Enerpac Tool Group Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes

9 Months Ended

May 31, 2016

The Company's income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are higher or lower than the U.S. federal statutory rate, permanent items, state tax rates and the ability to utilize various tax credits and net operating loss carryforwards. The Company's global operations, acquisition activity and specific tax attributes provide opportunities for continuous global tax planning initiatives to maximize tax credits and deductions. Both the current and prior periods include the benefits of tax planning initiatives. Comparative pre-tax earnings (loss), income tax expense (benefit) and effective income tax rates are as follows (amounts in thousands):



	Three Months Ended May 31,						Nine Months Ended May 31,
	2016			2015			2016			2015
Earnings (loss) before income taxes	$	20,339		$	34,971		$	(141,242	)	$	4,579
Income tax (benefit) expense	(827		)	(2,987		)	(18,666		)	6,785
Effective income tax rate	(4.1		)%	(8.5		)%	13.2		%	148.2		%

The third quarter effective income tax rates are impacted by the proportion of taxable earnings generated in foreign jurisdictions with tax rates lower than the U.S., the amount of tax benefits derived from annual tax planning initiatives and discrete income tax adjustments. The income tax benefit for the three months ended May 31, 2016 is the result of current year tax planning (related to the deductibility of foreign currency losses for tax purposes) and a $2.3 million benefit from a discrete income tax adjustment (favorable provision to income tax return adjustments), which were partially offset by the provision for taxes due on current quarter earnings. The income tax benefit for the three months ended May 31, 2015 is the net result of a $19.2 million reduction in tax reserves from the lapsing of income tax statutes of limitations and the favorable resolution of income tax audits, which were partially offset by the current quarter income tax provision, a $5.0 million increase to the reserve for uncertain tax positions and a $5.2 million increase in valuation allowances due to uncertainty regarding utilization of foreign net operating losses.

The comparability of year-to-date pre-tax income (loss), income tax expense (benefit) and the related effective income tax rate are impacted by impairment charges, as fiscal 2016 results include a $186.5 million ($169.1 million after tax) impairment charge, while the prior year included an $84.4 million ($82.6 million after tax) impairment charge. Excluding the impairment charge, the fiscal 2016 year-to-date effective tax rate is lower than the prior year due to a favorable mix of taxable earnings, the benefits of tax planning initiatives and discrete tax adjustments. Both the current and prior year income tax provisions include a similar income tax benefit from global tax planning initiatives; however the impact on the effective tax rate was substantially larger in the current year, as pre-tax earnings (excluding the impairment charge) were down $43.7 million year-over-year. In addition, the tax provision for the nine months ended May 31, 2016 included 90% of earnings from foreign jurisdictions with tax rates lower than the U.S. federal income tax rate, compared to approximately 70% in the prior year, which had the impact of reducing the current year effective income tax rate.