Income Taxes |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
Note 12. Income Taxes
The Company's income tax expense or benefit is impacted by a number of factors, including the amount of taxable earnings generated in foreign jurisdictions with tax rates that are different 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 fiscal 2019 and 2018 include the benefits of tax planning initiatives. Comparative (loss) earnings before income taxes, income tax benefit and effective income tax rates are as follows (amounts in thousands):
The Company’s income tax expense and effective tax rate for the three months ended November 30, 2018 were impacted by the Tax Cuts and Jobs Act (the “Act”), which was enacted into law on December 22, 2017. The Act includes significant changes to the U.S. corporate income tax system which reduce the U.S. federal corporate income tax rate from 35% to 21% as of January 1, 2018; shifts to a modified territorial tax regime which requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously deferred from U.S. income tax; and creates new minimum taxes on certain foreign-sourced earnings that were previously deferred from U.S. federal tax. The new minimum taxes on certain foreign-sourced earnings under the Act are effective for the Company starting in the period ending November 30, 2018 and include the Global Intangible Low-Taxed Income (“GILTI”) provision, the Foreign-Derived Intangible Income (“FDII”) benefit, the Base Erosion Anti-Abuse Tax (“BEAT”), the limitation on interest expense deductions and certain executive compensation, and the elimination of dividends received from certain foreign subsidiaries.
Income tax effects resulting from changes in tax laws are accounted for by the Company in the period in which the law is enacted and the effects are recorded as a component of income tax expense or benefit. The Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance on accounting for various effects of the Act that may be at different stages of completion. To the extent that a company’s accounting for a certain income tax effect of the Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. In accordance with SAB 118, the financial reporting impact of the Act will be completed no later than one year from the Act’s enactment date of December 22, 2017. Prior to this date, the Company recorded provisional amounts for certain enactment-date effects of the Act by applying the guidance in SAB 118.
As of the financial reporting date, we have recorded all known enactment-date income tax effects of the Act. These adjustments have been recorded as a component of income tax expense and include the one-time transition tax liability, the revaluation of deferred tax assets and liabilities, and the calculation of the accelerated first year expensing of certain capital expenditures. Included within tax expense for the November 30, 2018 reporting period is a measurement period adjustment for the Company’s transition tax. This adjustment was based upon the review of additional information that was not previously available and had an immaterial impact on the financial statements. The Company’s assertion related to the repatriation of undistributed earnings has not changed, which is to reinvest the earnings in our non-U.S. subsidiaries outside of the U.S., thereby resulting in no recorded U.S. deferred incomes taxes or foreign withholding taxes. Additionally, the Company has made the accounting policy election to record the income tax effects of GILTI in the period in which they arise.
The comparability of pre-tax earnings (loss), income tax expense (benefit) and the related effective income tax rates are impacted by the Act as described above, along with impairment & divestiture charges. Results included $36.5 million ($33.8 million after tax) of impairment & divestiture charges for the three months ended November 30, 2018. Excluding the impairment & divestiture charges, the effective tax rate for the three months ended November 30, 2018 was 13.4%. Both the current and prior year effective income tax rates were impacted by the proportion of earnings in foreign jurisdictions with income tax rates different than the U.S. federal income tax rate and the amount of income tax benefits from tax planning initiatives. The Company's earnings (loss) before income tax include approximately 70% and 80% of earnings from foreign jurisdictions for the estimated full-year fiscal 2019 and 2018, respectively. This foreign income tax rate differential had the effect of reducing the effective income tax rate from the 35% U.S. statutory tax rate by 12.2%, for the three months ended November 30, 2017; however, the impact of foreign rates as compared to the new U.S. statutory rate of 21% is minimal. In addition to the benefit of the foreign rate differential and tax planning initiatives (which yield an effective income tax rate lower than the federal income tax rate) in each year, the income tax benefit for the three months ended November 30, 2018 is significantly impacted by a $2.6 million benefit related to the impairment & divestiture charges and a $1.1 million benefit related to realization of foreign tax credit carryforwards. The tax benefits related to tax planning initiatives are not expected to repeat in future periods due to certain tax attributes that are no longer available and subsequent changes in relevant tax laws.
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