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Income Taxes
 12 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes

The significant components of income before income taxes and the consolidated income tax provision were as follows:
  
 
Year Ended September 30
 
 
2019
 
2018
 
2017
Income before income taxes:
 
 
 
 
 
 
Domestic
 
$
122.5

 
$
101.8

 
$
129.0

Foreign
 
86.1

 
95.4

 
54.0

Total
 
$
208.6


$
197.2


$
183.0


Income tax expense:
 
 

 
 

 
 

Current provision
 
 

 
 

 
 

U.S. Federal
 
$
51.0

 
$
5.9

 
$
61.6

State
 
6.0

 
3.5

 
8.6

Foreign
 
18.2

 
20.2

 
13.3

Total current provision
 
75.2

 
29.6

 
83.5

Deferred provision:
 
 

 
 

 
 

U.S. Federal
 
(12.0
)
 
(83.4
)
 
(34.9
)
State
 
(2.5
)
 
(2.8
)
 
1.3

Foreign
 
(4.3
)
 
1.4

 
0.8

Total deferred provision
 
(18.8
)
 
(84.8
)
 
(32.8
)
Income tax expense
 
$
56.4

 
$
(55.2
)
 
$
50.7



Differences between income tax expense reported for financial reporting purposes and that computed based upon the application of the statutory U.S. Federal tax rate to the reported income before income taxes were as follows:
 
 
Year Ended September 30
 
 
2019
 
2018
 
2017
 
 
Amount
 
% of
Pretax
Income
 
Amount
 
% of
Pretax
Income
 
Amount
 
% of
Pretax
Income
U.S. Federal income tax 1
 
$
43.8

 
21.0
 %
 
$
48.4

 
24.5
 %
 
$
64.1

 
35.0
 %
State income tax 2
 
3.3

 
1.6

 
2.9

 
1.5

 
4.1

 
2.2

Foreign income tax 3
 
(10.1
)
 
(4.9
)
 
(25.9
)
 
(13.2
)
 
(35.6
)
 
(19.4
)
Application of federal research tax credits
 
(5.6
)
 
(2.7
)
 
(5.6
)
 
(2.9
)
 
(3.6
)
 
(2.0
)
Application of foreign tax credits
 
(0.1
)
 
—

 
(1.0
)
 
(0.5
)
 
(15.0
)
 
(8.2
)
Valuation of tax attributes
 
2.2

 
1.1

 
23.4

 
11.9

 
36.3

 
19.8

Foreign inclusions
 
—

 
—

 
(0.9
)
 
(0.4
)
 
11.5

 
6.3

Domestic manufacturer’s deduction
 
—

 
—

 
(0.9
)
 
(0.4
)
 
(4.4
)
 
(2.4
)
Excess tax benefits from share based awards
 
(5.2
)
 
(2.5
)
 
(16.1
)
 
(8.2
)
 
(8.9
)
 
(4.9
)
U.S. tax benefit of foreign currency loss
 
—

 
—

 
(9.2
)
 
(4.7
)
 
—

 
—

U.S. tax reform deferred tax remeasurement
 
—

 
—

 
(93.8
)
 
(47.6
)
 
—

 
—

U.S. tax reform transition tax
 
(1.0
)
 
(0.5
)
 
22.9

 
11.6

 
—

 
—

Foreign-derived intangible income deduction
 
(4.3
)
 
(2.0
)
 
—

 
—

 
—

 
—

Global intangible low-taxed income inclusion
 
9.6

 
4.6

 
—

 
—

 
—

 
—

Disposition of subsidiary
 
18.2

 
8.7

 
—

 
—

 
—

 
—

Current period change in uncertain tax positions
 
4.6

 
2.2

 
1.5

 
0.8

 
(0.8
)
 
(0.4
)
Other, net
 
1.0

 
0.4

 
(0.9
)
 
(0.4
)
 
3.0

 
1.7

Income tax expense
 
$
56.4


27.0
 %

$
(55.2
)

(28.0
)%

$
50.7


27.7
 %
1 At statutory rate.
2 Net of U.S. Federal benefit.
3 U.S. Federal tax rate differential.

The tax effect of temporary differences that gave rise to the deferred tax assets and liabilities were as follows:
 
 
September 30, 2019
 
September 30, 2018
Deferred tax assets:
 
 
 
 
Employee benefit accruals
 
$
42.9

 
$
34.9

Inventory
 
10.0

 
12.7

Net operating loss carryforwards
 
69.8

 
84.5

Tax credit carryforwards
 
22.6

 
20.5

Other, net
 
25.3

 
26.4

 
 
170.6


179.0

Less: Valuation allowance
 
(45.0
)
 
(80.2
)
Total deferred tax assets
 
125.6


98.8

 
 
 
 
 
Deferred tax liabilities:
 
 

 
 

Depreciation
 
(14.5
)
 
(19.2
)
Amortization
 
(215.4
)
 
(216.8
)
Other, net
 
(5.6
)
 
(9.1
)
Total deferred tax liabilities
 
(235.5
)

(245.1
)
Deferred tax liability - net
 
$
(109.9
)

$
(146.3
)


As of September 30, 2019, we had $36.7 million of deferred tax assets related to operating loss carryforwards in foreign jurisdictions that are subject to various carryforward periods with the majority eligible to be carried forward for an unlimited period. Additionally, we had $26.1 million of deferred tax assets related to U.S. Federal net operating loss (“NOL”) carryforwards, some of which will be carried forward for an unlimited period and some of which will expire between 2021 and 2036 and $7.0 million of deferred tax assets related to state NOL carryforwards, some of which will be carried forward for an unlimited period and some of which expire between 2020 and 2039. We had $22.6 million of deferred tax assets related to state tax credits, some of which will be carried forward for an unlimited period and some of which will expire between 2020 and 2034. During fiscal 2019, we fully utilized all of our domestic capital loss carryforwards.

The gross deferred tax assets as of September 30, 2019 were reduced by valuation allowances of $45.0 million primarily related to certain foreign deferred tax attributes and state tax credit carryforwards as it is more likely than not that some portion or all of these tax attributes will not be realized. In evaluating whether it is more likely than not that we would recover our deferred tax assets, future taxable income, the reversal of existing temporary differences and tax planning strategies were considered. We believe that our estimates for the valuation allowances recorded against deferred tax assets are appropriate based on current facts and circumstances.  During fiscal 2019, the valuation allowance decreased by $35.2 million. The decrease related primarily to the forfeiture of foreign net operating losses related to a legal entity reorganization. These net operating losses were previously reserved with a full valuation allowance thus the forfeiture of these net operating losses had no net impact to the current year tax expense.

We operate under tax holidays in both Singapore and Puerto Rico. The Singapore tax holiday is effective through 2019. We are currently negotiating a new multi-year arrangement to extend the incentive in Singapore. The Puerto Rico tax holiday is effective through 2025, but we have disposed of this operation and thus will not recognize any benefit in the future. Both incentives are conditional on meeting certain employment and/or investment thresholds. The impact of these tax holidays decreased foreign taxes by $5.2 million in fiscal 2019, $4.3 million in fiscal 2018 and $3.6 million in fiscal 2017. The benefit of the tax holidays on net income per diluted share was $0.08, $0.06 and $0.05 in fiscal 2019, 2018 and 2017.

With regard to our non-U.S. subsidiaries, it is our practice and intention to reinvest the earnings in those businesses, to fund capital expenditures and other operating cash needs. Because the undistributed earnings of non-U.S. subsidiaries are considered to be permanently reinvested, no U.S. deferred income taxes or foreign withholding taxes have been provided on earnings subsequent to the enactment of the Tax Act. As of September 30, 2019, we have approximately $50.6 million of undistributed earnings in our non-U.S. subsidiaries that are considered to be permanently reinvested. If such earnings were repatriated, we do not anticipate incurring a significant amount of additional tax expense.

We file a consolidated federal income tax return as well as multiple state, local and foreign jurisdiction tax returns. In the normal course of business, we are subject to examination by the taxing authorities in each of the jurisdictions where we file tax returns. In fiscal 2019, the U.S. Internal Revenue Service (“IRS”) concluded its audit of fiscal 2017 and initiated its post-filing examination of the fiscal 2018 consolidated federal return. We continue to participate in the IRS Compliance Assurance Program (“CAP”) for fiscal 2019 and fiscal 2020. We are in the application process to remain in the CAP for fiscal 2021. The CAP provides the opportunity for the IRS to review certain tax matters prior to us filing our tax return for the year, thereby reducing the time it takes to complete the post-filing examination. We are also subject to state and local or foreign income tax examinations by taxing authorities for years back to fiscal 2014.

We also have on-going audits in various stages of completion in several state and foreign jurisdictions, one or more of which may conclude within the next 12 months. Such settlements could involve some or all of the following: the payment of additional taxes and related penalties, the adjustment of certain deferred taxes and/or the recognition of unrecognized tax benefits. The resolution of these matters, in combination with the expiration of certain statutes of limitations in various jurisdictions, make it reasonably possible that our unrecognized tax benefits may decrease as a result of either payment or recognition by up to $7.3 million in the next 12 months, excluding interest.

The total amount of gross unrecognized tax benefits as of September 30, 2019, 2018 and 2017 were $9.6 million, $6.2 million and $4.5 million, which includes $9.3 million, $5.6 million and $3.3 million that, if recognized, would impact the effective tax rate in future periods. The remaining amount relates to items which, if recognized, would not impact our effective tax rate.

A rollforward of the beginning and ending amount of unrecognized tax benefits is as follows:
 
 
Year Ended September 30
 
 
2019
 
2018
 
2017
Balance as of October 1
 
$
6.2

 
$
4.5

 
$
5.1

Increases in tax position of prior years
 
5.8

 
2.3

 
0.1

Increases in tax position during the current year
 
—

 
0.3

 
—

Settlements with taxing authorities
 
(1.1
)
 
—

 
—

Lapse of applicable statute of limitations
 
(1.0
)
 
(0.9
)
 
(0.8
)
Foreign currency adjustments
 
(0.3
)
 
—

 
0.1

Total change
 
3.4


1.7


(0.6
)
Balance as of September 30
 
$
9.6


$
6.2


$
4.5



In fiscal 2019, we recorded a domestic reserve of $5.8 million related to an unrecognized tax benefit for a position related to the Transition Tax that we believe is not more likely than not of being sustained on audit.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties, which are not presented in the rollforward table above, were $1.7 million, $2.1 million and $2.6 million as of September 30, 2019, 2018 and 2017. Related to interest and penalties, we recognized an income tax benefit of $0.4 million in 2019, $0.5 million in 2018, and $0.4 million in 2017.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code which impacted the financial results of our fiscal year ended September 30, 2018, and continues to impact the financial results of the quarter and year to date periods ended September 30, 2019, including, but not limited to (1) reduced the U.S. Federal corporate tax rate, (2) required a one-time transition tax (“Transition Tax”) on certain unrepatriated earnings of foreign subsidiaries that may electively be paid over eight years, and (3) accelerated first year expensing of certain capital expenditures. The Tax Act reduces the U.S. Federal corporate tax rate from 35.0% to 21.0% effective January 1, 2018 for calendar year tax filers. Internal Revenue Code Section 15 provides that for fiscal 2018, we had a blended corporate tax rate of 24.5%, which was based on a proration of the applicable tax rates before and after the effective date of the Tax Act. The statutory tax rate of 21.0% applies to our current fiscal 2019 and beyond.

The Tax Act also puts in place new tax laws that will impact our taxable income beginning in fiscal 2019, which include, but are not limited to (1) creating a Base Erosion Anti-abuse Tax (“BEAT”), which is a tax on certain related-party payments that reduce the U.S. tax base, (2) generally eliminating U.S. Federal income taxes on dividends from foreign subsidiaries, (3) a new provision designed to tax currently GILTI, which allows for the possibility of utilizing foreign tax credits and a deduction equal to 50.0% to offset the income tax liability (subject to some limitations), (4) a provision that could limit the amount of deductible interest expense, (5) the repeal of the domestic production activity deduction replaced with an additional deduction for FDII, (6) limitations on the deductibility of certain executive compensation, and (7) limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.

Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provides guidance on accounting for the Tax Act’s impact. SAB 118 provided a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with the expiration of the SAB 118 measurement period, we completed the assessment of the income tax effects of the Tax Act in the first quarter of fiscal 2019 and further reduced our Transition Tax liability by $1.0 million in the first quarter of fiscal 2019.

The U.S. Internal Revenue Service and Treasury Department continue to release proposed guidance with respect to the Tax Act. We continue to evaluate what impact, if any, each piece of guidance may have on our related tax positions and our effective tax rate if, and when, such guidance is finalized.