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INCOME TAXES
 12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income tax expense was calculated based upon the following components of income (loss) from operations before income taxes for the years ended September 30, 2021, 2020 and 2019:
SBH
SB/RH
(in millions)
202120202019202120202019
United States
$(147.2)$(42.0)$(369.7)$(143.8)$(110.8)$(312.9)
Outside the United States
136.1 16.9 15.5 136.1 16.9 15.5 
Loss from continuing operations before income taxes$(11.1)$(25.1)$(354.2)$(7.7)$(93.9)$(297.4)
The components of income tax expense for the years ended September 30, 2021, 2020 and 2019 are as follows:
SBH
SB/RH
(in millions)
202120202019202120202019
Current tax expense (benefit):
U.S. Federal
$3.0 $0.3 $(47.6)$3.0 $0.3 $(47.6)
Foreign
32.6 2.2 29.2 32.6 2.2 29.2 
State and local
2.4 0.2 2.4 2.4 0.2 2.4 
Total current tax expense (benefit)38.0 2.7 (16.0)38.0 2.7 (16.0)
Deferred tax (benefit) expense:
U.S. Federal
(64.8)9.1 (19.6)(63.4)(5.1)(7.1)
Foreign
5.9 1.1 (3.2)5.9 1.1 (3.2)
State and local
(5.5)14.4 (13.2)(5.5)15.8 (9.8)
Total deferred tax (benefit) expense
(64.4)24.6 (36.0)(63.0)11.8 (20.1)
Income tax (benefit) expense
$(26.4)$27.3 $(52.0)$(25.0)$14.5 $(36.1)
The following reconciles the total income tax expense, based on the U.S. Federal statutory income tax rate of 21% with the Company’s recognized income tax expense:
SBH
SB/RH
(in millions)
202120202019202120202019
U.S. Statutory federal income tax benefit$(2.3)$(5.3)$(74.4)$(1.6)$(19.7)$(62.4)
Permanent items13.9 13.6 2.6 13.9 13.6 2.7 
Goodwill impairment— 2.8 12.2 — 2.8 12.2 
Foreign statutory rate vs. U.S. statutory rate(6.2)(13.8)(9.2)(6.2)(13.8)(9.2)
State income taxes, net of federal effect(8.7)(0.6)(17.6)(8.7)(3.1)(14.7)
State effective rate change2.6 7.2 4.6 2.6 7.8 4.6 
UK effective rate change8.2 — — 8.2 — — 
GILTI4.9 3.7 2.6 4.9 3.7 2.6 
GILTI impact of retroactive law changes(18.1)— — (18.1)— — 
Foreign dividend received deduction tax law change— — 95.9 — — 95.9 
Tax reform act - mandatory repatriation— — (48.0)— — (48.0)
Residual tax on foreign earnings2.6 6.0 0.2 2.6 6.0 0.2 
Change in valuation allowance(27.1)9.9 (29.9)(27.1)9.8 (30.0)
Unrecognized tax expense (benefit)0.2 (8.5)7.5 0.2 (8.5)7.5 
Share based compensation adjustments(0.7)0.1 4.3 0.1 0.5 4.3 
Research and development tax credits(2.4)(1.6)(3.1)(2.4)(1.6)(3.1)
Foreign rate differential on intercompany transfer of intangibles— 4.6 — — 4.6 — 
Partnership outside basis adjustment5.5 5.9 2.1 5.5 5.9 2.4 
Return to provision adjustments and other, net1.2 3.3 (1.8)1.1 6.5 (1.1)
Income tax (benefit) expense $(26.4)$27.3 $(52.0)$(25.0)$14.5 $(36.1)
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of September 30, 2021 and 2020 are as follows:
SBH
SB/RH
(in millions)
2021202020212020
Deferred tax assets
Employee benefits$36.7 $34.8 $36.6 $33.2 
Inventories and receivables25.1 18.3 25.1 18.3 
Marketing and promotional accruals17.0 14.9 17.0 14.9 
Property, plant and equipment0.6 2.3 0.6 2.3 
Unrealized losses19.1 19.1 19.1 19.1 
Intangibles10.0 13.6 10.0 13.6 
Operating lease liabilities25.9 23.1 25.9 23.1 
Net operating loss and other carry forwards
563.5 511.7 245.5 186.5 
Other36.1 39.1 32.9 38.1 
Total deferred tax assets734.0 676.9 412.7 349.1 
Deferred tax liabilities
Property, plant and equipment9.4 8.2 9.4 8.2 
Unrealized gains10.5 13.6 10.5 13.6 
Intangibles287.9 287.1 287.9 287.2 
Operating lease assets23.5 20.5 23.5 20.5 
Investment in partnership69.6 63.3 69.3 63.0 
Taxes on unremitted foreign earnings1.8 1.4 1.8 1.4 
Other24.1 16.6 24.0 16.6 
Total deferred tax liabilities426.8 410.7 426.4 410.5 
Net deferred tax liabilities307.2 266.2 (13.7)(61.4)
Valuation allowance(349.4)(302.5)(245.1)(198.2)
Net deferred tax liabilities, net valuation allowance$(42.2)$(36.3)$(258.8)$(259.6)
Reported as:
Deferred charges and other$17.3 $18.9 $13.6 $18.9 
Deferred taxes (noncurrent liability)59.5 55.2 272.4 278.5 
On November 20, 2020, the U.S. Treasury and the Internal Revenue Service issued Final Regulations (“November 2020 Regulations”) under Internal Revenue Code Sections 245A and 951A related to the treatment of previously disqualified basis under the GILTI regime. The November 2020 Regulations are effective for Fiscal 2022, but the Company can elect to apply them to Fiscal 2018 through Fiscal 2021. The Company expects that the sale of the HHI segment will allow use of tax benefits for years prior to Fiscal 2020 that would have been subject to federal and state tax limitations on the use of carryforwards absent the HHI sale. The Company expects to satisfy the requirements necessary to apply the Regulations retroactively and has therefore estimated and recorded a benefit of $11.4 million for the impact on years prior to Fiscal 2021 in the year ended September 30, 2021, with a benefit of $5.8 million recorded in the fourth quarter ended September 30, 2021 due to the HHI sale. The Company also expects to apply the Regulations to Fiscal 2021 and has included the impact in Fiscal 2021 income tax expense.
On July 20, 2020, Final Regulations were issued under Internal Revenue Code Section 951A relating to the treatment of income that is subject to a high rate of tax under the global intangible low taxed income (“GILTI“) regime (“July 2020 Regulations“). The July 2020 Regulations are effective for Fiscal 2021, but the Company can elect to apply them to Fiscal 2019 and Fiscal 2020. The Company has applied the July 2020 Regulations to Fiscal 2020 and recorded a Fiscal 2020 benefit of $4.4 million. The Company expects that the sale of the HHI segment will allow use of tax benefits for years prior to Fiscal 2020 that would have been subject to federal and state tax limitations on the use of carryforwards absent the HHI sale. The Company expects to apply the July 2020 Regulations to Fiscal 2019 by filing an amended return. Therefore a benefit of $6.7 million has been recorded for the year ended September 30, 2021.
On June 14, 2019, the U.S. Department of the Treasury and the Internal Revenue Service issued Regulations (“June 2019 Regulations”) related to the foreign dividends received deduction and GILTI. The June 2019 Regulations contained language that modified certain provisions of the Tax Cuts and Jobs Act (the “Tax Reform Act“) and previously issued guidance. The June 2019 Regulations were retroactive to January 1, 2018 and caused certain distributions made by the Company’s non-U.S. subsidiaries during Fiscal 2018 to be taxable as Subpart F income on its Fiscal 2018 federal income tax return. The impacts of the Regulations were recorded in the year ended September 30, 2019. The Company used an additional $454.6 million in net operating losses and recognized $95.9 million in federal and state tax expense due to the impact on prior distributions among subsidiaries. The Company also recognized a $48.0 million tax benefit from recalculating its liability for one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits after application of the June 2019 Regulations and the final calculations for its Fiscal 2018 federal income tax returns, including the ability for the Company to offset the liability in part by foreign tax credits. The Company also recorded $70.7 million of foreign tax credits, but concluded it is more likely than not these credits will expire unused and therefore recorded a $70.7 million valuation allowance against the deferred tax assets.
The Tax Reform Act of December 22, 2017 included a tax on deemed repatriated accumulated earnings of foreign subsidiaries. The Company’s $25.1 million mandatory repatriation tax is payable over 8 years. The first payment was due January 2019. As of September 30, 2021, $18.9 million of the mandatory repatriation liability is still outstanding and $2.0 million is due and payable in the next 12 months but will be offset by previous payments and credits.
During the year ended September 30, 2019, the Company recorded an increase of $12.2 million to tax expense from impairment of $116.0 million of book goodwill. A portion of the impairment resulted in a tax benefit since the goodwill had previously been amortized for income tax purposes and the Company therefore reversed a deferred tax liability.
To the extent necessary, the Company intends to utilize free cash flow from foreign subsidiaries in order to support management's plans to voluntarily accelerate pay down of U.S. debt, fund distributions to shareholders, fund U.S. acquisitions and satisfy ongoing U.S. operational cash flow requirements. The Company annually estimates the available earnings, permanent reinvestment classification and the availability of and management’s intent to use alternative mechanisms for repatriation for each jurisdiction in which the Company does business. Accordingly, the Company is providing residual U.S. and foreign deferred taxes on these earnings to the extent they cannot be repatriated in a tax-free manner.
As of September 30, 2021, and 2020, the Company provided $1.8 million and $1.4 million, respectively, of residual foreign taxes on undistributed foreign earnings.
As a result of the June 2019 Regulations and the deemed mandatory repatriation, the Company does not have significant prior year untaxed, undistributed earnings from its foreign operations at September 30, 2021. There were $500.6 million of the Company’s undistributed earnings taxed in the U.S. as a result of the mandatory deemed repatriation that was part of the Tax Reform Act, and the remaining earnings were taxed as a result of the June 2019 Regulations. The Company recorded GILTI inclusions for the tax year ended September 30, 2021 of $23.4 million. The Company estimates it generated untaxed, undistributed foreign earnings due to high-tax exceptions to GILTI inclusions under the Tax Reform Act for the year ended September 30, 2021 of $23.2 million and has cumulative untaxed, undistributed foreign earnings due to high-tax exceptions as of September 30, 2021 of $62.1 million.
As of September 30, 2021, the Company has U.S. federal net operating and capital loss carryforwards (“NOLs”) of $1,389.3 million with a federal tax benefit of $291.7 million and tax benefits related to state NOLs of $69.6 million. These NOLs expire through years ending in 2041. As of September 30, 2021, the Company has $27.4 million of federal research and development credit carryforwards. $0.4 million of the credits expire Fiscal 2023 and the remainder begin expiring in the Company’s fiscal year ending September 30, 2031. As of September 30, 2021, the Company has foreign NOLs of $398.0 million and tax benefits of $97.7 million, which will expire beginning in the Company's fiscal year ending September 30, 2022. During the fiscal year ending September 30, 2021, the Company recorded $324.2 million of additional foreign net operating losses due to a tax-deductible impairment in Luxembourg of subsidiary stock but recorded a full valuation allowance on the tax benefits of those losses since they are expected to expire unused. Certain of the foreign NOLs have indefinite carryforward periods.
A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions.
The Company has had multiple changes of ownership, as defined under Section 382 of the Internal Revenue Code of 1986, as amended, that subject the Company’s U.S. federal and state NOLs and other tax attributes to certain limitations. The annual limitation is based on a number of factors including the value of the Company’s stock (as defined for tax purposes) on the date of the ownership change, its net unrealized gain position on that date, the occurrence of realized gains in years subsequent to the ownership change and the effects of subsequent ownership changes (as defined for tax purposes), if any. Due to these limitations, the Company estimates, as of September 30, 2021, that $660.5 million of the total U.S. federal NOLs with a federal tax benefit of $138.7 million and $10.0 million of the tax benefit related to state NOLs will expire unused even if the Company generates sufficient income to otherwise use all of its NOLs. The Company also projects, as of September 30, 2021, that $96.1 million of tax benefits related to foreign NOLs will not be used. The Company has provided a full valuation allowance against these deferred tax assets.
The expected gain from the sale of the HHI segment increases the likelihood that the Company can use certain deferred tax assets including federal net operating losses subject to certain limits, state net operating losses previously expected to expire unused, and state research and development credits also previously expected to expire unused; therefore, the Company released $29.2 million of valuation allowance on these deferred tax assets in Fiscal 2021.
The income recognized for the year ended September 30, 2019 as a result of the June 2019 Regulations, the U.S. gain on the sale of the battery business, and the Fiscal 2019 U.S. operating results increased the likelihood that the Company can use federal net operating losses subject to certain limits; therefore, the Company released the $36.7 million of valuation allowance on these losses in Fiscal 2019.
As of September 30, 2021, the valuation allowance is $349.4 million, of which $253.0 million is related to U.S. net deferred tax assets and $96.4 million is related to foreign net deferred tax assets. As of September 30, 2020, the valuation allowance was $302.5 million, of which $283.6 million was related to U.S. net deferred tax assets and $18.9 million is related to foreign net deferred tax assets. As of September 30, 2019, the valuation allowance was $302.7 million, of which $273.5 million is related to U.S. net deferred tax assets and $29.2 million is related to foreign net deferred tax assets. During the year ended September 30, 2021, the Company increased its valuation allowance for deferred tax assets by $46.9 million of which $30.6 million is related to a decrease in valuation allowance against U.S. net deferred tax assets and $77.5 million related to an increase in the valuation allowance against foreign net deferred tax assets. During the year ended September 30, 2020, the Company decreased its valuation allowance for deferred tax assets by $0.2 million, of which $10.1 million was related to an increase in valuation allowance against U.S. net deferred tax assets and $10.3 million related to a decrease in the valuation allowance against foreign net deferred tax assets.
As of September 30, 2021, the Company has recorded $39.2 million of valuation allowance against its U.S. state net operating losses.
The total amount of unrecognized tax benefits at September 30, 2021 and 2020 are $18.0 million and $13.8 million, respectively. If recognized in the future, $18.0 million of the unrecognized tax benefits as of September 30, 2021 will impact the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2021, and 2020 the Company had $1.5 million, of accrued interest and penalties related to uncertain tax positions. There was no impact on income tax expense related to interest and penalties for the years ended September 30, 2021. The impact during the years ended September 30, 2020 and 2019 was a net decrease of $1.0 million and a net increase of $0.2 million, respectively. The following table summarizes the changes to the amount of unrecognized tax benefits for the years ended September 30, 2021, 2020 and 2019:
(in millions)
202120202019
Unrecognized tax benefits, beginning of year
$13.8 $20.7 $13.8 
Gross increase – tax positions in prior period
4.1 1.0 5.2 
Gross decrease – tax positions in prior period
(0.2)(4.4)(0.4)
Gross increase – tax positions in current period
1.2 2.4 3.5 
Settlements
(0.2)(1.6)— 
Lapse of statutes of limitations
(0.7)(4.3)(1.4)
Unrecognized tax benefits, end of year
$18.0 $13.8 $20.7 
The September 30, 2021 Consolidated Statement of Financial Position for SB/RH Holdings, LLC contains $8.0 million of income taxes payable to its parent company, calculated as if SB/RH Holdings, LLC were a separate taxpayer.
The Company files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions and is subject to ongoing examination by the various taxing authorities. The Company’s major taxing jurisdictions are the U.S., United Kingdom and Germany. In the U.S., federal tax filings for years prior to and including the Company’s fiscal year ended September 30, 2017 are closed. However, the federal NOLs from the Company’s fiscal years ended September 30, 2012 through December 31, 2015 are subject to Internal Revenue Service examination until the year that such net operating loss carryforwards are utilized, and those years are closed for audit. In addition, certain losses from 2002 to 2010 of entities acquired by the Company were able to be used in Fiscal 2019 and are subject to Internal Revenue Service examination until Fiscal 2019 is closed to audit. Filings in various U.S. state and local jurisdictions are also subject to audit and to date no significant audit matters have arisen. As of September 30, 2021, certain of the Company’s legal entities are undergoing income tax audits. The Company cannot predict the ultimate outcome of the examinations; however, it is reasonably possible that during the next twelve months some portion of previously unrecognized tax benefits could be recognized.