Income Taxes (Tables)

12 Months Ended

Sep. 30, 2018

Schedule of Components of Income Tax Expense (Benefit)

Income tax expense consisted of the following for the years ended September 30:



(In millions)	2018			2017			2016
Current
Federal ^(a)	$	(2	)	$	47		$	99
State	6			8			24
Non-U.S.	17			14			12
	21			69			135
Deferred
Federal	136			106			14
State	9			12			2
Non-U.S.	—			(1		)	(3		)
	145			117			13
Income tax expense	$	166		$	186		$	148


(a)	Benefit from favorable settlement with tax authorities in fiscal 2018.

Schedule and Reconciliation of the Statutory Federal Income Tax

The following table presents pre-tax income and the principal components of the reconciliation between the effective tax rate and the U.S. federal statutory income tax rate in effect for the years ended September 30:



(In millions)	2018			2017			2016
Income before income taxes
United States	$	282		$	433		$	382
Non-U.S.	50			57			39
Total income before income taxes	$	332		$	490		$	421

U.S. statutory tax rate	24.5		%	35.0		%	35.0		%
Income taxes computed at U.S. statutory tax rate	$	81		$	171		$	147
Increase (decrease) in amount computed resulting from:
Unrecognized tax benefits	—			2			3
State taxes, net of federal benefit	14			17			16
International rate differential	—			(7		)	(5		)
Permanent items	(3		)	(8		)	(11		)
Remeasurement of net deferred taxes	73			—			—
Deemed repatriation	4			—			—
Tax Matters Agreement activity	(2		)	10			—
Other	(1		)	1			(2		)
Income tax expense	$	166		$	186		$	148
Effective tax rate	50.0		%	38.0		%	35.2		%

Components of Income Before Income Taxes



(In millions)	2018			2017			2016
Income before income taxes
United States	$	282		$	433		$	382
Non-U.S.	50			57			39
Total income before income taxes	$	332		$	490		$	421

U.S. statutory tax rate	24.5		%	35.0		%	35.0		%
Income taxes computed at U.S. statutory tax rate	$	81		$	171		$	147
Increase (decrease) in amount computed resulting from:
Unrecognized tax benefits	—			2			3
State taxes, net of federal benefit	14			17			16
International rate differential	—			(7		)	(5		)
Permanent items	(3		)	(8		)	(11		)
Remeasurement of net deferred taxes	73			—			—
Deemed repatriation	4			—			—
Tax Matters Agreement activity	(2		)	10			—
Other	(1		)	1			(2		)
Income tax expense	$	166		$	186		$	148
Effective tax rate	50.0		%	38.0		%	35.2		%

Schedule of Deferred Tax Assets and Liabilities

A summary of the deferred tax assets and liabilities included in the Consolidated Balance Sheets follows as of September 30:



(In millions)	2018			2017
Deferred tax assets
Federal net operating loss carryforwards	$	—		$	96
Non-U.S. net operating loss carryforwards ^(a)	2			1
State net operating loss carryforwards ^(b)	19			28
Employee benefit obligations	86			132
Compensation accruals	21			29
Credit carryforwards^(c)	36			13
Other	9			13
Valuation allowances ^(d)	(7		)	(8		)
Net deferred tax assets	166			304
Deferred tax liabilities
Goodwill and other intangibles	3			3
Property, plant and equipment	23			17
Undistributed earnings	2			3
Total deferred tax liabilities	28			23
Total net deferred tax assets	$	138		$	281


(a)	Gross non-U.S. net operating loss carryforwards of $7 million expire in fiscal years 2020 to 2033, with $5 million that has no expiration.


(b)	Apportioned gross net operating loss carryforwards of $481 million expire in fiscal years 2019 through 2037.


(c)	Credit carryforwards consist primarily of non-U.S. tax credits that generally expire in the fiscal years 2025 through 2037.


(d)	Valuation allowances primarily relate to certain state and non-U.S. net operating loss carryforwards and certain other deferred tax assets that are not expected to be realized or realizable.

Schedule of Gross Unrecognized Tax Benefits

The aggregate changes in the balance of gross unrecognized tax benefits were as follows for the years ended September 30:



(In millions)	2018			2017		2016
Gross unrecognized tax benefits as of October 1	$	10		$	8	$	5
Increases related to tax positions from prior years	2			—		2
Increases related to tax positions taken during the current year	1			2		1
Settlements with tax authorities	(2		)	—		—
Lapses of statutes of limitation	(1		)	—		—
Gross unrecognized tax benefits as of September 30^(a)	$	10		$	10	$	8


(a)	As of September 30, 2018 and 2017, the Company had accruals of $1 million for interest and penalties related to unrecognized tax benefits.