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INCOME TAX | 12 Months Ended
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Aug. 31, 2016
Income Tax Disclosure [Abstract] |
INCOME TAX | NOTE 15. INCOME TAX The components of earnings from continuing operations before income taxes are as follows:
|  | Year Ended August 31,
(in thousands) |  | 2016 |  | 2015 |  | 2014
United States |  | $ | 49,279 |  |  | $ | 118,455 |  |  | $ | 122,024 |
Foreign |  | 35,911 |  |  | 27,520 |  |  | 42,933 |
Total |  | $ | 85,190 |  |  | $ | 145,975 |  |  | $ | 164,957 |
The income taxes (benefit) included in the consolidated statements of earnings are as follows:
|  | Year Ended August 31,
(in thousands) |  | 2016 |  | 2015 |  | 2014
Current: |  |  |  |  |  |
United States |  | $ | 5,224 |  |  | $ | 53,258 |  |  | $ | 11,799 |
Foreign |  | 6,991 |  |  | 3,329 |  |  | 2,965 |
State and local |  | 4,130 |  |  | 2,830 |  |  | 4,157 |
Current taxes |  | $ | 16,345 |  |  | $ | 59,417 |  |  | $ | 18,921 |
Deferred: |  |  |  |  |  |
United States |  | $ | (4,423 | ) |  | $ | (14,219 | ) |  | $ | 29,184 |
Foreign |  | 254 |  |  | 722 |  |  | 4,457 |
State and local |  | 303 |  |  | 488 |  |  | (3,499 | )
Deferred taxes |  | $ | (3,866 | ) |  | $ | (13,009 | ) |  | $ | 30,142 |
Total income taxes on income |  | $ | 12,479 |  |  | $ | 46,408 |  |  | $ | 49,063 |
Income taxes (benefit) on discontinued operations |  | (168 | ) |  | (436 | ) |  | 1,712 |
Income taxes on continuing operations |  | $ | 12,647 |  |  | $ | 46,844 |  |  | $ | 47,351 |
A reconciliation of the federal statutory rate to the Company's effective income tax rate from continuing operations is as follows:
|  | Year Ended August 31,
(in thousands) |  | 2016 |  | 2015 |  | 2014
Income tax expense at statutory rate of 35% |  | $ | 29,818 |  |  | $ | 51,091 |  |  | $ | 57,735 |
State and local taxes |  | 2,095 |  |  | 2,152 |  |  | 116 |
Section 199 manufacturing deduction |  | (4,694 | ) |  | (4,017 | ) |  | (1,199 | )
Foreign rate differential |  | (2,015 | ) |  | (2,404 | ) |  | (6,290 | )
Foreign tax impairment on valuation of subsidiaries |  | (60,204 | ) |  | — |  |  | — |
Change in valuation allowance |  | 70,784 |  |  | 12,305 |  |  | 19,978 |
Deferred compensation |  | (1,375 | ) |  | 772 |  |  | (4,164 | )
Nontaxable foreign interest |  | (16,063 | ) |  | (16,712 | ) |  | (16,506 | )
Audit settlement |  | (10,264 | ) |  | — |  |  | — |
Other |  | 4,565 |  |  | 3,657 |  |  | (2,319 | )
Income tax expense on continuing operations |  | $ | 12,647 |  |  | $ | 46,844 |  |  | $ | 47,351 |
Effective income tax rates from continuing operations |  | 14.8 | % |  | 32.1 | % |  | 28.7 | %
The Company's effective income tax rates from discontinued operations for the years ended August 31, 2016, 2015 and 2014 were 0.9%, 2.2% and (64.6)%, respectively. The Company's effective income tax rate from continuing operations was 14.8% for the year ended August 31, 2016, compared to the statutory rate of 35%. Several factors influence the effective tax rate. Items that benefited the effective tax rate include: (i) net favorable adjustments resulting from the settlement of an audit, including the release of certain unrecognized tax benefits for which the accruals were greater than the amount assessed, (ii) benefit for domestic production activity income pursuant to Section 199 of the Internal Revenue Code (“Section 199”), (iii) a non-taxable gain on assets related to our non-qualified Benefits Restoration Plan (“BRP”), and (iv) the proportion of our global income from operations in jurisdictions with lower statutory tax rates than the U.S., including Poland, which has a statutory income tax rate of 19%. Items negatively impacting the effective tax rate include: (a) U.S. state and local taxes imposed on the release of unrecognized tax benefits, and (b) losses from operations in certain jurisdictions where the Company maintains a valuation allowance, thus providing no benefit for such losses. For the year ended August 31, 2015, the effective income tax rate from continuing operations was 32.1% compared to the statutory rate of 35%. Items that benefited the effective tax rate include: (i) income from operations in jurisdictions with lower statutory tax rates than the U.S., including Poland, and (ii) benefit for domestic production activity under Section 199. Items that had a negative impact on the effective tax rate include: (a) U.S. state and local taxes imposed on income from domestic operations, (b) losses from operations in certain jurisdictions where the Company maintains a valuation allowance, thus providing no benefit for such losses, and (c) a non-deductible loss on BRP assets. For the year ended August 31, 2014, the effective income tax rate from continuing operations was 28.7%. It was lower than the statutory income tax rate of 35% because the Company earned a higher proportion of its global income from operations in countries which have lower income tax rates than the U.S., notably Poland. Additionally, the Company realized a benefit under Section 199 for domestic production activity, and had a non-taxable gain on BRP assets. The Company made net payments of $50.2 million, $61.0 million and $11.8 million for income taxes for the years ended August 31, 2016, 2015 and 2014, respectively. The income tax effects of significant temporary differences giving rise to deferred tax assets and liabilities are as follows:
|  | August 31,
(in thousands) |  | 2016 |  | 2015
Deferred tax assets: |  |  |  |
Deferred compensation and employee benefits |  | $ | 45,496 |  |  | $ | 48,309 |
Net operating losses and credits |  | 154,606 |  |  | 78,838 |
Reserves and other accrued expenses |  | 18,831 |  |  | 21,381 |
Allowance for doubtful accounts |  | 2,438 |  |  | 3,334 |
Intangibles |  | 6,214 |  |  | 8,084 |
Other |  | 768 |  |  | 9,562 |
Total deferred tax assets |  | 228,353 |  |  | 169,508 |
Valuation allowance for deferred tax assets |  | (153,011 | ) |  | (79,965 | )
Deferred tax assets, net |  | $ | 75,342 |  |  | $ | 89,543 |
Deferred tax liabilities: |  |  |  |
Fixed assets |  | $ | 96,100 |  |  | $ | 102,143 |
Inventory |  | 30,822 |  |  | 40,859 |
Other |  | 2,799 |  |  | 3,981 |
Total deferred tax liabilities |  | $ | 129,721 |  |  | $ | 146,983 |
Net deferred tax liabilities |  | $ | (54,379 | ) |  | $ | (57,440 | )
Net operating losses giving rise to deferred tax assets consist of $324.0 million of state net operating losses that expire during the tax years ending from 2017 to 2036 and foreign net operating losses of $461.0 million that expire in varying amounts beginning in 2018 (with certain amounts having indefinite lives). These assets will be reduced as income tax expense is recognized in future periods. The Company maintains a valuation allowance to reduce certain deferred tax assets to amounts that are more likely than not to be realized. During the year ended August 31, 2016, the Company recorded a valuation allowance of $73.0 million related to net operating loss carryforwards in certain state and foreign jurisdictions due to the uncertainty of their realization. Such valuation allowance is largely attributed to a loss generated by a foreign tax impairment charge on valuation of subsidiaries. During the year ended August 31, 2015, the Company recorded a valuation allowance in the amount of $10.2 million related to net operating loss carryforwards in certain state and foreign jurisdictions due to the uncertainty of their realization. In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of August 31, 2016, the Company had not made a provision for U.S. or additional foreign withholding taxes on approximately $537.0 million of undistributed earnings and profits associated with the excess of the amount for financial reporting over the income tax basis of investments in foreign subsidiaries that is indefinitely reinvested. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. The unrecognized income tax benefits as of August 31, 2016 were $9.5 million, all of which, if recognized, would have impacted the Company's effective income tax rate at the end of fiscal 2016. The unrecognized income tax benefits as of both August 31, 2015 and 2014 were $27.3 million, of which $12.0 million, if recognized, would have impacted the Company's effective tax rate for the end of both fiscal 2015 and 2014. A reconciliation of the beginning and ending amounts of unrecognized income tax benefits is as follows:
|  | August 31,
(in thousands) |  | 2016 |  | 2015 |  | 2014
Balance at September 1 |  | $ | 27,349 |  |  | $ | 27,349 |  |  | $ | 28,551 |
Change in tax positions of current year |  | — |  |  | — |  |  | — |
Change for tax positions of prior years |  | — |  |  | — |  |  | (1,202 | )
Reductions due to settlements with taxing authorities |  | (17,827 | ) |  | — |  |  | — |
Balance at August 31 |  | $ | 9,522 |  |  | $ | 27,349 |  |  | $ | 27,349 |
The Company's policy classifies interest recognized on an underpayment of income taxes and any statutory penalties recognized on a tax position as income tax expense, and the balances at the end of a reporting period are recorded as part of the current or noncurrent liability for uncertain income tax positions. At August 31, 2016 and 2015, the Company had accrued interest and penalties related to uncertain tax positions of $1.0 million and $4.2 million, respectively. During the twelve months ending August 31, 2017, we do not currently anticipate that the statute of limitations pertaining to positions of the Company in prior year income tax returns may lapse or that income tax audits in various taxing jurisdictions will be finalized. As a result, we do not anticipate any changes in the total amount of unrecognized income tax benefits nor any reduction to the provision for income taxes related to such. The Company files income tax returns in the U.S. and multiple foreign jurisdictions with varying statutes of limitations. In the normal course of business, the Company and its subsidiaries are subject to examination by various taxing authorities. The following is a summary of tax years subject to examination: U.S. Federal — 2009 and forward U.S. States — 2009 and forward Foreign — 2010 and forward The Company recently completed an IRS exam for the years 2009 through 2011 and received confirmation from the United States Congress Joint Committee on Taxation that all matters were settled with the exception of R&D credits, which are still under review. In addition, the Company is under examination with certain state revenue authorities for the years 2009 to 2015. Management believes the Company's recorded income tax liabilities as of August 31, 2016 sufficiently reflect the anticipated outcome of these examinations.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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