Income Taxes

12 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

16. Income Taxes

Selected income tax data from continuing operations (in millions):

	2011			2010			2009
Components of income before income taxes:
United States	$	364.3		$	144.9		$	64.7
Non-United States		503.3			399.3			209.2
Total	$	867.6		$	544.2		$	273.9
Components of the income tax provision:
Current:
United States	$	51.0		$	9.7		$	15.8
Non-United States		75.0			36.7			42.3
State and local		(2.0	)		(0.1	)		(16.8	)
Total current		124.0			46.3			41.3
Deferred:
United States		46.6			41.2			11.0
Non-United States		(5.2	)		13.1			1.9
State and local		5.1			3.2			1.8
Total deferred		46.5			57.5			14.7
Income tax provision	$	170.5		$	103.8		$	56.0
Total income taxes paid	$	118.6		$	100.7		$	115.2

During 2011, we recognized net discrete tax benefits of $25.0 million related to the favorable resolution of worldwide tax matters and the retroactive extension of the U.S. federal research credit.

During 2010, we recognized discrete tax benefits of $27.2 million primarily related to the favorable resolution of tax matters, partially offset by discrete tax expenses of $9.6 million primarily related to the impact of a change in Mexican tax law and interest related to unrecognized tax benefits.

During 2009, we recognized discrete tax benefits of $20.5 million related to the retroactive extension of the U.S. federal research tax credit, the resolution of a contractual tax obligation and various state tax matters, partially offset by discrete tax expenses of $4.2 million related to a non-U.S. subsidiary.

Effective Tax Rate Reconciliation

The reconciliation between the U.S. federal statutory rate and our effective tax rate was:

	2011			2010			2009
Statutory tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes		0.7			0.3			(1.2	)
Non-United States taxes		(12.7	)		(12.8	)		(9.4	)
Foreign tax credit utilization		0.9			1.3			0.4
Employee stock ownership plan benefit		(0.3	)		(0.4	)		(0.8	)
Change in valuation allowances		0.8			(3.2	)		—
Domestic manufacturing deduction		(0.8	)		(0.2	)		(1.1	)
Resolution of prior period tax matters		(2.9	)		(4.1	)		(7.8	)
Other		(1.0	)		3.2			5.3
Effective income tax rate		19.7	%		19.1	%		20.4	%

Deferred Taxes

The tax effects of temporary differences that give rise to our net deferred income tax assets and liabilities were (in millions):

	2011			2010
Current deferred income tax assets:
Compensation and benefits	$	26.1		$	22.0
Product warranty costs		14.1			14.0
Inventory		57.3			50.8
Allowance for doubtful accounts		15.2			14.6
Deferred credits		9.4			10.5
Returns, rebates and incentives		44.3			34.2
Self-insurance reserves		2.2			2.5
Restructuring reserves		1.1			2.4
Net operating loss carryforwards		1.6			1.6
U.S. federal tax credit carryforwards		8.4			0.7
State tax credit carryforwards		—			0.3
Other — net		19.9			16.6
Current deferred income tax assets		199.6			170.2
Long-term deferred income tax assets (liabilities):
Retirement benefits	$	335.4		$	316.9
Property		(80.3	)		(75.5	)
Intangible assets		(28.9	)		(24.0	)
Environmental reserves		11.9			12.9
Share-based compensation		33.6			36.9
Self-insurance reserves		5.7			6.2
Deferred gains		3.8			4.3
Net operating loss carryforwards		41.6			44.2
Capital loss carryforwards		18.3			11.7
U.S. federal tax credit carryforwards		1.5			1.5
State tax credit carryforwards		3.5			2.5
Other — net		22.9			13.6
Subtotal		369.0			351.2
Valuation allowance		(32.8	)		(26.7	)
Net long-term deferred income tax assets		336.2			324.5
Total deferred income tax assets	$	535.8		$	494.7

Total deferred tax assets were $682.8 million at September 30, 2011 and $627.1 million at September 30, 2010. Total deferred tax liabilities were $114.2 million at September 30, 2011 and $105.7 million at September 30, 2010.

We have not provided U.S. deferred taxes for $1,906.0 million of undistributed earnings of the Company’s subsidiaries, since these earnings have been, and under current plans will continue to be, permanently reinvested in these subsidiaries. It is not practicable to estimate the amount of additional taxes that may be payable upon distribution.

We believe it is more likely than not that we will realize current and long-term deferred tax assets through the reduction of future taxable income, other than for the deferred tax assets reflected below. Significant factors we considered in determining the probability of the realization of the deferred tax assets include our historical operating results and expected future earnings.

Tax attributes and related valuation allowances at September 30, 2011 are (in millions):

	Tax				Carryforward
	Benefit		Valuation		Period
Tax Attribute to be Carried Forward	Amount		Allowance		Ends
Non-United States net operating loss carryforward	$	7.3	$	5.0		2012-2021
Non-United States net operating loss carryforward		12.0		6.2	Indefinite
Non-United States capital loss carryforward		18.3		18.3	Indefinite
United States net operating loss carryforward		8.5		—		2019-2027
United States tax credit carryforward		9.9		—		2018-2031
State and local net operating loss carryforward		15.4		0.9		2012-2031
State tax credit carryforward		3.5		—		2015-2026
Subtotal — tax carryforwards		74.9		30.4
Other deferred tax assets		2.4		2.4	Indefinite
Total	$	77.3	$	32.8

The valuation allowance increased $6.1 million in 2011 and decreased $17.1 million in 2010 primarily due to the utilization of a non-U.S. capital loss carryforward.

Unrecognized Tax Benefits

We operate in numerous taxing jurisdictions and are subject to regular examinations by various U.S. federal, state and foreign jurisdictions for various tax periods. Additionally, we have retained tax liabilities and the rights to tax refunds in connection with various divestitures of businesses in prior years. Our income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which we do business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, our estimates of income tax liabilities may differ from actual payments or assessments.

A reconciliation of our gross unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):

	2011			2010			2009
Gross unrecognized tax benefits balance at beginning of year	$	66.3		$	116.7		$	125.8
Additions based on tax positions related to the current year		22.3			6.3			15.3
Additions based on tax positions related to prior years		9.3			1.0			2.2
Reductions based on tax positions related to prior years		(0.6	)		(12.0	)		(8.1	)
Reductions related to settlements with taxing authorities		(18.5	)		(44.0	)		(13.3	)
Reductions related to lapses of statute of limitations		(3.0	)		(3.7	)		(3.9	)
Effect of foreign currency translation		(0.7	)		2.0			(1.3	)
Gross unrecognized tax benefits balance at end of year		75.1			66.3			116.7
Offsetting tax benefits		(44.9	)		(51.1	)		(49.1	)
Net unrecognized tax benefits	$	30.2		$	15.2		$	67.6

The amount of gross unrecognized tax benefits that would reduce our effective tax rate if recognized was $75.1 million ($30.2 million net of offsetting tax benefits) as of September 30, 2011, $57.5 million ($9.5 million net of offsetting tax benefits) as of September 30, 2010 and $85.2 million ($40.9 million net of offsetting tax benefits) as of September 30, 2009. Offsetting tax benefits primarily consist of tax receivables and deposits that were recorded in other assets and a foreign tax credit item that was recorded in deferred income taxes.

During 2011, there was no material change in the amount of gross unrecognized tax benefits.

During the next 12 months, we believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $5.4 million and the amount of offsetting tax benefits could be increased by up to $2.4 million as a result of the resolution of worldwide tax matters and the lapses of statutes of limitations.

We recognize interest and penalties related to unrecognized tax benefits in tax expense. Accrued interest and penalties were $16.9 million and $26.6 million at September 30, 2011 and 2010, respectively. We recognized benefits (expense) related to interest and penalties of $9.7 million, $0.9 million, and ($2.4) million during 2011, 2010 and 2009, respectively.

We conduct business globally and are routinely audited by the various tax jurisdictions in which we operate. We are no longer subject to U.S. federal income tax examinations for years before 2009 and are no longer subject to state, local and foreign income tax examinations for years before 2003.