Income Taxes

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

14.Income Taxes

The provision for income taxes for the fiscal years 2023, 2022 and 2021 consists of the following (in thousands):

	Fiscal Year Ended September 30,
	2023		2022			2021
Current:
Federal	$	42,103	$	48,888		$	64,526
Foreign		7,317		16,370			14,869
State		9,830		10,739			14,364
Total current portion		59,250		75,997			93,759
Deferred:
Federal		3,299		93			(6,054	)
Foreign		3,233		(15,380	)		(1,195	)
State		1,668		(166	)		(1,434	)
Total deferred portion		8,200		(15,453	)		(8,683	)
Total provision for income taxes	$	67,450	$	60,544		$	85,076

The difference between the U.S. statutory federal income tax rate and the effective income tax rate is summarized below:

	Fiscal Year Ended September 30,
	2023				2022				2021
U.S. federal statutory income tax rate		21.0		%		21.0		%		21.0	%
State income taxes, net of federal tax benefit		3.4				2.6				3.0
Effect of foreign operations		1.3				2.2				0.8
Repatriation Tax		1.1				—				—
Share-based payment awards		0.5				0.6				0.6
Unrecognized tax benefit		0.3				2.9			—
Valuation allowances		0.1				(7.2	)			0.6
Deferred tax impact of foreign branch conversion		—				2.7				—
Other, net		(0.9	)			—				0.2
Effective tax rate		26.8		%		24.8		%		26.2	%

The tax effects of temporary differences that give rise to our deferred tax assets and liabilities are as follows (in thousands):

	September 30,
	2023			2022
Deferred tax assets attributable to:
Foreign loss carryforwards	$	32,435		$	30,548
Accrued liabilities		17,672			24,023
Share-based compensation expense		7,430			7,320
U.S. foreign tax credits		12,913			10,712
Inventory adjustments		—			8,156
Other		(2,937	)		(391	)
Total deferred tax assets		67,513			80,368
Valuation allowance		(35,912	)		(31,920	)
Total deferred tax assets, net		31,601			48,448
Deferred tax liabilities attributable to:
Depreciation and amortization		101,957			112,115
Inventory adjustments		1,452			—
Total deferred tax assets		103,409			112,115
Net deferred tax liability	$	71,808		$	63,667

We believe that it is more-likely-than-not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance. During fiscal year 2023, existing valuation allowances were increased by approximately $4.0 million, primarily for net operating loss carry-forwards of various members of the affiliated group in foreign jurisdictions and foreign tax credits. We continue to record a valuation allowance to account for uncertainties regarding recoverability of certain deferred tax assets, primarily foreign loss carry-forwards and tax credit carry-forwards.

Domestic earnings before provision for income taxes were $217.7 million, $205.2 million and $288.0 million in the fiscal years 2023, 2022 and 2021, respectively. Foreign earnings before provision for income taxes of $34.4 million, $38.9 million and $36.9 million in the fiscal years 2023, 2022 and 2021, respectively.

Tax reserves are evaluated and adjusted as appropriate, while taking into account the progress of audits by various taxing jurisdictions and other changes in relevant facts and circumstances evident at each balance sheet date. We do not expect the outcome of current or future tax audits to have a material adverse effect on our consolidated financial condition, results of operations or cash flow.

Applicable deferred tax liabilities have been provided for undistributed foreign earnings in excess of foreign working capital and cash requirements. As a result of U.S. Tax Reform, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes but could be subject to foreign withholding taxes and state income taxes. If undistributed earnings of our foreign operations were not considered permanently reinvested as of September 30, 2023, an immaterial amount of additional deferred taxes would have been provided.

At September 30, 2023 and 2022, we had total operating loss carry-forwards of $119.4 million and $110.8 million, respectively, of which $62.7 million and $60.9 million, respectively, are subject to a valuation allowance. At September 30, 2023, operating loss carry-forwards of $119.4 million have no expiration date. At September 30, 2023 and 2022, we had tax credit carry-forwards of $15.5 million and $13.1 million, respectively. This includes a U.S. foreign tax credit carry-forward of $12.9 million, primarily as a result of the deemed repatriation tax under U.S. Tax Reform. This credit expires in 2028. We do not believe the realization of the U.S. foreign tax credit is more-likely-than-not, so a valuation allowance has been recorded against its full value. Of the remaining tax credit carry-forwards, at September 30, 2023, $1.0 million expire between 2024 and 2028, $0.3 million expire between 2033 and 2037 and $1.3 million have no expiration date. Total tax credit carry-forwards of $14.2 million and $11.9 million are subject to a valuation allowance at September 30, 2023 and 2022, respectively.

The changes in the amount of unrecognized tax benefits are as follows (in thousands):

	Fiscal Year Ended September 30,
	2023			2022
Balance at beginning of the fiscal year	$	9,165		$	2,092
Increases related to prior year tax positions		1,983			7,603
Decreases related to prior year tax positions		(128	)		(874	)
Increases related to current year tax positions		759			710
Decreases due to settlements		(3,337	)
Lapse of statute		(130	)		(366	)
Balance at end of fiscal year	$	8,312		$	9,165

If recognized, these positions would affect our effective tax rate.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) enacted comprehensive amendments to the Internal Revenue Code of 1986. Among other things, TCJA provided for a deemed repatriation of undistributed foreign earnings by U.S. taxpayers giving rise to a one-time transition tax on those earnings (“Repatriation Tax”). The U.S. Treasury Department issued final regulations (“Regulations”) addressing certain aspects of how the Repatriation Tax is calculated. In our view, certain guidance included in the Regulations is inconsistent with our interpretation of the statutory language contained in the TCJA. Our consolidated federal income tax return for the fiscal year ended September 30, 2018 is currently under audit on this matter. In fiscal year 2023, we remitted $3.3 million in tax to the IRS, designated as a §6603 deposit due to the differing interpretation of the statute. Estimated interest of $1 million was also remitted. Income tax expense of $2.7 million was recorded in fiscal year 2023 related to the payments.

Previously, $1.6 million had been reserved for this issue. At September 30, 2022, the Company recorded $7.6 million of uncertain tax benefits related to transfer pricing matters. We maintain our tax positions are fully supportable.

We recognize interest and penalties, accrued in connection with unrecognized tax benefits, in provision for income taxes. Accrued interest and penalties, in the aggregate, were $0.5 million and $0.4 million at September 30, 2023 and 2022, respectively.

Because existing tax positions will continue to generate increased liabilities for unrecognized tax benefits over the next 12 months, and the fact that from time to time our tax returns are routinely under audit by various taxing authorities, it is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months. An estimate of the amount of such change, or a range thereof, cannot reasonably be made at this time. However, we do not expect the change, if any, to have a material effect on our consolidated financial condition or results of operations within the next 12 months.

Our consolidated federal income tax return for the fiscal year ended September 30, 2022, is currently under IRS examination. Our statute remains open for the fiscal year ended September 30, 2020, forward. Our U.S. state income tax returns are impacted by various statutes of limitations and are generally open for the fiscal year ended September 30, 2018 and future years. Our foreign income tax returns are impacted by various statutes of limitations, which are generally open from 2018 forward.