Income Taxes

12 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

21. INCOME TAXES

The following table shows the components of the provision for income taxes:
		2012		2011		2010
Federal
Current	$	43.1	$	14.7	$	100.5
Deferred		76.5		181.6		47.4
		119.6		196.3		147.9
State
Current		9.6		20.1		2.7
Deferred		4.0		2.6		4.3
		13.6		22.7		7.0
Foreign
Current		173.9		153.8		113.5
Deferred		(19.8)		2.5		37.3
		154.1		156.3		150.8
	$	287.3	$	375.3	$	305.7

The significant components of deferred tax assets and liabilities are as follows:
30 September		2012		2011
Gross Deferred Tax Assets
Retirement benefits and compensation accruals	$	520.4	$	513.5
Tax loss carryforwards		57.4		43.7
Tax credits		52.8		49.6
Reserves and accruals		188.9		95.2
Asset impairment		25.4		8.6
Currency losses		―		28.7
Other		43.2		58.8
Valuation allowance		(36.6)		(28.6)
Deferred Tax Assets		851.5		769.5
Gross Deferred Tax Liabilities
Plant and equipment		1,089.5		995.8
Investment in partnerships		5.4		7.3
Currency gains		20.3		-
Unremitted earnings of foreign entities		71.9		59.2
Intangible assets		135.3		28.2
Other		4.8		15.9
Deferred Tax Liabilities		1,327.2		1,106.4
Net Deferred Income Tax Liability	$	475.7	$	336.9

Deferred tax assets and liabilities are included within the consolidated financial statements as:
			2012		2011
Deferred Tax Assets
	Other receivables and current assets	$	129.0	$	103.1
	Other noncurrent assets		73.7		123.6
Total Deferred Tax Assets			202.7		226.7
Deferred Tax Liabilities
	Payables and accrued liabilities		7.6		5.4
	Deferred income taxes		670.8		558.2
Total Deferred Tax Liabilities			678.4		563.6
Net Deferred Income Tax Liability		$	475.7	$	336.9

The increase in net deferred income tax liability primarily resulted from current year business combinations. Refer to Note 5, Business Combinations for additional information.

Foreign and state loss carryforwards as of 30 September 2012 were $170.6 and $311.2, respectively. The foreign losses have expiration periods beginning in fiscal year 2013. Some of the foreign operations operate in jurisdictions with unlimited carryforward periods. State operating loss carryforwards have expiration periods that range between fiscal year 2013 and 2032.

The net change in the valuation allowance was an increase of $8.0for the year ended 30 September 2012. The valuation allowance as of 30 September 2012 primarily relates to the tax loss carryforwards referenced above. If events warrant the reversal of the $36.6 valuation allowance, it would result in a reduction of tax expense. We believe it is more likely than not that future earnings will be sufficient to utilize our deferred tax asset, net of existing valuation allowance, at 30 September 2012.

Income tax payments, net of refunds, were $255.7 in 2012, $159.9 in 2011, and $190.7 in 2010.

Major differences between the United States federal statutory tax rate and the effective tax rate are:
(Percent of income before taxes)	2012		2011		2010
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	.7		1.0		.3
Income from equity affiliates	(4.0)		(3.3)		(3.3)
Foreign taxes and credits	(8.6)		(7.1)		(8.4)
Domestic production activities	(.9)		(.6)		(.7)
Tax audit settlements and adjustments	(1.1)		(1.1)		―
Donation of investments	―		―		(.4)
Other	.8		.4		1.5
Effective Tax Rate	21.9	%	24.3	%	24.0	%

The following table summarizes the income of U.S. and foreign operations, before taxes:
			2012		2011		2010
Income from Continuing Operations before Taxes
	United States	$	518.6	$	625.5	$	464.5
	Foreign		640.1		767.1		681.3
Income from equity affiliates			153.8		154.3		126.9
Total		$	1,312.5	$	1,546.9	$	1,272.7

We record U.S. income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those earnings are permanently reinvested in the companies that produced them. These cumulative undistributed earnings that are considered to be permanently reinvested in foreign subsidiaries and corporate joint ventures are included in retained earnings on the consolidated balance sheets and amounted to $5,278.2 at the end of 2012. As more than 90% of the undistributed earnings are in countries with a statutory tax rate of 24% or higher, we do not generate a disproportionate amount of taxable income in countries with very low tax rates. An estimated $1,332.5 in U.S. income and foreign withholding taxes would be due if these earnings were remitted as dividends after payment of all deferred taxes.

At 30 September 2012 and 2011, we had $110.8 and $126.4 of unrecognized tax benefits, excluding interest and penalties, of which $56.9and $93.1, respectively, would impact the effective tax rate if recognized. Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense and totaled $(26.1) in 2012, $(2.4) in 2011, and $5.5 in 2010. Our accrued balance for interest and penalties was $7.2 and $33.3 in 2012 and 2011, respectively.

A reconciliation of the beginning and ending amount of the unrecognized tax benefits is as follows:
Unrecognized Tax Benefits		2012		2011		2010
Balance at beginning of year	$	126.4	$	197.8	$	163.1
Additions for tax positions of the current year		44.5		16.3		31.8
Additions for tax positions of prior years		2.3		5.7		12.9
Reductions for tax positions of prior years		(46.9)		(72.4)		(1.0)
Settlements		(11.0)		(15.6)		―
Statute of limitations expiration		(3.7)		(4.8)		(6.1)
Foreign currency translation		(.8)		(.6)		(2.9)
Balance at End of Year	$	110.8	$	126.4	$	197.8

We were challenged by the Spanish tax authorities over income tax deductions taken by certain of our Spanish subsidiaries during fiscal years 2005–2011. Although we continue to believe that all positions taken were compliant with applicable laws, in November 2011 we reached a settlement with the Spanish tax authorities for €41.3 million ($56) in resolution of all tax issues under examination.  Of this settlement, $43.8 ($.20 per share) increased our income tax expense and had a 3.3% impact on our effective tax rate for the fiscal year ended 30 September 2012. The cash payment for the settlement was principally paid in January 2012. As a result of this settlement, we recorded a reduction in unrecognized tax benefits of $6.4 for tax positions taken in prior years and $11.0 for settlements.

As of 30 September 2011, our unrecognized tax benefits included an amount related to certain transactions of a Spanish subsidiary for years 1991 and 1992, a period before we controlled this subsidiary. In March 2009, the Spanish appeals court (AudienciaNacional) ruled in favor of our Spanish subsidiary. The Spanish government appealed this court decision to the Spanish Supreme Court, and as a result, we did not reverse the liability accrued for these unrecognized tax benefits. On 25 January 2012, the Spanish Supreme Court released its decision affirming the decision of the AudienciaNacional in favor of our Spanish subsidiary. As a result, in the second quarter of 2012, we recorded a reduction in income tax expense of $58.3 ($.27 per share), including interest and penalties, and a reduction in unrecognized tax benefits. The reduction in income tax expense had a 4.4% impact on our effective tax rate for the fiscal year ended 30 September 2012. As a result of this ruling, unrecognized tax benefits decreased $38.3 for tax positions of prior years.

During the third quarter of 2012, our unrecognized tax benefits increased $33.3 as a result of certain tax positions taken in conjunction with the disposition of our Homecare business. For additional information, see Note 3, Discontinued Operations.

In the third quarter of 2011, a U.S. Internal Revenue Service audit over tax years 2007 and 2008 was completed, resulting in a decrease in unrecognized tax benefits of $36.0 and a favorable impact to earnings of $23.9. This included a tax benefit of $8.9 or $.04 per share, recognized in income from discontinued operations for fiscal year 2011, as it relates to the previously divested U.S. Healthcare business.

We are also currently under examination in a number of other tax jurisdictions, some of which may be resolved in the next twelve months. As a result, it is reasonably possible that a change in the unrecognized tax benefits may occur during the next twelve months. However, quantification of an estimated range cannot be made at this time.

We generally remain subject to examination in the following major tax jurisdictions for the years indicated below:
Major Tax Jurisdiction		Open Tax Years
North America
	United States	2009–2012
	Canada	2007–2012
Europe
	United Kingdom	2009–2012
	Germany	2006–2012
	Netherlands	2006–2012
	Poland	2007–2012
	Spain	2009–2012
Asia
	China	2007–2012
	Taiwan	2007–2012
	Korea	2007–2012