Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
12 Months Ended
Sep. 30, 2014
Income Taxes  
Income Taxes

7.Income Taxes

 

 

 

Year Ended September 30,

 

 

 

2014

 

2013

 

2012

 

Domestic

 

$

104.7

 

$

108.0

 

$

116.3

 

Foreign

 

55.2

 

(14.3

)

18.6

 

Total earnings before income taxes

 

$

159.9

 

$

93.7

 

$

134.9

 

 

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

 

 

Current provision:

 

 

 

 

 

 

 

Federal

 

$

39.0

 

$

37.0

 

$

27.1

 

State

 

6.2

 

5.5

 

4.0

 

Foreign

 

11.7

 

9.4

 

4.0

 

Total current provision

 

56.9

 

51.9

 

35.1

 

 

 

 

 

 

 

 

 

Deferred provision (benefit):

 

 

 

 

 

 

 

Federal

 

(6.1

)

(2.9

)

(4.1

)

State

 

1.3

 

(0.5

)

0.3

 

Foreign

 

(3.4

)

(20.2

)

(1.2

)

Total deferred provision (benefit)

 

(8.2

)

(23.6

)

(5.0

)

Income tax expense

 

$

48.7

 

$

28.3

 

$

30.1

 

 

 

 

Year Ended September 30,

 

 

 

2014

 

2013

 

2012

 

Federal statutory rates

 

35.0

%

35.0

%

35.0

%

Adjustments resulting from the tax effect of:

 

 

 

 

 

 

 

Permanent reinvestment of unremitted earnings

 

 

 

(8.1

)

State income taxes, net of federal benefit

 

3.2

 

3.5

 

2.6

 

Foreign income tax rate differential

 

(7.2

)

(7.0

)

(3.1

)

Domestic manufacturer’s deduction

 

(2.3

)

(4.0

)

(2.6

)

Non-deductible acquisition costs

 

 

1.4

 

 

Valuation allowance

 

0.3

 

0.8

 

 

Other, net

 

1.5

 

0.5

 

(1.5

)

Effective income tax rate

 

30.5

%

30.2

%

22.3

%

 

 

 

September 30,

 

 

 

2014

 

2013

 

Deferred tax assets:

 

 

 

 

 

Employee benefit accruals

 

$

71.8

 

$

63.9

 

Loss and tax credit carryforwards

 

39.3

 

39.6

 

Rebates and other discounts

 

4.8

 

5.5

 

Self-insurance reserves

 

6.3

 

6.4

 

Casket pricing obligation

 

2.3

 

2.7

 

Allowance for doubtful accounts

 

1.6

 

1.2

 

Inventory

 

2.1

 

2.0

 

Other, net

 

18.7

 

8.3

 

Total deferred tax assets before valuation allowance

 

146.9

 

129.6

 

Less valuation allowance

 

(2.5

)

(2.5

)

Total deferred tax assets, net

 

144.4

 

127.1

 

Deferred tax liabilities:

 

 

 

 

 

Depreciation

 

(17.1

)

(20.9

)

Amortization

 

(146.2

)

(152.1

)

Long-term contracts and customer prepayments

 

(23.3

)

(14.6

)

Unremitted earnings of foreign operations

 

(0.2

)

(0.2

)

Other, net

 

(2.9

)

(3.8

)

Total deferred tax liabilities

 

(189.7

)

(191.6

)

Deferred tax assets and liabilities, net

 

$

(45.3

)

$

(64.5

)

 

 

 

 

 

 

Amounts recorded in the balance sheets:

 

 

 

 

 

Deferred taxes, current

 

$

9.8

 

$

10.2

 

Deferred taxes, long-term

 

(55.1

)

(74.7

)

Deferred tax assets and liabilities, net

 

$

(45.3

)

$

(64.5

)

 

At September 30, 2014, we had $6.2 of deferred tax assets related to U.S. federal and state tax credit carryforwards, which began to expire in 2014, and $33.1 of deferred tax assets related to foreign net operating loss carryforwards, which will begin to expire in 2016.    Gross deferred tax assets of $39.3 as of September 30, 2014 were reduced by a valuation allowance of $2.5 relating to foreign net operating loss carryforwards.  At September 30, 2014 and 2013, we had $2.1 and $28.5 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 has been 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, 2014 and 2013, U.S. federal and state income taxes have not been provided on accumulated undistributed earnings of substantially all our foreign subsidiaries, as these earnings were considered permanently reinvested.  The total permanently reinvested earnings were $84.0 and $41.7 for 2014 and 2013.  These amounts represent book earnings translated at historical rates. It is not practicable to estimate the tax liabilities that would be incurred upon full repatriation of undistributed earnings due to foreign tax credit limitation uncertainty and uncertainty on applicable withholding tax rate on certain foreign to foreign distributions.

 

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:

 

 

 

September 30,

 

 

 

2014

 

2013

 

2012

 

Balance at September 30

 

$

6.4

 

$

2.9

 

$

7.3

 

Additions for tax positions related to the current year

 

2.5

 

0.2

 

0.2

 

Additions for tax positions of prior years

 

 

1.5

 

1.0

 

Reductions for tax positions of prior years

 

(0.3

)

(1.2

)

(2.5

)

Settlements

 

(0.2

)

(1.3

)

(3.5

)

Balance attributable to acquisition of Coperion

 

 

4.3

 

 

Balance attributable to pre-spin added in current year

 

 

 

0.4

 

Balance at September 30

 

$

8.4

 

$

6.4

 

$

2.9

 

 

The gross unrecognized tax benefit included $7.6 and $5.8 at September 30, 2014 and 2013 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 2014 and 2013, we recognized $0.4 and $0.1 in additional interest and penalties.  Excluded from the reconciliation were $0.8 and $0.5 of accrued interest and penalties at September 30, 2014 and 2013.

 

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 2013 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 $3.1 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 their ultimate resolution could affect our earnings.  Conversely, if these issues are resolved favorably in the future, the related provision would be reduced and yield a positive impact on earnings.  We do not expect that the outcome of these audits will significantly impact the financial statements.