Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.5.0.2
INCOME TAXES
 12 Months Ended
Sep. 30, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES:

The provision for income taxes consisted of the following:
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
Federal
$
18,733

 
$
655

 
$
7,371

State
1,829

 
1,466

 
3,612

Foreign
12,482

 
10,599

 
10,427

 
33,044

 
12,720

 
21,410

Deferred
 
 
 
 
 
Federal
(3,066
)
 
13,279

 
2,590

State
(2,412
)
 
645

 
(71
)
Foreign
1,507

 
(280
)
 
(1,124
)
 
(3,971
)
 
13,644

 
1,395

Total
$
29,073

 
$
26,364

 
$
22,805



Tax benefits related to share-based payments recorded directly to additional paid-in capital for the years ended September 30, 2016, 2015, and 2014 were $1,720, $418, and $0, respectively.
The reconciliation of the federal statutory tax rate to the consolidated effective tax rate was as follows:
 
2016
 
2015
 
2014
Federal statutory tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
Effect of state income taxes, net of federal deduction
(0.6
)%
 
1.8
 %
 
3.8
 %
Foreign taxes less than federal statutory rate
(3.5
)%
 
(3.2
)%
 
(2.1
)%
Other
(0.4
)%
 
(4.2
)%
 
(2.2
)%
Effective tax rate
30.5
 %
 
29.4
 %
 
34.5
 %


The Company's effective tax rate for fiscal 2016 was 30.5%, compared to 29.4% for fiscal 2015. The effective tax rates for both years primarily reflected the favorable impact of the utilization of certain tax attributes with the Company’s U.S. and foreign legal entity structure. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected lower foreign income taxes offset by the impact of state taxes.

The Company's foreign subsidiaries had income before income taxes for the years ended September 30, 2016, 2015 and 2014 of approximately $48,864, $40,024 and $23,835, respectively.  Deferred income taxes for U.S. tax purposes have not been provided on certain undistributed earnings of foreign subsidiaries, as such earnings are considered to be reinvested indefinitely. At September 30, 2016, undistributed earnings of foreign subsidiaries for which deferred U.S. income taxes have not been provided approximated $542,821.  The Company has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable due to the complexity of the hypothetical calculation.

The components of deferred tax assets and liabilities at September 30, 2016 and 2015 are as follows:
 
2016
 
2015
Deferred tax assets:
 
 
 
Pension and postretirement benefits
$
46,282

 
$
42,134

Accruals and reserves not currently deductible
26,214

 
27,586

Income tax credit carryforward
10,080

 
9,160

Operating and capital loss carryforwards
25,258

 
25,012

Stock options
6,544

 
8,550

Other
5,246

 
7,396

Total deferred tax assets
119,624

 
119,838

Valuation allowances
(22,412
)
 
(20,977
)
Net deferred tax assets
97,212

 
98,861

 
 
 
 
Deferred tax liabilities:
 

 
 

Depreciation
(5,207
)
 
(8,509
)
Unrealized gains and losses
(5,640
)
 
(8,867
)
Goodwill and intangible assets
(190,541
)
 
(193,876
)
Other
(2,087
)
 
(11,623
)
 
(203,475
)
 
(222,875
)
 
 
 
 
Net deferred tax liability
$
(106,263
)
 
$
(124,014
)


At September 30, 2016, the Company had foreign net operating loss carryforwards of $72,765 and foreign capital loss carryforwards of $20,651. The Company has recorded deferred tax assets of $3,999 for state net operating loss carryforwards, and various U.S. and non-U.S. income tax credit carryforwards of $491 and $3,933, respectively, which will be available to offset future income tax liabilities. If not used, state net operating losses will begin to expire in 2017.  Certain of the foreign net operating losses begin to expire in 2017 while the majority of the Company's foreign net operating losses have no expiration period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes, loss sharing between group members, and business continuation.  Therefore, the Company has established tax-effected valuation allowances against these tax benefits in the amount of $22,412 at September 30, 2016.  Additionally, at September 30, 2016, the Company had total foreign tax credit carryforwards of $5,656. If unutilized, these U.S. foreign tax credits will begin to expire in 2018. The Company has the ability to claim a deduction for these credits prior to expiration, however it is expected that the credits will be fully utilized prior to expiration.

Changes in the total amount of gross unrecognized tax benefits (excluding penalties and interest) are as follows:

 
2016
 
2015
 
2014
Balance, beginning of year
$
4,086

 
$
4,311

 
$
4,516

Increase from acquisition
—

 
—

 
385

Increases for tax positions of prior years
5,762

 
475

 
369

Decreases for tax positions of prior years
(166
)
 
(155
)
 
(863
)
Increases based on tax positions related to the current year
5,456

 
635

 
623

Decreases due to settlements with taxing authorities
—

 
(27
)
 
(12
)
Decreases due to lapse of statute of limitation
(1,318
)
 
(1,153
)
 
(707
)
Balance, end of year
$
13,820

 
$
4,086

 
$
4,311



The Company had unrecognized tax benefits of $13,820 at September 30, 2016, $6,663 of which, would impact the annual effective tax rate.  It is reasonably possible that the amount of unrecognized tax benefits could decrease by approximately $2,741 in the next 12 months primarily due to the expiration of statutes of limitation related to specific tax positions.

The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes.  Total penalties and interest accrued were $2,088 and $2,010 at September 30, 2016 and 2015, respectively.  These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.

The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitation expires for those tax jurisdictions. 

As of September 30, 2016, the tax years that remain subject to examination by major jurisdiction generally are:
United States - Federal
2013 and forward
United States - State
2012 and forward
Canada
2012 and forward
Germany
2009 and forward
United Kingdom
2014 and forward
Australia
2012 and forward
Singapore
2010 and forward