:

 

 

 

 

 

Deferred taxes, current

 

$

18.7

 

$

27.5

 

Deferred taxes, long-term

 

(17.9

)

(26.5

)

 

 

 

 

 

 

Deferred tax assets and liabilities, net

 

$

0.8

 

$

1.0

 

 

At September 30, 2012, we had $0.7 of deferred tax assets related to state tax credit carryforwards, which expire in 2013, and $0.5 of deferred tax assets related to foreign net operating loss carryforwards, which will begin expiring in 2016.  We also had $1.6 of deferred tax assets related to capital loss carryforwards that begin expiring in 2015.  The gross deferred tax assets of $87.8 as of September 30, 2012, were reduced by a valuation allowance of $0.9 relating largely to the state tax credit carryforwards and foreign net operating loss carryforwards.

 

We have established a valuation allowance for deferred tax assets when it has been determined the amount of expected future taxable income is not likely to support the use of the deduction or credit.

 

In connection with the acquisition of K-Tron in April 2010, we recorded a deferred tax liability related to the historical earnings of its Swiss operations that would be subject to U.S. income taxes upon earnings repatriation.  With the acquisition of Rotex, we identified the need to retain cash overseas to support the continued growth of the Process Equipment Group and began developing a plan to integrate Rotex into our existing international structure.  As a result, during the first quarter of fiscal year 2012, we asserted the K-Tron historical earnings to be permanently reinvested.  Accordingly, a tax benefit of $11.0 was recognized, representing the full release of the deferred tax liability.  During the period ended March 31, 2012, we completed the plan of integrating Rotex into our existing international structure.  As of September 30, 2012, U.S. federal and state income taxes have not been provided on accumulated undistributed earnings of substantially all our foreign subsidiaries, as these earnings are considered permanently reinvested.

 

A reconciliation of the unrecognized tax benefits is as follows:

 

 

 

September 30,

 

 

 

2012

 

2011

 

Balance at October 1

 

$

7.3

 

$

7.8

 

Additions for tax positions related to the current year

 

0.2

 

0.2

 

Additions for tax positions of prior years

 

1.0

 

0.5

 

Reductions for tax positions of prior years

 

(2.5

)

(1.2

)

Settlements

 

(3.5

)

 

Balance attributable to pre-spin added in current year

 

0.4

 

 

Balance at September 30

 

$

2.9

 

$

7.3

 

 

The gross unrecognized tax benefit includes $1.6 and $3.4 at September 30, 2012 and 2011 that if recognized, would impact the effective tax rate in future periods.

 

We recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense.  During the year ended September 30, 2012 and 2011, we recognized ($1.3) and $0.3 in additional interest and penalties.  Excluded from the reconciliation was $0.4 and $1.7 of accrued interest and penalties at September 30, 2012 and 2011.

 

We operate in multiple income tax jurisdictions both inside and outside the U.S. and are currently under examination in various federal, state, and foreign jurisdictions. Specifically, we are currently under examination by the IRS for fiscal years 2011 and 2012.  In addition, there are other ongoing audits in various stages of completion in several state and foreign jurisdictions.

 

It is reasonably possible that the liability associated with the unrecognized tax benefits will increase or decrease within the next twelve months.  These changes may be the result of ongoing audits or the expiration of statutes of limitations and could range up to $0.7 based on current estimates.  Audit outcomes and the timing of audit settlements are subject to significant uncertainty.  Although we believe that adequate provision has been made for such issues, it is possible that the ultimate resolution of such issues could affect our earnings.  Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a positive impact on earnings.  We do not expect that the outcome of these audits will materially impact the consolidated financial statements.