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Income Taxes | 12 Months Ended
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Sep. 30, 2021
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, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Domestic |  | $ | 441.6 |  |  | $ | 429.7 |  |  | $ | 697.9 |
Foreign |  |  | 56.3 |  |  |  | 9.4 |  |  |  | 52.8 |
|  | $ | 497.9 |  |  | $ | 439.1 |  |  | $ | 750.7 |
Significant components of the provision for income taxes were as follows (in millions):
|  | Fiscal Year Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Allocated to Income Before Losses of Unconsolidated Affiliates |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (94.7 | ) |  | $ | 70.1 |  |  | $ | 140.9 |
Foreign |  |  | 8.5 |  |  |  | 8.2 |  |  |  | (0.2 | )
State |  |  | 22.8 |  |  |  | 12.1 |  |  |  | 20.2 |
Total current |  |  | (63.4 | ) |  |  | 90.4 |  |  |  | 160.9 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 108.1 |  |  |  | 14.3 |  |  |  | 2.1 |
Foreign |  |  | (5.6 | ) |  |  | 9.7 |  |  |  | 7.3 |
State |  |  | (13.9 | ) |  |  | (1.6 | ) |  |  | 1.0 |
Total deferred |  |  | 88.6 |  |  |  | 22.4 |  |  |  | 10.4 |
|  | $ | 25.2 |  |  | $ | 112.8 |  |  | $ | 171.3 |
Allocated to Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |
Deferred federal, state and foreign |  | $ | (20.0 | ) |  | $ | 8.8 |  |  | $ | (14.9 | )
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense was:
|  | Fiscal Year Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Effective Rate Reconciliation |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State income taxes, net |  |  | 2.2 | % |  |  | 2.8 | % |  |  | 2.5 | %
Foreign taxes |  |  | 1.7 | % |  |  | 0.8 | % |  |  | -0.2 | %
Tax audit settlements |  |  | -1.0 | % |  |  | — | % |  |  | — | %
Valuation allowance |  |  | -1.3 | % |  |  | 3.3 | % |  |  | -0.1 | %
Domestic tax credits |  |  | -2.5 | % |  |  | -3.2 | % |  |  | -1.0 | %
Foreign-derived intangible income deduction |  |  | — | % |  |  | -0.4 | % |  |  | -1.0 | %
Mandatory repatriation tax - U.S. Tax Reform |  |  | — | % |  |  | — | % |  |  | 0.7 | %
CARES Act net operating loss carryback |  |  | -15.1 | % |  |  | — | % |  |  | — | %
Other, net |  |  | 0.1 | % |  |  | 1.4 | % |  |  | 0.9 | %
|  |  | 5.1 | % |  |  | 25.7 | % |  |  | 22.8 | %
Under U.S. Internal Revenue Service (IRS) procedures, a taxpayer can change automatic tax accounting methods without explicit prior IRS consent, but they are generally required to maintain the new tax accounting method for five years. In 2019, acknowledging that taxpayers may require multiple tax accounting method changes associated with the implementation of the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), the IRS waived the five-year “eligibility rule” for certain tax accounting method changes for the first three years ending on or after November 20, 2018. Citing a need to help companies impacted by the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows a taxpayer to carryback net operating losses generated in years beginning after December 31, 2017 and before January 1, 2021 for five years. In fiscal 2021, the Company implemented a plan to make certain tax accounting method changes and change the timing of certain deductible payments. The plan generated a fiscal 2021 net operating loss of approximately $800 million. The Company was able to carryback the net operating loss to prior tax years with higher federal statutory rates. The Company’s effective tax rate for fiscal 2021 reflects a discrete tax benefit of $75.3 million related to this plan. Certain tax positions taken to implement the plan are highly complex and subject to judgmental estimates. The Company recorded a liability for unrecognized tax benefits of $13.6 million reflecting the uncertainty of those tax positions, of which $3.7 million impacted the Company’s provision for income taxes. During fiscal 2021, the Company recorded net discrete tax benefits of $96.0 million, which included a discrete tax benefit of $75.3 million as a result of the net operating losses (NOL) carrybacks and a discrete benefit of $11.7 million related to the release of a valuation allowance against certain foreign net deferred tax assets in Europe. During fiscal 2020, the Company recorded net discrete tax charges of $8.0 million, which included a valuation allowance against certain foreign net deferred tax assets in Europe of $11.4 million, offset in part by benefits related to excess tax deductions from share-based compensation. During fiscal 2019, the Company recorded discrete tax charges of $1.9 million, 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. The Tax Reform Act contains a provision that requires recognition of revenue for tax purposes no later than when recognized in an audited financial statement. The Company determined that revenue from the sale of goods under U.S. defense production contracts was not required to be recognized under this provision until customer acceptance. The Company filed its fiscal 2019 tax returns on this basis and originally intended to file its fiscal 2020 tax returns on this basis. The U.S. Treasury Department released regulations in January 2021 providing for a method to defer a portion of the revenue that would otherwise be recognized under the provision of the Tax Reform Act. The Company intends to early apply the regulations for purposes of its fiscal 2021 tax returns and adopt this revenue deferral method. In addition, the Company changed its position regarding the realization of revenue under U.S. production contracts and filed its fiscal 2020 tax returns following the provision of the Tax Reform Act and intends to similarly amend its fiscal 2019 tax returns. The deferred taxes and noncurrent liabilities on the balance sheet for the position intended to be taken on the fiscal 2020 tax returns have been reversed. The Company has recorded an accrual to the income tax payable for tax due with the amended fiscal 2019 tax returns including estimated interest charges by the IRS. Deferred income tax assets and liabilities were comprised of the following (in millions):
|  | September 30, |
|  | 2021 |  |  | 2020 |
Deferred tax assets: |  |  |  |  |  |  |  |
Other long-term liabilities |  | $ | 57.3 |  |  | $ | 127.0 |
Losses and credits |  |  | 61.5 |  |  |  | 34.8 |
Accrued warranty |  |  | 16.3 |  |  |  | 15.8 |
Other current liabilities |  |  | 24.5 |  |  |  | 17.7 |
Payroll-related obligations |  |  | 26.2 |  |  |  | 18.5 |
Other |  |  | 8.9 |  |  |  | 6.0 |
Gross deferred tax assets |  |  | 194.7 |  |  |  | 219.8 |
Less valuation allowance |  |  | (6.2 | ) |  |  | (17.4 | )
Deferred tax assets, net |  |  | 188.5 |  |  |  | 202.4 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | (51.6 | ) |  |  | (42.2 | )
Property, plant and equipment |  |  | (143.9 | ) |  |  | (55.9 | )
Inventories |  |  | (18.0 | ) |  |  | (18.6 | )
Other |  |  | (40.6 | ) |  |  | (7.1 | )
Deferred tax liabilities |  |  | (254.1 | ) |  |  | (123.8 | )
Net deferred tax asset (liability) |  | $ | (65.6 | ) |  | $ | 78.6 |
The net deferred tax asset is classified in the Consolidated Balance Sheets as follows (in millions):
|  | September 30, |
|  | 2021 |  |  | 2020 |
Long-term net deferred tax asset |  | $ | 8.3 |  |  | $ | 78.6 |
Long-term net deferred tax liability |  |  | (73.9 | ) |  |  | — |
Net deferred tax asset (liability) |  | $ | (65.6 | ) |  | $ | 78.6 |
As of September 30, 2021, the Company had $17.7 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 $40.4 billion of state net operating loss carryforwards, which can be carried forward anywhere from five years to an unlimited period and state credit carryforwards of $28.9 million, which are subject to expiration in 2027 to 2036. Deferred tax assets for foreign net operating loss carryforwards, state net operating loss carryforwards, state credit carryforwards and foreign tax credit carryforwards were $4.5 million, $30.7 million, $19.8 million and $6.4 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 $0.8 million and foreign tax credit deferred tax assets of $5.4 million as of September 30, 2021. At September 30, 2021, the Company had undistributed earnings of $380.4 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 $22.4 million, including the impact of the regulations discussed below. On August 21, 2020, the U.S. Treasury Department and the IRS released final regulations related to the Tax Reform Act (the “final tax regulations”) and 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 $22.4 million disclosed withholding tax above. The payment of such liability would only occur if the undistributed earnings were distributed. A reconciliation of gross unrecognized tax benefits, excluding interest and penalties, was as follows (in millions):
|  | Fiscal Year Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Balance at beginning of year |  | $ | 79.8 |  |  | $ | 97.3 |  |  | $ | 33.7 |
Additions for tax positions related to current year |  |  | 15.8 |  |  |  | 46.2 |  |  |  | 63.3 |
Additions for tax positions related to prior years |  |  | 0.6 |  |  |  | 1.4 |  |  |  | 5.4 |
Reductions for tax positions related to prior years |  |  | (46.0 | ) |  |  | (61.8 | ) |  |  | (0.8 | )
Settlements |  |  | — |  |  |  | (1.3 | ) |  |  | (0.9 | )
Lapse of statutes of limitations |  |  | (4.2 | ) |  |  | (2.0 | ) |  |  | (3.4 | )
Balance at end of year |  | $ | 46.0 |  |  | $ | 79.8 |  |  | $ | 97.3 |
As of September 30, 2021, net unrecognized tax benefits of $21.9 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 2021, 2020 and 2019, the Company recognized expense of $0.7 million, $1.3 million and $0.1 million related to interest and penalties, respectively. At September 30, 2021 and 2020, the Company had accruals for the payment of interest and penalties of $6.4 million and $5.7 million, respectively. During fiscal 2022, it is reasonably possible that federal, state and foreign tax audit resolutions could reduce unrecognized tax benefits by approximately $2.8 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. In addition to the interest related to uncertain tax positions, the Company recognized net interest income of $1.6 million related to federal income tax refunds in fiscal 2021. 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, 2021, tax years open for examination under applicable statutes were as follows:
Tax Jurisdiction |  | Open Tax Years
Australia |  | 2016 - 2021
Belgium |  | 2019 - 2021
Brazil |  | 2016 - 2021
Canada |  | 2017 - 2021
China |  | 2016 - 2021
Mexico |  | 2017 - 2021
Romania |  | 2016 - 2021
Netherlands |  | 2015 - 2021
United Kingdom |  | 2019 - 2021
Other Non-U.S. Countries |  | 2015 - 2021
United States (federal general) |  | 2018 - 2021
United States (state and local) |  | 2007 - 2021

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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=121826272&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=122134291&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=121826272&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=122134291&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=121826272&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 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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