Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.5.0.2
Income Taxes
 12 Months Ended
Aug. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Note 10.    Income Taxes
Income tax expense (benefit) from continuing operations is summarized as follows (in thousands):
 
Year Ended August 31,
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
Federal
$
2,205

 
$
(126
)
 
$
23,211

Foreign
11,838

 
21,200

 
9,059

State
912

 
(1,616
)
 
(657
)
 
14,955

 
19,458

 
31,613

Deferred:
 
 
 
 
 
Federal
(12,470
)
 
(4,416
)
 
4,224

Foreign
(23,797
)
 
(9,199
)
 
(4,130
)
State
(3,858
)
 
(324
)
 
866

 
(40,125
)
 
(13,939
)
 
960

Income tax expense (benefit)
$
(25,170
)
 
$
5,519

 
$
32,573


 
Income tax expense from continuing operations recognized in the accompanying consolidated statements of operations differs from the amounts computed by applying the federal income tax rate to earnings from continuing operations before income tax expense. A reconciliation of income taxes at the federal statutory rate to the effective tax rate is summarized in the following table:        
 
Year Ended August 31,
 
2016
 
2015
 
2014
Federal statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of Federal effect
1.2

 
(0.2
)
 
0.8

Net effects of foreign tax rate differential and credits (1)
1.6

 
(58.4
)
 
(10.5
)
Domestic manufacturing deduction
0.3

 
(5.1
)
 
(1.0
)
Foreign branch currency losses
4.9

 
—

 
—

Goodwill impairment (2)
(27.0
)
 
78.6

 
—

Valuation allowance additions and releases (3)
(0.7
)
 
15.5

 
(8.0
)
Changes in liability for unrecognized tax benefits (4)
(0.9
)
 
(42.1
)
 
3.2

Change in income tax accounting method, net
—

 
—

 
(5.6
)
Business divestitures
3.9

 
—

 
3.0

Other items
1.0

 
(1.6
)
 
1.8

Effective income tax rate
19.3
 %
 
21.7
 %
 
18.7
 %

(1) During fiscal 2015, the Company generated $10.0 million of foreign tax credits, the result of a non-recurring non-permanent loan from a foreign subsidiary (which were utilized to reduce fiscal 2015 tax obligations) and had a higher proportion of non-U.S. earnings.
(2) Fiscal 2016 and fiscal 2015 net earnings include a $186.5 million and $84.4 million, respectively, impairment of goodwill and intangible assets, of which $68.0 million and $6.3 million, respectively, are deductible for income tax purposes.
(3) Additional valuation allowances of $5.7 million were established in fiscal 2015 due to uncertainty regarding utilization of foreign operating loss carryforwards, which were partially offset by the reversal of $2.3 million of previously established reserves.
(4) The liability for unrecognized tax benefits decreased $9.5 million in fiscal 2015 primarily due to settlements and lapsing of tax audit statutes.     
Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities include the following items (in thousands):
 
August 31,
 
2016
 
2015
Deferred income tax assets:
 
 
 
Operating loss and tax credit carryforwards
$
36,761

 
$
19,419

Compensation related liabilities
25,086

 
27,047

Postretirement benefits
8,727

 
6,778

Inventory
3,044

 
3,253

Book reserves and other items
8,317

 
11,976

Total deferred income tax assets
81,935

 
68,473

Valuation allowance
(8,147
)
 
(8,053
)
Net deferred income tax assets
73,788

 
60,420

Deferred income tax liabilities:
 
 
 
Depreciation and amortization
(83,020
)
 
(110,763
)
Other items
(5,493
)
 
(4,539
)
Deferred income tax liabilities
(88,513
)
 
(115,302
)
Net deferred income tax liability
$
(14,725
)
 
$
(54,882
)

The Company has $58.3 million of state loss carryforwards, which are available to reduce future state tax liabilities. These state net operating loss carryforwards expire at various times through 2036. The Company also has $105.4 million of foreign loss carryforwards which are available to reduce certain future foreign tax liabilities. Approximately one-half of the foreign loss carryforwards are not subject to any expiration dates, while the other balances expire at various times through 2026. The valuation allowance represents a reserve for deferred tax assets, including loss carryforwards, for which utilization is uncertain.
    
Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):
 
2016
 
2015
 
2014
Beginning balance
$
29,924

 
$
39,509

 
$
18,006

Increases based on tax positions related to the current year
1,050

 
2,183

 
28,053

Increase for tax positions taken in a prior period
475

 
8,935

 
—

Decrease for tax positions taken in a prior period
—

 
(633
)
 
—

Decrease due to lapse of statute of limitations
(1,027
)
 
(4,464
)
 
(7,030
)
Decrease due to settlements
—

 
(14,180
)
 
—

Changes in foreign currency exchange rates
(1,248
)
 
(1,426
)
 
480

Ending balance
$
29,174

 
$
29,924

 
$
39,509


Substantially all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. As of August 31, 2016, 2015 and 2014, the Company recognized $2.3 million, $1.8 million and $2.0 million, respectively for interest and penalties related to unrecognized tax benefits. The Company recognizes interest and penalties related to underpayment of income taxes as a component of income tax expense. With few exceptions, the Company is no longer subject to U.S. federal, state and foreign income tax examinations by tax authorities in major tax jurisdictions for years prior to fiscal 2006. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by up to $4.7 million within the next twelve months.    
The Company’s policy is to remit earnings from foreign subsidiaries only to the extent the remittance does not result in an incremental U.S. tax liability. Accordingly, the Company does not currently provide for the additional U.S. and foreign income taxes which would become payable upon remission of undistributed earnings of foreign subsidiaries. Undistributed earnings on which additional income taxes have not been provided amounted to $302.4 million at August 31, 2016. If all such undistributed earnings were remitted, an additional income tax provision of $39.2 million would have been necessary as of August 31, 2016.    
Earnings (loss) before income taxes from continuing operations, are summarized as follows (in thousands):
  
Year Ended August 31,
 
2016
 
2015
 
2014
Domestic
$
(19,182
)
 
$
14,593

 
$
84,854

Foreign
(111,162
)
 
10,798

 
89,172

 
$
(130,344
)
 
$
25,391

 
$
174,026


Both domestic and foreign pre-tax earnings are impacted by changes in operating earnings, acquisition and divestiture activities, restructuring charges and the related benefits, growth investments, debt levels and the impact of changes in foreign currency exchange rates. In fiscal 2016, domestic earnings included a non-cash impairment charge of $49.0 million and a $5.1 million loss on the Sanlo divestiture while foreign earnings included a $137.5 million non-cash impairment charge. Fiscal 2015 domestic and foreign earnings were lower than the prior year, due to a non-cash impairment charge of $20.3 million and $64.1 million, respectively, while fiscal 2014 domestic earnings included a $13.5 million gain on the RV product line divestiture. Approximately 53%, 68% and 51% of pre-tax earnings (excluding impairment charges) were generated in foreign jurisdictions with tax rates lower than the U.S. federal income tax rate during fiscal 2016, 2015 and 2014, respectively.
Cash paid for income taxes, net of refunds totaled $21.4 million, 26.4 million, and $57.2 million (including tax due on divestitures) during the years ended August 31, 2016, 2015 and 2014, respectively.