Income Taxes

Income tax expense (benefit) for the years ended September 30, 2016, 2015, and 2014 was allocated as follows:



	Year Ended September 30,
(in millions)	2016			2015			2014
Income tax expense attributable to income from continuing operations	$	18.0		$	22.4		$	6.4
Income tax (benefit) expense attributable to loss from discontinued operations	—			—			(0.2		)
Taxes allocated to stockholders’ equity, related to unrealized gains (losses) on available-for-sale securities	—			(0.4		)	0.1
Taxes allocated to stockholders’ equity, related to pension liabilities	0.2			(0.8		)	(0.5		)
Taxes allocated to additional paid-in capital, related to share-based compensation	(0.8		)	(0.5		)	0.1
Total income tax expense	$	17.4		$	20.7		$	5.9

The components of the provision for income taxes attributable to income from continuing operations were as follows:



	Year Ended September 30,
(in millions)	2016			2015		2014
Current taxes:
U.S. federal	$	1.3		$	0.8	$	0.5
U.S. State and local	0.8			1.2		—
International	16.8			15.4		11.6
Total current taxes	18.9			17.4		12.1
Deferred taxes	(0.8		)	5.0		(5.7		)
Income tax benefit attributable to interest income	$	(0.1	)	$	—	$	—
Income tax expense	$	18.0		$	22.4	$	6.4

U.S. and international components of (loss) income from continuing operations, before income taxes, was as follows:



	Year Ended September 30,
(in millions)	2016		2015		2014
U.S.	$	4.9	$	14.5	$	(13.0	)
International	67.9		63.7		39.0
Income from continuing operations, before tax	$	72.8	$	78.2	$	26.0

Items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows:



	Year Ended September 30,
	2016		2015		2014
Federal statutory rate effect of:	35.0	%	35.0	%	35.0	%
U.S. State and local income taxes	1.3	%	1.8	%	—	%
Foreign earnings taxed at lower rates	(9.3	)%	(10.1	)%	(14.7	)%
Change in foreign valuation allowance	(0.3	)%	(0.1	)%	1.9	%
Change in state valuation allowance	—	%	0.6	%	(0.2	)%
Uncertain tax positions	—	%	—	%	(0.5	)%
U.S. permanent items	0.8	%	0.5	%	1.9	%
Foreign permanent items	0.2	%	1.1	%	7.0	%
U.S. bargain purchase gain	(3.0	)%	—	%	—	%
Other reconciling items	0.3	%	(0.1	)%	(5.7	)%
Effective rate	25.0	%	28.7	%	24.7	%

The components of deferred income tax assets and liabilities were as follows:



(in millions)	September 30, 2016			September 30, 2015
Deferred tax assets:
Share-based compensation	$	4.3		$	3.2
Pension liability	1.9			2.7
Deferred compensation	2.0			2.3
Foreign net operating loss carryforwards	2.0			2.3
U.S. State and local net operating loss carryforwards	4.9			4.3
U.S. federal net operating loss carryforwards	12.4			8.6
Intangible assets	8.3			4.6
Capital loss carryforwards	—			0.2
Bad debt reserve	1.6			2.4
Tax Credit Carryforwards	1.4			1.0
Other compensation	3.3			1.9
Other	1.8			1.3
Total gross deferred tax assets	43.9			34.8
Less valuation allowance	(3.6		)	(3.2		)
Deferred tax assets	40.3			31.6
Deferred income tax liabilities:
Unrealized gain on securities	1.3			1.0
Prepaid expenses	1.9			1.1
Fixed assets	2.6			1.3
Deferred income tax liabilities	5.8			3.4
Deferred income taxes, net	$	34.5		$	28.2

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.

As of September 30, 2016 and 2015, the Company has net operating loss carryforwards for U.S. federal, state, local, and foreign income tax purposes of $15.7 million and $12.0 million, net of valuation allowances, respectively, which are available to offset future taxable income in these jurisdictions. The U.S. federal net operating loss carryforward of $12.4 million begins to expire after September 2033. The state and local net operating loss carryforwards of $3.3 million, net of valuation allowance, begin to expire after September 2020. The Company has an Alternative Minimum Tax credit carryforward of $1.3 million, which has an indefinite life, and an R&D credit carryforward of $0.1 million that begins to expire after September 2031.

The valuation allowance for deferred tax assets as of September 30, 2016 was $3.6 million. The net change in the total valuation allowance for the year ended September 30, 2016 was an increase of $0.4 million. The valuation allowances as of September 30, 2016 and 2015 were primarily related to U.S. state and local and foreign net operating loss carryforwards that, in the judgment of management, are not more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company incurred U.S. federal, state, and local taxable income/(losses) for the years ended September 30, 2016, 2015, and 2014 of $(9.7) million, $16.5 million, and $(18.4) million, respectively. There are no significant differences between actual levels of past taxable income and the results of continuing operations, before income taxes in these jurisdictions. When evaluating if U.S. federal, state, and local deferred taxes are realizable, the Company considered deferred tax liabilities of $4.5 million that are scheduled to reverse from 2017 to 2019 and $1.3 million of deferred tax liabilities associated with unrealized gains in securities which the Company could sell, if necessary. Furthermore, the Company considered its ability to implement business and tax planning strategies that would allow the remaining U.S. federal, state, and local deferred tax assets, net of valuation allowances, to be realized within 11 years. Based on the tax planning strategies that can be implemented, management believes that it is more likely than not that the Company will realize the tax benefit of the deferred tax assets, net of the existing valuation allowance, in the future.

The total amount of undistributed earnings in the Company’s foreign subsidiaries, for income tax purposes, was $294.3 million and $227.2 million as of September 30, 2016 and 2015, respectively. It is the Company’s current intention to reinvest undistributed earnings of its foreign subsidiaries in the foreign jurisdictions, resulting in the indefinite postponement of the remittance of those earnings. Accordingly, no provision has been made for foreign withholding taxes or U.S. federal income taxes which may become payable if undistributed earnings of foreign subsidiaries were paid as dividends to the Company.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authority, based upon the technical merits of the position. The tax benefit recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

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



	Year Ended September 30,
(in millions)	2016		2015		2014
Balance, beginning of year	$	—	$	—	$	0.1
Gross increases for tax positions related to current year	—		—		—
Gross increases for tax positions related to prior years	0.1		—		—
Gross decreases for tax positions of prior years	—		—		(0.1		)
Settlements	—		—		—
Lapse of statute of limitations	—		—		—
Balance, end of year	$	0.1	$	—	$	—

The Company has a minimal balance of uncertain tax benefits as of September 30, 2016, that, if recognized, would affect the effective tax rate. While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, the Company does not expect this change to have a material impact on the results of operations or the financial position of the Company.

Accrued interest and penalties are included in the related tax liability line in the consolidated balance sheets. The Company had no accrued interest, net of federal benefit, and penalties included in the consolidated balance sheets as of September 30, 2016 and 2015.

The Company recognizes accrued interest and penalties related to income taxes as a component of income tax expense. The Company had no amount of interest, net of federal benefit, and penalties recognized as a component of income tax expense during the years ended September 30, 2016, 2015, and 2014.

The Company and its subsidiaries file income tax returns with the U.S. federal jurisdiction and various U.S. state and local and foreign jurisdictions. The Company has open tax years ranging from September 30, 2008 through September 30, 2016 with U.S. federal and state and local taxing authorities. In the U.K., the Company has open tax years ending September 30, 2015 to September 30, 2016. In Brazil, the Company has open tax years ranging from December 31, 2011 through December 31, 2015. In Argentina, the Company has open tax years ranging from September 30, 2009 to September 30, 2016. During the year ended September 30, 2016, the Company’s U.S. net operating loss carryback claim was reviewed by the Joint Committee of Taxation, and the Company received a full refund.