Income Taxes

12 Months Ended

Sep. 30, 2015

9 INCOME TAXES

The following discussion and tables present the Company’s relevant income tax positions for the periods under report.

INCOME TAX (PROVISION) BENEFIT

The income tax (provision) benefit is comprised of the following:

(Provision) Benefit for Income Tax		Year ended
		September 30,
(In millions)		2015		2014		2013
Current
Domestic (U.S)	$	(1.6)	$	(8.9)	$	(9.1)
Foreign		(55.2)	$	(53.5)	$	(55.5)
Total current		(56.8)		(62.4)		(64.6)

Deferred
Domestic (U.S)	$	(3.9)	$	5.4	$	4.8
Foreign		5.9	$	4.0	$	10.8
Total deferred		2.0		9.4		15.6

(Provision) benefit for income tax	$	(54.8)	$	(53.0)	$	(49.0)

DEFERRED TAX ASSETS (LIABILITIES)

Components of Net Asset (Liability)

At September 30, 2015 the Company had total deferred tax assets of $46.1 million (prior year period $56.9 million), and total deferred tax liabilities of $110.4 million (prior year period $125.6 million).

The significant components of our net asset (liability) representing deferred income tax balances are as follows:

Components of Net Deferred Tax Asset (Liability)		September 30,
(In millions)		2015		2014
Employee share-based compensation	$	6.1	$	15.7
Receivables		0.7		0.7
Inventory reserve		2.4		2.1
Property, plant, and equipment		(14.3)		(14.9)
Intangible assets and goodwill		(92.7)		(105.0)
Debt issuance costs		(1.7)		(1.9)
Employee benefit accruals		11.2		11.1
Deferred income		6.2		5.1
Valuation allowances		(3.8)		(3.1)
Tax loss carryforward		8.8		11.0
IC profit elimination		9.4		8.1
Other		3.4		2.4
Net deferred income tax asset (liability)	$	(64.3)	$	(68.7)

In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon sufficient taxable income within the carry-back years and the generation of future taxable income during the periods in which those temporary differences and tax loss carry-forwards become deductible. Management considers taxable income in the carry-back years, if carry back is permitted in the tax law, the projected future taxable income (including the realization of future taxable temporary differences), and tax planning strategies in making this assessment.

Tax Loss Carry-forwards

For the periods under report, the Company had gross tax loss carry-forwards subject to expiration as follows:

Tax Loss Carry-forwards		As of
		September 30,
(In millions)		2015		2014
Year of expiration:
2015	$		$	1.0
2016		-		-
2017		1.3		1.4
2018		1.1		1.2
2019		4.2		4.3
2020		0.9		-
15 years thereafter		4.8		7.7
Subtotal		12.3		15.6
Indefinite		16.6		20.1
Total tax loss carry-forwards	$	28.9	$	35.7

Deferred Tax Assets (Valuation Allowance Recognized⁽¹⁾)				Additions
				Charged to
(In millions)		Beginning balance		Costs / expenses		Other accounts		Deductions		Ending balance
For the year ended September 30,
2015	$	3.1	$	-	$	1.0	$	0.3	$	3.8
2014		3.2		-		-		0.1		3.1
2013	$	0.8	$	-	$	2.4	$	-	$	3.2
⁽¹⁾ predominantly relating to tax loss carry-forwards. Management believes that it is more likely than not that the benefits of those existing tax loss carry-forwards will not be realized within the period those tax losses are deductible.

RECONCILIATION OF (PROVISION) BENEFIT FOR INCOME TAXES

The difference between the U.S. federal income tax rate and the Company’s income tax provision included in the consolidated statements of income consisted of the following:

Reconciliation of (Provision) Benefit for Income Taxes		Year ended
		September 30,
(In millions)		2015		2014		2013
Income before income taxes	$	242.9	$	230.4	$	197.5
Reconciliation of (provision) benefit for income taxes:
Computed tax provision		(85.1)		(80.7)		(69.8)
Foreign tax differential		34.2		30.2		26.5
Nondeductible expenses		0.6		(1.4)		(0.2)
Permanent differences relating to German trade taxes		(1.0)		(1.1)		(1.4)
Share-based compensation		(0.3)		1.5		0.7
Tax income (expense) from prior periods		(0.2)		(0.2)		0.2
Tax free income and tax credits		0.6		0.5		0.6
Additional state taxes		(0.4)		(0.8)		(1.1)
Change in tax rate ⁽¹⁾		-		-		(2.2)
Change in valuation allowance		(3.0)		(1.4)		(2.4)
Other		(0.2)		0.4		0.1
(Provision) benefit for income taxes ⁽²⁾	$	(54.8)	$	(53.0)	$	(49.0)

⁽¹⁾The change in tax rate from prior periods of $2.2 million at September 30, 2013, predominantly relates to a non-cash remeasurement of deferred tax assets and liabilities resulting from an increase in the local trade tax rate at our principal German operations.
⁽²⁾The income tax provision at September 30, 2015, includes expenses of $1.0 million related to a tax audit in Germany covering fiscal years 2010 until 2013.

In August 2007, a tax law was enacted that may limit the Company’s deductibility of interest in Germany (“Zinsschranke”). For the periods under report, the Company’s deductibility of interest was not limited as a result of this German tax law.

COMPONENTS OF INCOME BEFORE TAXES

Components of Income before Taxes		Year ended
		September 30,
(In millions)		2015		2014		2013
Germany	$	116.0	$	133.7	$	125.3
United States		31.5		25.1		23.2
Other foreign		95.4		71.6		49.0
Income before income taxes	$	242.9	$	230.4	$	197.5

ADDITIONAL INFORMATION

None of the goodwill recognized in the Exchange or in the business combinations completed in any of the periods presented is tax deductible.

The company makes no provision for deferred U.S. income taxes on undistributed foreign earnings and profits because as of September 30, 2015, it remained management’s intention to continue to indefinitely reinvest these amounts in foreign operations. These earnings relate to ongoing operations and, as of September 30, 2015, the approximate amount of undistributed foreign earnings amounted to $710 million (prior year period: $552 million). Because of the availability of U.S. foreign tax credits as well as other factors, it is not practicable to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.

For the periods under report, the Company had no unrecognized tax benefits.

With limited exception, the Company and its subsidiaries are no longer subject to U.S. federal, state and local or non-U.S. income tax audits (including Germany) by taxing authorities for tax returns filed with respect to periods prior to fiscal year 2012. During the fourth quarter of fiscal year ending September 30, 2015, the German tax authority closed an income tax audit of the Company’s principal German operations for the fiscal years 2010 through 2013.

The Company classifies interest and penalties associated with income taxes as interest and other operating expense, respectively. Amounts of interest or penalties have not been material in any period.