Income Taxes

12 Months Ended

Sep. 30, 2015

23. INCOME TAXES

The following table summarizes the income of U.S. and foreign operations before taxes:
		2015		2014		2013
Income from Continuing Operations before Taxes
United States	$	739.0	$	555.9	$	428.5
Foreign		840.0		647.2		754.1
Income from equity affiliates		154.5		151.4		167.8
Total	$	1,733.5	$	1,354.5	$	1,350.4

The following table shows the components of the provision for income taxes:

		2015		2014		2013
Current Tax Provision
Federal	$	176.1	$	17.2	$	97.6
State		16.8		12.8		6.5
Foreign		220.1		210.5		191.0
		413.0		240.5		295.1
Deferred Tax Provision
Federal		(3.5)		98.2		27.7
State		19.1		(2.7)		(7.8)
Foreign		(12.7)		30.0		(7.1)
		2.9		125.5		12.8
Income Tax Provision	$	415.9	$	366.0	$	307.9

A reconciliation of the differences between the United States federal statutory tax rate and the effective tax rate is as follows:

(Percent of income before taxes)	2015		2014		2013
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	1.0		.5		.5
Income from equity affiliates	(3.0)		(3.9)		(4.3)
Foreign tax differentials	(6.6)		(8.3)		(5.4)
U.S. taxes on foreign earnings	(1.6)		(1.7)		(1.5)
Domestic production activities	(.9)		(.7)		(.6)
Non-deductible goodwill impairment charge	―		8.0		―
Non-U.S. subsidiary tax election	―		(3.8)		―
Other^(A)	.1		1.9		(.9)
Effective Tax Rate	24.0	%	27.0	%	22.8	%

^(A) Other includes the impact of Chilean tax rate changes of 1.5% in 2014.

Income tax payments, net of refunds, were $392.9 in 2015, $160.6 in 2014, and $325.5 in 2013.

Foreign tax differentials represent the differences between foreign earnings subject to foreign tax rates lower than the U.S. federal statutory tax rate of 35.0%. Foreign earnings are subject to local country tax rates that are generally below the 35.0% U.S. federal statutory rate and include tax holidays and incentives. As a result, our effective non-U.S. tax rate is typically lower than the U.S. statutory rate. If foreign pre-tax earnings increase relative to U.S. pre-tax earnings, this rate difference could increase. The jurisdictions in which we earn pre-tax earnings subject to lower foreign taxes than the U.S statutory rate include Korea, Taiwan, the United Kingdom, China, Canada, Spain and Belgium. As more than 80% 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. U.S. taxes on foreign earnings is a tax benefit primarily due to foreign tax credits on the repatriation of foreign earnings to the U.S.

In 2014, the effective tax rate was impacted by losses from transactions and a tax election made with respect to a non-U.S. subsidiary resulting in an income tax benefit of $51.6. This benefit was partially offset by income tax expense of $20.6 related to the tax reform legislation enacted in Chile. The effective tax rate was also impacted by the goodwill impairment charge of $305.2 that was not deductible for tax purposes. See Note 10, Goodwill, for additional information regarding the impairment charge.

The significant components of deferred tax assets and liabilities are as follows:

30 September		2015		2014
Gross Deferred Tax Assets
Retirement benefits and compensation accruals	$	468.7	$	348.9
Tax loss carryforwards		116.7		125.0
Tax credits and other tax carryforwards		43.8		78.1
Reserves and accruals		71.9		80.1
Other		57.3		46.1
Valuation allowance		(103.6)		(103.8)
Deferred Tax Assets		654.8		574.4
Gross Deferred Tax Liabilities
Plant and equipment		1,124.6		1,089.5
Currency gains		65.7		18.2
Unremitted earnings of foreign entities		34.3		100.0
Intangible assets		135.6		150.0
Other		15.3		22.8
Deferred Tax Liabilities		1,375.5		1,380.5
Net Deferred Income Tax Liability	$	720.7	$	806.1

Deferred tax assets and liabilities are included within the consolidated financial statements as follows:

		2015		2014
Deferred Tax Assets
Other receivables and current assets	$	117.2	$	136.0
Other noncurrent assets		69.0		56.6
Total Deferred Tax Assets		186.2		192.6
Deferred Tax Liabilities
Payables and accrued liabilities		3.6		3.2
Deferred income taxes		903.3		995.5
Total Deferred Tax Liabilities		906.9		998.7
Net Deferred Income Tax Liability	$	720.7	$	806.1

Gross federal loss and tax credit carryforwards as of 30 September 2015 were $146.5 and $12.6, respectively. The federal loss carryforward is primarily a capital loss due to a 2014 tax election related to a non-U.S. subsidiary that expires in 2019. The federal tax credit carryforwards expire in 2025. Gross state loss and tax credit carryforwards as of 30 September 2015 were $134.3 and $4.0, respectively. The state tax carryforwards have expiration periods between 2016 and 2034. Gross foreign loss and tax credit carryforwards as of 30 September 2015 were $239.8 and $27.2, respectively. Foreign tax carryforwards of $154.4 have expiration periods between 2016 and 2035; the remainder have unlimited carryforward periods.

The valuation allowance as of 30 September 2015 primarily related to the tax benefit on the federal capital loss carryforward of $51.3 and the tax benefit of foreign loss carryforwards of $52.8. If events warrant the reversal of the $103.6 valuation allowance, it would result in a reduction of tax expense. We believe it is more likely than not that future earnings and reversal of deferred tax liabilities will be sufficient to utilize our deferred tax asset, net of existing valuation allowance, at 30 September 2015.

We record U.S. income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those earnings are indefinitely reinvested outside of the U.S. These cumulative undistributed earnings that are considered to be indefinitely reinvested in foreign subsidiaries and corporate joint ventures are included in retained earnings on the consolidated balance sheets and amounted to $6,361.1 as of 30 September 2015. An estimated $1,593.0 in U.S. income and foreign withholding taxes would be due if these earnings were remitted as dividends after payment of all deferred taxes.

A reconciliation of the beginning and ending amount of the unrecognized tax benefits is as follows:

Unrecognized Tax Benefits		2015		2014		2013
Balance at beginning of year	$	108.7	$	124.3	$	110.8
Additions for tax positions of the current year		6.9		8.1		12.7
Additions for tax positions of prior years		7.5		4.9		9.0
Reductions for tax positions of prior years		(7.9)		(14.6)		(.5)
Settlements		(.6)		―		(1.4)
Statute of limitations expiration		(11.2)		(14.0)		(8.0)
Foreign currency translation		(5.9)		―		1.7
Balance at End of Year	$	97.5	$	108.7	$	124.3

At 30 September 2015 and 2014, we had $97.5 and $108.7 of unrecognized tax benefits, excluding interest and penalties, of which $62.5 and $66.5, 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 $(1.8) in 2015, $1.2 in 2014, and $2.4 in 2013. Our accrued balance for interest and penalties was $7.5 and $9.3 in 2015 and 2014, respectively.

We are currently under examination in a number of 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	2011–2015
	Canada	2012–2015
Europe
	France	2012–2015
	Germany	2009–2015
	Netherlands	2010–2015
	Poland	2010–2015
	Spain	2011–2015
	United Kingdom	2012–2015
Asia
	China	2010–2015
	Singapore	2010–2015
	South Korea	2010–2015
	Taiwan	2010–2015
Latin America
	Brazil	2010–2015
	Chile	2012–2015