Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.2.2
Income Taxes
12 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes  The provision for taxes based on income consists of:
  Year Ended September 30,
  2022 2021 2020
Domestic $ 48.3  $ 64.1  $ (40.3)
Foreign 265.7  289.7  21.8 
Total earnings (loss) before income taxes $ 314.0  $ 353.8  $ (18.5)
Income tax expense (benefit):      
Current provision:      
Federal $ 8.8  $ 6.0  $ (2.4)
State 3.0  4.8  3.0 
Foreign 63.5  75.6  53.8 
Total current provision 75.3  86.4  54.4 
Deferred provision (benefit):      
Federal 9.2  13.9  (6.6)
State 1.1  (0.5) (2.4)
Foreign 13.2  (1.2) (10.5)
Total deferred provision (benefit) 23.5  12.2  (19.5)
Income tax expense $ 98.8  $ 98.6  $ 34.9 

A reconciliation of the statutory federal income tax rate and the effective tax rate is as follows: 
  Year Ended September 30,
  2022 2021 2020
Federal statutory rates 21.0  % 21.0  % 21.0  %
Adjustments resulting from the tax effect of:      
State income taxes, net of federal benefit 1.1  0.9  0.3 
Foreign income tax rate differential 1.8  2.0  (14.3)
Share-based compensation 1.3  0.4  (19.1)
Foreign distribution taxes 4.7  3.1  (54.7)
Valuation allowance —  0.3  (2.1)
Goodwill impairment charge —  —  (14.1)
Impact of inclusion of foreign income (1)
1.5  0.5  (101.1)
Impact of foreign legislative rate changes —  —  41.5 
Transaction costs —  —  (8.7)
Divestitures 0.2  (2.6) — 
Unrecognized tax benefits 0.1  1.7  (4.0)
Other, net (0.2) 0.6  (33.3)
Effective income tax rate 31.5  % 27.9  % (188.6) %
(1)  Represents Subpart F income, GILTI (less Section 250 deduction), and FDII net of associated foreign tax credits

The tax effects of significant temporary differences that comprise tax balances were as follows:
  September 30,
  2022 2021
Deferred tax assets:    
Employee benefit accruals $ 25.9  $ 37.6 
Loss and tax credit carryforwards 15.7  38.9 
Interest limitation carryforward 19.3  23.2 
Operating lease liabilities 30.4  37.0 
Rebates and other discounts 4.2  5.2 
Self-insurance reserves 2.9  2.9 
Inventory, net 8.5  8.3 
Other, net 26.0  20.0 
Total deferred tax assets before valuation allowance 132.9  173.1 
Less valuation allowance (11.8) (24.4)
Total deferred tax assets, net 121.1  148.7 
Deferred tax liabilities:    
Depreciation (21.2) (24.5)
Amortization (185.2) (210.1)
Operating right-of-use assets (31.0) (37.4)
Long-term contracts and customer prepayments (68.9) (55.3)
Unremitted earnings of foreign operations (14.7) (15.0)
Other, net (3.5) (4.1)
Total deferred tax liabilities (324.5) (346.4)
Deferred tax liabilities, net $ (203.4) $ (197.7)
Amounts recorded in the Consolidated Balance Sheets:    
Deferred tax assets, non-current 6.8  9.0 
Deferred tax liabilities, non-current (210.2) (206.7)
Total $ (203.4) $ (197.7)
 
At September 30, 2022 and 2021, respectively, the Company had $3.9 and $15.5 of deferred tax assets related to U.S. federal and state net operating losses and tax credit carryforwards, which will begin to expire in 2023, and $28.9 and $45.6 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 2023. Deferred tax assets as of September 30, 2022 and 2021, were reduced by a valuation allowance of $11.8 and $24.4, respectively, relating to foreign net operating loss carryforwards and foreign tax credit carryforwards.  At September 30, 2022 and 2021, the Company had $34.1 and $26.3, respectively, of current income tax payable included in other current liabilities on the Consolidated Balance Sheets. As of September 30, 2022 and 2021, the Company also had a transition tax liability of $14.9 and $16.9 included within other long-term liabilities on the Consolidated Balance Sheets.
 
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, 2022, and 2021, respectively, $14.7 and $15.0 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, 2022 is not practicable.
A reconciliation of the unrecognized tax benefits is as follows:
  September 30,
  2022 2021 2020
Balance at September 30 $ 40.5  $ 35.7  $ 9.7 
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 
Additions for tax positions of prior years 1.0  1.6  0.7 
Reductions for tax positions of prior years (6.9) (3.3) (4.4)
Settlements (0.7) —  (0.1)
Balance at September 30 $ 33.9  $ 40.5  $ 35.7 

The gross unrecognized tax benefit included $33.9 and $40.5 at September 30, 2022 and 2021, 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 2022 and 2021, the Company recognized $0.5 and $1.2, respectively, in additional interest and penalties.  Excluded from the reconciliation were $3.8 and $3.7 of accrued interest and penalties at September 30, 2022 and 2021, 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 $0.5 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.