|12 Months Ended|
Sep. 30, 2013
7. Income Taxes
At September 30, 2013, we had $6.9 of deferred tax assets related to U.S. federal and state tax credit carryforwards, which will begin to expire in 2014, and $31.6 of deferred tax assets related to foreign net operating loss carryforwards, which will begin to expire in 2016. We also had $1.1 of deferred tax assets related to capital loss carryforwards that will begin to expire in 2015. The gross deferred tax assets of $39.6 as of September 30, 2013, were reduced by a valuation allowance of $2.5 relating largely to the state tax credit carryforwards and foreign net operating loss carryforwards. At September 30, 2013 and 2012 we had $28.5 and $0.0 of current income tax payable classified as other current liabilities on our balance sheets.
We have established 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, 2013 and 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. The total permanently reinvested earnings were $41.7 and $42.5 for 2013 and 2012. These amounts represent book earnings translated at historical rates.
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, in 2012 we asserted K-Tron historical earnings to be permanently reinvested. Accordingly, a tax benefit of $11.0 was recognized, representing the release of the deferred tax liability. During 2012, we completed the integration of Rotex into our international structure.
A reconciliation of the unrecognized tax benefits is as follows:
The gross unrecognized tax benefit included $5.8 and $1.6 at September 30, 2013 and 2012 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 2013 and 2012, we recognized $0.1 and ($1.3) in additional interest and penalties. Excluded from the reconciliation was $0.5 and $0.4 of accrued interest and penalties at September 30, 2013 and 2012.
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 in the U.S. for 2012 and under examination in Germany for 2004 through 2008. 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 $1.5 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 significantly impact the financial statements.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef