Income Taxes

12 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

The domestic and foreign pretax (loss) income from continuing operations is as follows:

	Successor									Predecessor
	Fiscal Year Ended September 30, 2013			Fiscal Year Ended September 30, 2012			From July 20, 2011 through September 30, 2011			From October 1, 2010 through July 19, 2011
	(in millions)
Domestic	$	(73	)	$	(84	)	$	(24	)	$	(129	)
Foreign		(152	)		(24	)		(4	)		(19	)
Total	$	(225	)	$	(108	)	$	(28	)	$	(148	)

Current and deferred income taxes (tax benefits) provided are as follows:

	Successor									Predecessor
	Fiscal Year Ended September 30, 2013			Fiscal Year Ended September 30, 2012			From July 20, 2011 through September 30, 2011			From October 1, 2010 through July 19, 2011
	(in millions)
Federal:
Current	$	—		$	—		$	—		$	—
Deferred		(6	)		(8	)		1			(5	)
Foreign :
Current (a)		25			24			5			40
Deferred		(54	)		(18	)		(3	)		(10	)
U.S. State:
Current		13			3			—			2
Deferred		(9	)		—			—			—
Total	$	(31	)	$	1		$	3		$	27

(a) Includes cash withholding taxes of $9 million, $8 million, $3 million and $9 million for the fiscal year ended September 30, 2013 (Successor), for the fiscal year ended September 30, 2012 (Successor), for the period from July 20, 2011 to September 30, 2011 (Successor), for the period from October 1, 2010 to July 19, 2011 (Predecessor), respectively.

The differences between the U.S. federal statutory income tax rate of 35% and income taxes provided are as follows:

	Successor									Predecessor
	Fiscal Year Ended September 30, 2013			Fiscal Year Ended September 30, 2012			From July 20,  2011 through September 30, 2011			From October 1,  2010 through July 19, 2011
	(in millions)
Taxes on income at the U.S. federal statutory rate	$	(79	)	$	(37	)	$	(10	)	$	(52	)
U.S. state and local taxes		4			3			—			2
Foreign income taxed at different rates, including withholding taxes		15			13			3			18
Increase in valuation allowance		36			28			6			55
Release of valuation allowance		(1	)		(1	)		—			(11	)
Change in tax rates		(20	)		(6	)		—			—
Nondeductible transaction costs		13			—			4			13
Other		1			1			—			2
Total income tax (benefit) expense	$	(31	)	$	1		$	3		$	27

For the fiscal year ended September 30, 2013 (Successor) and for the fiscal year ended September 30, 2012 (Successor), the Company incurred losses in the U.S. and certain foreign territories and has offset the tax benefit associated with these losses with a valuation allowance as the Company has determined that it is more likely than not that these losses will not be utilized. The balance of the U.S. tax attributes remaining at September 30, 2013 continues to be offset by a full valuation allowance as the Company has determined that it is more likely than not that these attributes will not be realized. Significant components of the Company’s net deferred tax assets/(liabilities) are summarized below:

	Successor September 30, 2013			Successor September 30, 2012
	(in millions)
Deferred tax assets:
Allowances and reserves	$	44		$	39
Employee benefits and compensation		39			38
Other accruals		59			48
Long-term debt		—			42
Tax attribute carry forwards		518			418
Other		1			1
Total deferred tax assets		661			586
Valuation allowance		(296	)		(244	)
Net deferred tax assets		365			342
Deferred tax liabilities:
Depreciation, amortization and artist advances		(12	)		(16	)
Intangible assets		(749	)		(650	)
Total deferred tax liabilities		(761	)		(666	)
Net deferred tax liabilities	$	(396	)	$	(324	)

At September 30, 2013 (Successor), the Company has U.S. federal tax net operating loss carry-forwards of $632 million, which will begin to expire in fiscal year 2024. Tax net operating loss carry forwards in state, local and foreign jurisdictions expire in various periods. In addition, the Company has foreign tax credit carry-forwards for U.S. tax purposes of $163 million, which will begin to expire in 2014.

U.S. income and foreign withholding taxes have not been recorded on indefinitely reinvested earnings of certain foreign subsidiaries of approximately $116 million at September 30, 2013 (Successor). As such, no deferred income taxes have been provided for these undistributed earnings. Should these earnings be distributed, foreign tax credits and net operating losses may be available to reduce the additional federal income tax that would be payable. However, availability of these foreign tax credits is subject to limitations which make it impracticable to estimate the amount of the ultimate tax liability, if any, on these accumulated foreign earnings.

The Company classifies interest and penalties related to uncertain tax positions as a component of income tax expense. As of September 30, 2013 (Successor) and September 30, 2012 (Successor), the Company had accrued $6 million and $3 million of interest and penalties, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits are as follows (in millions):

Balance at September 30, 2010 (Predecessor)	$	10
Additions for current year tax positions		1
Additions for prior year tax positions		18
Subtractions for prior year tax positions		(18	)
Balance at July 19, 2011 (Predecessor)	$	11
Unrecognized tax benefits assigned in purchase price accounting	$	11
Additions for current year tax positions		—
Additions for prior year tax positions		—
Balance at September 30, 2011 (Successor)	$	11
Additions for current year tax positions		4
Additions for prior year tax positions		—
Subtractions for prior year tax positions		(1	)
Balance at September 30, 2012 (Successor)	$	14
Additions for current year tax positions		5
Additions for prior year tax positions		11
Subtractions for prior year tax positions		—
Balance at September 30, 2013 (Successor)	$	30

Included in the total unrecognized tax benefits at September 30, 2013 (Successor) and 2012 (Successor) are $30 million and $14 million, respectively, that if recognized, would favorably affect the effective income tax rate. The amount of the reserve for uncertain tax positions will change in the next twelve months due to uncertain resolution of various income tax matters. An estimate of the range of the possible charge cannot be made until these tax matters are further developed or resolved.

The Company and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Company has completed tax audits in the U.S. and the U.K. for the tax years ending through September 30, 2008, and in Japan for the tax years ending through September 30, 2007. The Company is at various stages in the tax audit process in certain foreign and local jurisdictions.