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, 2015

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 adjusts the quarterly provision for income taxes based on the estimated annual effective income tax rate and facts and circumstances known at each interim reporting period. Comparative pre-tax income, income tax expense (benefit) and effective income tax rates from continuing operations are as follows:



	Three Months Ended May 31,						Nine Months Ended May 31,
	2015			2014			2015			2014
Earnings from continuing operations before income taxes	$	34,971		$	52,228		$	4,579		$	119,377
Income tax expense (benefit)	(2,987		)	1,671			6,785			13,511
Effective income tax rate	(8.5		)%	3.2		%	148.2		%	11.3		%

The income tax provision for the current and prior year periods reflects the benefits of tax minimization planning, taxable earnings derived in foreign jurisdictions with tax rates that are lower than the U.S. Federal statutory rate and foreign tax credits. The effective income tax rate for the third quarter of fiscal 2015 was (8.5)% compared to 3.2% in the comparable prior year period. Income tax expense for the three months ended May 31, 2015 includes $19.2 million of tax reserve benefits from the lapsing of income tax statutes of limitations and the favorable resolution of income tax audits, which were partially offset by 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. Similarly, income tax expense for the three months ended May 31, 2014 included a $10.5 million income tax benefit from tax planning and a $6.8 million tax reserve benefit from the lapsing of income tax statues of limitations. The effective income tax rate for the nine months ended May 31, 2015 was 148.2%, primarily the result of the second quarter impairment charge ($1.7 million tax benefit on $84.4 million pre-tax charge).

The gross liability for unrecognized income tax benefits, excluding interest and penalties, decreased to $21.2 million at May 31, 2015 from $32.3 million at August 31, 2014. Substantially all of these unrecognized tax benefits, if recognized, would reduce the effective income tax rate. In addition, at May 31, 2015 and August 31, 2014, the Company had liabilities totaling $2.1 million and $2.0 million, respectively, for the payment of interest and penalties related to unrecognized income tax benefits.