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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | 7. Income Taxes Pre-tax income was taxed in the following jurisdictions (in millions):
|  | Year Ended December 31, |  |  | (transition period) Three Months Ended December 31, |  |  | Year Ended September 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2021 |
Domestic |  | $ | 705.9 |  |  | $ | 243.1 |  |  | $ | 16.8 |  |  | $ | 489.0 |
Foreign |  |  | 91.7 |  |  |  | 32.5 |  |  |  | 7.4 |  |  |  | 56.3 |
|  | $ | 797.6 |  |  | $ | 275.6 |  |  | $ | 24.2 |  |  | $ | 545.3 |
Significant components of the provision for income taxes were as follows (in millions):
|  | Year Ended December 31, |  |  | (transition period) Three Months Ended December 31, |  |  | Year Ended September 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2021 |
Allocated to Income Before Losses of Unconsolidated Affiliates |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 268.4 |  |  | $ | 98.1 |  |  | $ | 168.3 |  |  | $ | (94.7 | )
Foreign |  |  | 29.9 |  |  |  | 42.0 |  |  |  | 1.0 |  |  |  | 8.5 |
State |  |  | 52.1 |  |  |  | 10.9 |  |  |  | 11.4 |  |  |  | 22.8 |
Total current |  |  | 350.4 |  |  |  | 151.0 |  |  |  | 180.7 |  |  |  | (63.4 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (126.0 | ) |  |  | (53.3 | ) |  |  | (166.4 | ) |  |  | 119.3 |
Foreign |  |  | (8.0 | ) |  |  | (1.4 | ) |  |  | (0.5 | ) |  |  | (5.6 | )
State |  |  | (26.4 | ) |  |  | 1.2 |  |  |  | (12.6 | ) |  |  | (13.9 | )
Total deferred |  |  | (160.4 | ) |  |  | (53.5 | ) |  |  | (179.5 | ) |  |  | 99.8 |
|  | $ | 190.0 |  |  | $ | 97.5 |  |  | $ | 1.2 |  |  | $ | 36.4 |
Allocated to Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |
Deferred federal, state and foreign |  | $ | 1.8 |  |  | $ | (19.2 | ) |  | $ | (2.8 | ) |  | $ | (20.0 | )
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense was:
|  | Year Ended December 31, |  |  | (transition period) Three Months Ended December 31, |  |  | Year Ended September 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2021 |
Effective Rate Reconciliation |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State income taxes, net |  |  | 2.5 | % |  |  | 3.9 | % |  |  | 2.7 | % |  |  | 2.2 | %
Foreign taxes |  |  | 1.0 | % |  |  | 13.7 | % |  |  | 5.0 | % |  |  | 1.6 | %
Tax audit settlements |  |  | — | % |  |  | 0.1 | % |  |  | — | % |  |  | -0.9 | %
Valuation allowance |  |  | 0.7 | % |  |  | -0.1 | % |  |  | 3.0 | % |  |  | -1.2 | %
Domestic tax credits |  |  | -1.8 | % |  |  | -3.0 | % |  |  | -15.8 | % |  |  | -2.3 | %
Foreign-derived intangible income deduction |  |  | -0.2 | % |  |  | -0.9 | % |  |  | -8.9 | % |  |  | — | %
Global intangible low-taxed income, net |  |  | — | % |  |  | 0.6 | % |  |  | -1.6 | % |  |  | 0.2 | %
Share-based compensation |  |  | 0.4 | % |  |  | 0.3 | % |  |  | -5.2 | % |  |  | — | %
CARES Act net operating loss carryback |  |  | 0.3 | % |  |  | -0.9 | % |  |  | — | % |  |  | -13.8 | %
Other, net |  |  | -0.1 | % |  |  | 0.7 | % |  |  | 4.8 | % |  |  | -0.1 | %
|  |  | 23.8 | % |  |  | 35.4 | % |  |  | 5.0 | % |  |  | 6.7 | %
Foreign taxes in 202 2 reflected a charge of $31.3 million as the Company revised its interpretation of certain foreign anti-hybrid tax legislation based upon comments from the corresponding taxing authorities, of which $3.5 million related to the three months ended December 31, 2021 and $14.6 million related to fiscal 202 1. 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. During 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 net operating loss of approximately $800 million in fiscal 2021. 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 reflected 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 certain tax positions taken, of which $3.7 million impacted the Company’s provision for income taxes in fiscal 2021. The Company recorded a net discrete tax benefit of $2.7 million in 2023 primarily as a result of the release of reserves due to the expiration of statutes of limitations in foreign jurisdictions. The Company recorded net discrete tax charges of $18.9 million in 2022, which included a discrete tax charge of $18.1 million related to anti-hybrid taxes. During the three months ended December 31, 2021, the Company recorded a net discrete benefit of $1.9 million, primarily related to excess tax deductions from share-based compensation. During fiscal 2021, the Company recorded net discrete tax benefits of $96.0 million, which included the 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. Deferred income tax assets and liabilities were comprised of the following (in millions):
|  | December 31, |
|  | 2023 |  |  | 2022 |
Deferred tax assets: |  |  |  |  |  |
Other long-term liabilities |  | $ | 35.0 |  |  | $ | 41.3 |
Research & Development |  |  | 87.8 |  |  |  | 84.5 |
Losses and credits |  |  | 37.6 |  |  |  | 44.5 |
Accrued warranty |  |  | 14.3 |  |  |  | 13.4 |
Other current liabilities |  |  | 26.8 |  |  |  | 21.6 |
Customer advances |  |  | 182.0 |  |  |  | 75.3 |
Payroll-related obligations |  |  | 21.2 |  |  |  | 13.1 |
Other |  |  | 28.4 |  |  |  | 15.8 |
Gross deferred tax assets |  |  | 433.1 |  |  |  | 309.5 |
Less valuation allowance |  |  | (12.0 | ) |  |  | (6.2 | )
Deferred tax assets, net |  |  | 421.1 |  |  |  | 303.3 |
Deferred tax liabilities: |  |  |  |  |  |
Intangible assets |  |  | (81.7 | ) |  |  | (55.6 | )
Property, plant and equipment |  |  | (30.6 | ) |  |  | (30.9 | )
Inventories |  |  | (6.1 | ) |  |  | (35.0 | )
Other |  | $ | (67.5 | ) |  |  | (47.0 | )
Deferred tax liabilities |  |  | (185.9 | ) |  |  | (168.5 | )
Net deferred tax asset (liability) |  | $ | 235.2 |  |  | $ | 134.8 |
The increase in deferred tax assets for customer advances relates to customer advances remaining in the Company's possession for a longer period of time. For tax purposes, the Company generally can only defer income on customer advances until the year after receipt. As the Company's backlog extends beyond one year, a greater number of customer advances have been recognized in income for tax purposes prior to recognition of revenue for book purposes. The net deferred tax asset is classified in the Consolidated Balance Sheets as follows (in millions):
|  | December 31, |
|  | 2023 |  |  | 2022 |
Long-term net deferred tax asset |  | $ | 262.0 |  |  | $ | 134.8 |
Long-term net deferred tax liability |  |  | (26.8 | ) |  |  | — |
Net deferred tax asset (liability) |  | $ | 235.2 |  |  | $ | 134.8 |
As of December 31, 2023, the Company had $19.1 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 five years to an unlimited period. In addition, the Company had $200.4 million of state net operating loss carryforwards, which can be carried forward anywhere from ten years to an unlimited period and state credit carryforwards of $29.3 million, which are subject to expiration in 2028 to 2038. Deferred tax assets for foreign net operating loss carryforwards, state net operating loss carryforwards, state tax credit carryforwards and foreign tax credit carryforwards were $4.9 million, $7.2 million, $18.6 million and $6.9 million, respectively, as of December 31, 2023. 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 domestic deferred tax assets of $4.6 million, state tax credit carryforwards of $0.2 million, foreign net operating loss carryforwards of $2.1 million and foreign tax credit deferred tax assets of $5.1 million as of December 31, 2023. At December 31, 2023, the Company had undistributed earnings of $469.2 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 $26.8 million, including the impact of the r egulations discussed below. On August 21, 2020, the U.S. Treasury Department and the IRS released final regulations related to the Tax Reform Act (the “tax regulations”) and the foreign dividends received deduction and global intangible low-taxed income. The 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 fiscal 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 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 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 $19.2 million of tax liability if the Company were to distribute the earnings to the United States, which is included in the $26.8 million disclosed withholding tax above. A reconciliation of gross unrecognized tax benefits, excluding interest and penalties, was as follows (in millions):
|  | Year Ended December 31, |  |  | (transition period) Three Months Ended December 31, |  |  | Year Ended September 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2021 |
Balance at beginning of period |  | $ | 98.8 |  |  | $ | 41.5 |  |  | $ | 46.0 |  |  | $ | 79.8 |
Additions for tax positions related to current year |  |  | 5.0 |  |  |  | 50.2 |  |  |  | 0.5 |  |  |  | 15.8 |
Additions for tax positions related to prior years |  |  | 0.7 |  |  |  | 20.9 |  |  |  | — |  |  |  | 0.6 |
Reductions for tax positions related to prior years |  |  | (36.5 | ) |  |  | (10.0 | ) |  |  | (5.0 | ) |  |  | (46.0 | )
Foreign currency translation |  |  | 0.3 |  |  |  | (1.9 | ) |  |  | — |  |  |  | — |
Lapse of statutes of limitations |  |  | (4.0 | ) |  |  | (1.9 | ) |  |  | — |  |  |  | (4.2 | )
Balance at end of period |  | $ | 64.3 |  |  | $ | 98.8 |  |  | $ | 41.5 |  |  | $ | 46.0 |
As of December 31, 2023, net unrecognized tax benefits of $51.4 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. The Company recognized net interest and penalties income of $0.3 million in 2023. The Company recognized net interest and penalties expense of $0.1 million in both 2022 and the three months ended December 31, 2021. The Company recognized net interest and penalties income of $0.9 million in fiscal 2021. The Company had accruals for the payment of interest and penalties of $7.9 million and $4.7 million at December 31, 2023 and 2022, respectively. During 2024, it is reasonably possible that federal, state and foreign tax audit resolutions could reduce unrecognized tax benefits by $1.0 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 December 31, 2023, tax years open for examination under applicable statutes were as follows:
Tax Jurisdiction |  | Open Tax Years
Australia |  | 2019 - 2023
Belgium |  | 2020 - 2023
Brazil |  | 2019 - 2023
Canada |  | 2019 - 2023
China |  | 2018 - 2023
Mexico |  | 2019 - 2023
Netherlands |  | 2018 - 2023
United Kingdom |  | 2022 - 2023
Other Non-U.S. Countries |  | 2017 - 2023
United States (federal general) |  | 2016 - 2023
United States (state and local) |  | 2013 - 2023

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