Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.2
Income Taxes
12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes  
The provision for taxes based on income consists of:
  Year Ended September 30,
  2021 2020 2019
Domestic $ 64.1  $ (40.3) $ 44.1 
Foreign 289.7  21.8  132.6 
Total earnings (loss) before income taxes $ 353.8  $ (18.5) $ 176.7 
Income tax expense:      
Current provision:      
Federal $ 6.0  $ (2.4) $ 11.1 
State 4.8  3.0  4.5 
Foreign 75.6  53.8  28.2 
Total current provision 86.4  54.4  43.8 
Deferred provision (benefit):      
Federal 13.9  (6.6) (3.8)
State (0.5) (2.4) (0.2)
Foreign (1.2) (10.5) 10.7 
Total deferred provision (benefit) 12.2  (19.5) 6.7 
Income tax expense $ 98.6  $ 34.9  $ 50.5 

A reconciliation of the statutory federal income tax rate and the effective tax rate is as follows: 
  Year Ended September 30,
  2021 2020 2019
Federal statutory rates 21.0  % 21.0  % 21.0  %
Adjustments resulting from the tax effect of:      
State income taxes, net of federal benefit 0.9  0.3  1.6 
Foreign income tax rate differential 2.0  (14.3) 4.1 
Share-based compensation 0.4  (19.1) (1.2)
Foreign distribution taxes 3.1  (54.7) 1.0 
Valuation allowance 0.3  (2.1) (0.4)
Goodwill impairment charge —  (14.1) — 
Impact of inclusion of foreign income (1)
0.5  (101.1) — 
Impact of foreign legislative rate changes —  41.5  — 
Transaction costs —  (8.7) — 
Divestitures (2.6) —  — 
Unrecognized tax benefits 1.7  (4.0) 1.9 
Other, net 0.6  (33.3) 0.6 
Effective income tax rate 27.9  % (188.6) % 28.6  %
(1)  Represents Subpart F income, GILTI (less Section 250 deduction), and FDII net of associated foreign tax credits

The effective tax rate was 27.9% for the year ended September 30, 2021 compared to (188.6)% for the year ended September 30, 2020. The effective tax rate for fiscal 2021 differed from the statutory rate primarily related to the effect of taxes on foreign earnings and taxes on current and anticipated future distributions amongst our subsidiaries and the net tax effects of the divestiture and closure of certain businesses. The effective tax rate for fiscal 2020 differed from the statutory rate primarily related to the Company reporting a net loss for the year, while being in a taxable position, before utilization of tax attributes, for income tax purposes. The taxable position was primarily a result of nondeductible impairment charges and taxable gains from the sale of the Cimcool business.
The tax effects of significant temporary differences that comprise tax balances were as follows:



  September 30,
  2021 2020
Deferred tax assets:    
Employee benefit accruals $ 37.6  $ 30.9 
Loss and tax credit carryforwards 38.9  51.4 
Interest limitation carryforward 23.2  26.0 
Operating lease liabilities 37.0  31.3 
Rebates and other discounts 5.2  4.6 
Self-insurance reserves 2.9  2.8 
Inventory, net 8.3  4.8 
Other, net 20.0  16.8 
Total deferred tax assets before valuation allowance 173.1  168.6 
Less valuation allowance (24.4) (21.0)
Total deferred tax assets, net 148.7  147.6 
Deferred tax liabilities:    
Depreciation (24.5) (27.6)
Amortization (210.1) (202.3)
Operating right-of-use assets (37.4) (32.0)
Long-term contracts and customer prepayments (55.3) (43.8)
Unremitted earnings of foreign operations (15.0) (13.2)
Other, net (4.1) (1.4)
Total deferred tax liabilities (346.4) (320.3)
Deferred tax liabilities, net $ (197.7) $ (172.7)
Amounts recorded in the Consolidated Balance Sheets:    
Deferred tax assets, non-current 9.0  13.1 
Deferred tax liabilities, non-current (206.7) (185.8)
Total $ (197.7) $ (172.7)
 
At September 30, 2021 and 2020, respectively, the Company had $15.5 and $24.9 of deferred tax assets related to U.S. federal and state net operating losses and tax credit carryforwards, which will begin to expire in 2022, and $45.6 and $51.8 of deferred tax assets related to foreign net operating loss and interest carryforwards. The majority of the foreign net operating loss and interest carryforwards have unlimited carryforward periods. Portions of the net operating loss carryforwards with expiration periods will begin to expire in 2022. Deferred tax assets as of September 30, 2021 and 2020, were reduced by a valuation allowance of $24.4 and $21.0, respectively, relating to foreign net operating loss carryforwards and foreign tax credit carryforwards.  At September 30, 2021 and 2020, the Company had $26.3 and $36.0, respectively, of current income tax payable included in other current liabilities on the Consolidated Balance Sheets. As of September 30, 2021 and 2020, the Company also had a transition tax liability of $16.9 and $18.9 included within other long-term liabilities on the Consolidated Balance Sheets.

A deferred tax asset of $2.0 was recognized as of September 30, 2021 for the outside basis difference of the investment in TerraSource Global in connection with the October 22, 2021 divestiture of the business. A corresponding valuation allowance of $2.0 was recorded against the deferred tax asset as the realization of the deferred tax asset is not more-likely-than-not.
 
The Company establishes a valuation allowance for deferred tax assets when it is determined that the amount of expected future taxable income is not likely to support the use of the deduction or credit.
 
As of September 30, 2021, and 2020, respectively, $15.0 and $13.2 of deferred tax liability on unremitted earnings of foreign subsidiaries was recognized, representing the assumed tax on the future distribution and tax withholdings on the distribution of such earnings among certain of the Company’s foreign subsidiaries.

Deferred tax liabilities were not recorded for any additional basis differences inherent in the Company’s foreign subsidiaries (i.e., basis differences in excess of those subject to the Transition Tax) as these amounts continue to be permanently reinvested outside of the U.S. If these amounts were not considered permanently reinvested, deferred tax liabilities would be recorded for any additional income taxes, distribution taxes, and withholding taxes payable in various countries. A determination of the unrecognized deferred tax liabilities on the permanently reinvested basis differences at September 30, 2021 is not practicable.

A reconciliation of the unrecognized tax benefits is as follows:
  September 30,
  2021 2020 2019
Balance at September 30 $ 35.7  $ 9.7  $ 12.1 
Assumed and recognized tax positions as part of Milacron acquisition —  29.2  — 
Additions for tax positions related to the current year 6.5  0.6  0.3 
Additions for tax positions of prior years 1.6  0.7  4.0 
Reductions for tax positions of prior years (3.3) (4.4) (0.4)
Settlements —  (0.1) (6.3)
Balance at September 30 $ 40.5  $ 35.7  $ 9.7 

The gross unrecognized tax benefit included $40.5 and $35.7 at September 30, 2021 and 2020, respectively, which, if recognized, would impact the effective tax rate in future periods. The assumed and recognized tax positions as part of the Milacron acquisition, includes historical unrecognized tax benefits related to Milacron, as well as certain unrecognized tax benefits recorded as part of purchase accounting.
 
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.  During 2021 and 2020, the Company recognized $1.2 and $1.0, respectively, in additional interest and penalties.  Excluded from the reconciliation were $3.7 and $2.5 of accrued interest and penalties at September 30, 2021 and 2020, respectively.
 
The Company operates in multiple income tax jurisdictions both inside and outside the U.S. and are currently under examination in various federal, state, and foreign jurisdictions. There are ongoing audits in India, Canada, Germany, and the Czech Republic specifically which could prove to be significant for the Company. In addition, there are other ongoing audits in various stages of completion in several state and foreign jurisdictions.
 
It is possible that the liability associated with the unrecognized tax benefits will increase or decrease within the next 12 months.  These changes may be the result of ongoing audits or the expiration of statutes of limitations and could range up to $2.5 based on current estimates.  Audit outcomes and the timing of audit settlements are subject to significant uncertainty.  Although the Company believes that adequate provision has been made for such issues, it is possible that their ultimate resolution could affect earnings.  Conversely, if these issues are resolved favorably in the future, the related provision would be reduced and yield a positive impact on earnings. The Company does not expect that the outcome of these audits will significantly impact the Consolidated Financial Statements.