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Income Taxes | 12 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | 6. Income Taxes Pre-tax income was taxed in the following jurisdictions (in millions):
|  | Fiscal Year Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Domestic |  | $ | 429.7 |  |  | $ | 697.9 |  |  | $ | 514.9 |
Foreign |  |  | 9.4 |  |  |  | 52.8 |  |  |  | 79.7 |
|  | $ | 439.1 |  |  | $ | 750.7 |  |  | $ | 594.6 |
Significant components of the provision for income taxes were as follows (in millions):
|  | Fiscal Year Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Allocated to Income Before Earnings (Losses) of Unconsolidated Affiliates |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 70.1 |  |  | $ | 140.9 |  |  | $ | 92.0 |
Foreign |  |  | 8.2 |  |  |  | (0.2 | ) |  |  | 22.0 |
State |  |  | 12.1 |  |  |  | 20.2 |  |  |  | 12.9 |
Total current |  |  | 90.4 |  |  |  | 160.9 |  |  |  | 126.9 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 14.3 |  |  |  | 2.1 |  |  |  | 5.4 |
Foreign |  |  | 9.7 |  |  |  | 7.3 |  |  |  | (5.5 | )
State |  |  | (1.6 | ) |  |  | 1.0 |  |  |  | (3.0 | )
Total deferred |  |  | 22.4 |  |  |  | 10.4 |  |  |  | (3.1 | )
|  | $ | 112.8 |  |  | $ | 171.3 |  |  | $ | 123.8 |
Allocated to Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |
Deferred federal, state and foreign |  | $ | 8.8 |  |  | $ | (14.9 | ) |  | $ | 11.0 |
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense was:
|  | Fiscal Year Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Effective Rate Reconciliation |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 24.5 | %
State income taxes, net |  |  | 2.8 | % |  |  | 2.5 | % |  |  | 2.1 | %
Foreign taxes |  |  | 0.8 | % |  |  | -0.2 | % |  |  | 1.0 | %
Valuation allowance |  |  | 3.3 | % |  |  | -0.1 | % |  |  | -1.4 | %
Domestic tax credits |  |  | -3.2 | % |  |  | -1.0 | % |  |  | -2.1 | %
Manufacturing deduction |  |  | — | % |  |  | -0.1 | % |  |  | -1.6 | %
Foreign-derived intangible income deduction |  |  | -0.4 | % |  |  | -1.0 | % |  |  | — | %
Share-based compensation |  |  | — | % |  |  | 0.1 | % |  |  | -0.7 | %
Remeasurement of deferred taxes - U.S. Tax Reform |  |  | — | % |  |  | — | % |  |  | -5.1 | %
Mandatory repatriation tax - U.S. Tax Reform |  |  | — | % |  |  | 0.7 | % |  |  | 3.3 | %
Other, net |  |  | 1.4 | % |  |  | 0.9 | % |  |  | 0.8 | %
|  |  | 25.7 | % |  |  | 22.8 | % |  |  | 20.8 | %
During fiscal 2020, the Company recorded net discrete tax charges of $8.0 million (1.8% of pre-tax income), which included a valuation allowance against certain foreign net deferred tax assets in Europe of $11.5 million, offset in part by benefits related to excess tax deductions from share-based compensation. Fiscal 2020 also included a favorable provision to return adjustment for federal and state research credits. During fiscal 2019, the Company recorded net discrete tax charges of $1.9 million (0.3% of pre-tax income), which included charges related to new tax legislation in the United States, offset in part by benefits related to excess tax deductions from share-based compensation, provision to return adjustments for federal, state, and foreign jurisdictions and tax reserve releases due to expiration of statutes of limitations and other resolutions. During fiscal 2018, the Company recorded discrete tax benefits of $21.7 million (3.6% of pre-tax income), which included benefits related to excess tax deductions from share-based compensation, provision to return adjustments for federal, state, and foreign jurisdictions, tax reserve releases due to expiration of statutes of limitations and other resolutions, and new tax legislations in the United States. On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system, imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries (the “Transition Tax”), and creating new taxes on certain foreign-sourced earnings. The Company recorded a tax benefit of $30.2 million during fiscal 2018 as a result of the remeasurement of deferred tax assets and liabilities required as a result of the Tax Reform Act, which completed the Company’s remeasurement of deferred taxes under the Tax Reform Act. The Tax Reform Act also contained a provision that tied revenue recognition under U.S. GAAP to income reporting for tax purposes. Although the new provision accelerated the recognition of realized revenue, it did not change the definition of when revenue is realized for federal tax purposes. The Company has analyzed the new provision and concluded that revenue on U.S. defense contracts is not realized for federal tax purposes until customer acceptance. While the Company is expected to file its fiscal federal tax returns on this basis, the sustainment of this position is uncertain. If not sustained the recognition of revenue for federal tax purposes would be accelerated. The legislation provided no such acceleration of the related cost of sales, and accordingly the Company would temporarily be taxed on the revenue and not the income on the contract. The Company has recognized a deferred tax asset and income tax payable of $44.8 million and $61.0 million as of September 30, 2020 and September 30, 2019, respectively, related to this matter. Deferred income tax assets and liabilities were comprised of the following (in millions):
|  | September 30, |
|  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Other long-term liabilities |  | $ | 127.0 |  |  | $ | 126.0 |
Losses and credits |  |  | 34.8 |  |  |  | 27.9 |
Accrued warranty |  |  | 15.8 |  |  |  | 14.5 |
Other current liabilities |  |  | 17.7 |  |  |  | 15.0 |
Payroll-related obligations |  |  | 18.5 |  |  |  | 23.4 |
Other |  |  | 6.0 |  |  |  | 9.4 |
Gross deferred tax assets |  |  | 219.8 |  |  |  | 216.2 |
Less valuation allowance |  |  | (17.4 | ) |  |  | (1.1 | )
Deferred tax assets, net |  |  | 202.4 |  |  |  | 215.1 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | (42.2 | ) |  |  | (40.0 | )
Property, plant and equipment |  |  | (55.9 | ) |  |  | (50.5 | )
Inventories |  |  | (18.6 | ) |  |  | (14.1 | )
Other |  |  | (7.1 | ) |  |  | (2.6 | )
Deferred tax liabilities |  |  | (123.8 | ) |  |  | (107.2 | )
Deferred tax assets, net of deferred tax liabilities |  | $ | 78.6 |  |  | $ | 107.9 |
The net deferred tax asset is classified in the Consolidated Balance Sheets as follows (in millions):
|  | September 30, |
|  | 2020 |  |  | 2019 |
Long-term net deferred tax asset |  | $ | 78.6 |  |  | $ | 107.9 |
Long-term net deferred tax liability |  |  | — |  |  |  | — |
Net deferred tax asset (liability) |  | $ | 78.6 |  |  | $ | 107.9 |
As of September 30, 2020, the Company had $42.0 million of net operating loss carryforwards available to reduce future taxable income of certain foreign subsidiaries in countries which allow such losses to be carried forward anywhere from seven years to an unlimited period. In addition, the Company had $167.7 million of state net operating loss carryforwards, which can be carried forward anywhere from five years to an unlimited period and state credit carryforwards of $25.8 million, which are subject to expiration in 2026 to 2035. Deferred tax assets for foreign net operating loss carryforwards, state net operating loss carryforwards and state credit carryforwards were $10.7 million, $6.6 million and $17.2 million, respectively. Amounts are reviewed for recoverability based on historical taxable income, the expected reversals of existing temporary differences, tax-planning strategies and projections of future taxable income. The Company maintains a valuation allowance against foreign deferred tax assets of $17.4 million as of September 30, 2020. At September 30, 2020, the Company had undistributed earnings of $392.5 million from its investment in non-U.S. subsidiaries. The Company has not recognized deferred tax liabilities for temporary differences related to the Company’s foreign operations as the Company considers that its undistributed earnings are intended to be indefinitely reinvested. Should the Company’s undistributed earnings from its investment in non-U.S. subsidiaries be distributed in the future in the form of dividends or otherwise, the Company may be subject to foreign and domestic income taxes and withholding taxes estimated at $24.3 million, including the impact of the regulations discussed below. On August 21, 2020, the U.S. Treasury Department and the U.S. Internal Revenue Service released final regulations related to the Tax Reform Act (the “final tax regulations”) related to the foreign dividends received deduction and global intangible low-taxed income. The final tax regulations contained language that modified certain provisions of the Tax Reform Act and previously issued guidance and are effective retroactively to the Company’s 2018 tax year and purport to cause certain intercompany transactions the Company engaged in during 2018 to produce U.S. taxable income upon a subsequent distribution from a controlled foreign corporation. The Company has analyzed the tax regulations and concluded that the U.S. Treasury Department exceeded regulatory authority and that the temporary tax regulations are contrary to the congressional intent of the underlying statute. The Company believes it has strong arguments in favor of its position and that it has met the more likely than not recognition threshold that its position will be sustained. The Company intends to vigorously defend its position, however, due to the uncertainty involved in challenging the validity of regulations as well as a potential litigation process, there can be no assurances that the temporary tax regulations will be invalidated, modified or that a court of law will rule in favor of the Company. An unfavorable resolution of this issue would result in $18.4 million of tax liability which is included in the $24.3 million disclosed withholding tax above. A reconciliation of gross unrecognized tax benefits, excluding interest and penalties, was as follows (in millions):
|  | Fiscal Year Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Balance at beginning of year |  | $ | 97.3 |  |  | $ | 33.7 |  |  | $ | 37.2 |
Additions for tax positions related to current year |  |  | 46.2 |  |  |  | 63.3 |  |  |  | 4.2 |
Additions for tax positions related to prior years |  |  | 1.4 |  |  |  | 5.4 |  |  |  | 5.4 |
Reductions for tax positions related to prior years |  |  | (61.8 | ) |  |  | (0.8 | ) |  |  | (7.1 | )
Settlements |  |  | (1.3 | ) |  |  | (0.9 | ) |  |  | (4.1 | )
Lapse of statutes of limitations |  |  | (2.0 | ) |  |  | (3.4 | ) |  |  | (1.9 | )
Balance at end of year |  | $ | 79.8 |  |  | $ | 97.3 |  |  | $ | 33.7 |
As of September 30, 2020, net unrecognized tax benefits of $17.2 million would affect the Company’s effective tax rate if recognized. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in the “Provision for income taxes” in the Consolidated Statements of Income. During fiscal 2020, 2019 and 2018, the Company recognized expense of $1.3 million, expense of $0.1 million and income of $3.7 million related to interest and penalties, respectively. At September 30, 2020 and 2019, the Company had accruals for the payment of interest and penalties of $5.7 million and $4.4 million, respectively. During fiscal 2021, it is reasonably possible that federal, state and foreign tax audit resolutions could reduce unrecognized tax benefits by approximately $7.3 million, either because the Company’s tax positions are sustained on audit, because the Company agrees to their disallowance or the statute of limitations closes. The Company files federal income tax returns, as well as multiple state, local and non-U.S. jurisdiction tax returns. The Company is regularly audited by federal, state and foreign tax authorities. As of September 30, 2020, tax years open for examination under applicable statutes were as follows:
Tax Jurisdiction |  | Open Tax Years
Australia |  | 2013 - 2020
Belgium |  | 2018 - 2020
Brazil |  | 2015 - 2020
Canada |  | 2016 - 2020
China |  | 2015 - 2020
Mexico |  | 2016 - 2020
Romania |  | 2014 - 2020
Netherlands |  | 2014 - 2020
United Kingdom |  | 2017 - 2020
Other Non-U.S. Countries |  | 2014 - 2020
United States (federal general) |  | 2016 - 2020
United States (federal limited scope) |  | 2012 - 2016
United States (state and local) |  | 2006 - 2020

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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