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INCOME TAX | 12 Months Ended
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Aug. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAX | NOTE 14. INCOME TAX On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act ("TCJA") which, among other provisions, reduced the federal corporate tax rate to 21.0% effective January 1, 2018. Due to the Company’s August 31 fiscal year end, this provision resulted in a blended statutory U.S. tax rate of 25.7% for fiscal 2018 and a 21.0% statutory U.S. tax rate beginning September 1, 2018. ASC 740 requires the change in tax law to be accounted for in the period of enactment. Due to complexities involved in accounting for the TCJA, the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") 118 provides a measurement period, which should not extend beyond one year from the date of enactment, to complete the accounting under ASC 740. The Company recognized additional income tax expense of $11.0 million at August 31, 2018 for the effects of those provisions of the TCJA for which amounts are reasonably estimable, including (i) recognition of the one-time toll charge on certain undistributed earnings of non-U.S. subsidiaries with associated foreign tax credits, in order to transition from a worldwide system with deferral to a territorial-style tax system, (ii) the remeasurement of the Company’s deferred tax balances as of August 31, 2018 to the lower statutory rates and (iii) deductibility limitations on compensation for covered employees. These provisions of the TCJA, as well as 100% bonus depreciation for qualified assets acquired and placed in service after September 27, 2017, resulted in a $37.4 million reduction to the Company’s net deferred tax liabilities. The impacts of the legislation on the Company’s tax expense and/or the Company’s deferred tax balances may differ from these estimates, possibly materially, and may be adjusted accordingly over the SAB 118 measurement period. The Company’s current analysis of the following provisions of the TCJA resulted in minimal or no impact on the Company’s financial statements, and as a result, the Company did not record any associated tax expense or benefit as of August 31, 2018: (i) the new tax on global intangible low-taxed income, (ii) the new tax on foreign-derived intangible income, (iii) the base erosion anti-abuse tax, (iv) deductibility limitations on business interest under Section 163(j) and (v) deductibility limitations on meal and entertainment-related expenses. The Company will continue to evaluate the effects of these provisions and adjust its financial statements if necessary as new information becomes available during the SAB 118 measurement period. In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. The TCJA could potentially change the Company’s future intentions regarding the reinvestment of the remaining undistributed earnings of its non-U.S. subsidiaries of approximately $616.8 million. However, the Company does not expect any future repatriations of the earnings of its non-U.S. subsidiaries to impact the financial statements beyond the one-time toll charge, for which the Company has recorded a provisional estimate as of August 31, 2018. The Company continues to monitor regulatory developments concerning the taxation of undistributed foreign earnings and evaluate the impact of the TCJA on the Company's existing assertion of indefinite reinvestment. As such, no change has been made with respect to this assertion for the year ended August 31, 2018. The Company will complete its analysis of the impact of the TCJA on its indefinite reinvestment assertion and record any related amounts, if necessary, during the SAB 118 measurement period. The components of earnings from continuing operations before income taxes were as follows:
|  | Year Ended August 31,
(in thousands) |  | 2018 |  | 2017 |  | 2016
United States |  | $ | 86,731 |  |  | $ | 25,506 |  |  | $ | 55,829 |
Foreign |  | 78,653 |  |  | 39,945 |  |  | 20,148 |
Total |  | $ | 165,384 |  |  | $ | 65,451 |  |  | $ | 75,977 |
The income taxes (benefit) included in the consolidated statements of earnings were as follows:
|  | Year Ended August 31,
(in thousands) |  | 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |  |
United States |  | $ | 20,210 |  |  | $ | 11,345 |  |  | $ | 5,224 |
Foreign |  | 18,308 |  |  | 9,464 |  |  | 6,991 |
State and local |  | 2,263 |  |  | 2,654 |  |  | 4,130 |
Current taxes |  | $ | 40,781 |  |  | $ | 23,463 |  |  | $ | 16,345 |
Deferred: |  |  |  |  |  |
United States |  | $ | (11,501 | ) |  | $ | (13,548 | ) |  | $ | (4,423 | )
Foreign |  | (169 | ) |  | (917 | ) |  | 254 |
State and local |  | 1,002 |  |  | 281 |  |  | 303 |
Deferred taxes |  | $ | (10,668 | ) |  | $ | (14,184 | ) |  | $ | (3,866 | )
Total income taxes on income |  | $ | 30,113 |  |  | $ | 9,279 |  |  | $ | 12,479 |
Income taxes (benefit) on discontinued operations |  | (34 | ) |  | (5,997 | ) |  | (1,497 | )
Income taxes on continuing operations |  | $ | 30,147 |  |  | $ | 15,276 |  |  | $ | 13,976 |
A reconciliation of the federal statutory rate to the Company's effective income tax rate from continuing operations, including material items impacting the effective income tax rate is as follows:
|  | Year Ended August 31,
(in thousands) |  | 2018 |  | 2017 |  | 2016
Federal statutory rate |  | 25.7 | % |  | 35.0 | % |  | 35.0 | %
Income tax expense at statutory rate |  | $ | 42,471 |  |  | $ | 22,908 |  |  | $ | 26,592 |
TCJA - Toll charge and related foreign tax credits |  | 29,466 |  |  | — |  |  | — |
TCJA - Remeasurement of deferred tax balances |  | (25,515 | ) |  | — |  |  | — |
Foreign tax impairment on valuation of subsidiaries (1) |  | 22,315 |  |  | (92,321 | ) |  | (60,204 | )
Gain on international restructure (1) |  | 18,926 |  |  | — |  |  | — |
Change in valuation allowance |  | (20,839 | ) |  | 113,135 |  |  | 75,822 |
Nontaxable foreign interest (1) |  | (17,414 | ) |  | (19,259 | ) |  | (16,063 | )
Worthless stock deduction (2) |  | (6,084 | ) |  | — |  |  | — |
Foreign rate differential (3) |  | (5,973 | ) |  | (7,518 | ) |  | (1,719 | )
Research and experimentation credits |  | (4,707 | ) |  | (1,034 | ) |  | (1,357 | )
Audit settlement (4) |  | (3,187 | ) |  | (659 | ) |  | (10,264 | )
State and local taxes |  | 2,317 |  |  | 1,490 |  |  | 2,185 |
Deferred compensation (5) |  | (2,036 | ) |  | (2,101 | ) |  | (1,375 | )
Section 199 manufacturing deduction |  | — |  |  | (1,407 | ) |  | (4,694 | )
Other |  | 407 |  |  | 2,042 |  |  | 5,053 |
Income tax expense on continuing operations |  | $ | 30,147 |  |  | $ | 15,276 |  |  | $ | 13,976 |
Effective income tax rate from continuing operations |  | 18.2 | % |  | 23.3 | % |  | 18.4 | %
_________________
(1) | Fully offset by a valuation allowance.
(2) | Permanent tax benefit related to a worthless stock deduction from the reorganization and exit of the Company's steel trading business headquartered in the United Kingdom.
(3) | The impact of 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 19.0%.
(4) | Includes the release of certain unrecognized tax benefits for which the accruals were greater than the amount assessed.
(5) | Nontaxable gain on assets related to the Company’s nonqualified BRP.
The Company’s income tax benefit from discontinued operations for the years ended August 31, 2017 and 2016 was $6.0 million and $1.5 million, respectively. The tax benefit in discontinued operations was largely attributed to net operating losses in the U.S. related to the exit of the International Marketing and Distribution segment. Also contributing to the tax benefit in fiscal 2017, income in discontinued operations from the International Marketing and Distribution segment was primarily earned in foreign jurisdictions that benefit from group loss sharing provisions. These losses, which carry a full valuation allowance, were utilized to absorb the income from the International Marketing and Distribution segment; thus there is no tax expense or benefit associated with the income from discontinued operations earned in foreign jurisdictions. The income tax effects of significant temporary differences giving rise to deferred tax assets and liabilities were as follows:
|  | August 31,
(in thousands) |  | 2018 |  | 2017
Deferred tax assets: |  |  |  |
Net operating losses and credits |  | $ | 285,847 |  |  | $ | 273,549 |
Deferred compensation and employee benefits |  | 21,333 |  |  | 46,898 |
Reserves and other accrued expenses |  | 12,704 |  |  | 21,727 |
Allowance for doubtful accounts |  | 2,258 |  |  | 3,223 |
Inventory |  | 974 |  |  | — |
Intangibles |  | 906 |  |  | 3,924 |
Other |  | 469 |  |  | 2,314 |
Total deferred tax assets |  | 324,491 |  |  | 351,635 |
Valuation allowance for deferred tax assets |  | (268,554 | ) |  | (273,991 | )
Deferred tax assets, net |  | $ | 55,937 |  |  | $ | 77,644 |
Deferred tax liabilities: |  |  |  |
Fixed assets |  | $ | 83,879 |  |  | $ | 101,707 |
Inventory |  | — |  |  | 12,731 |
Other |  | 1,053 |  |  | 2,455 |
Total deferred tax liabilities |  | $ | 84,932 |  |  | $ | 116,893 |
Net deferred tax liabilities |  | $ | (28,995 | ) |  | $ | (39,249 | )
Net operating losses giving rise to deferred tax assets consist of $474.3 million of state net operating losses that expire during the tax years ending from 2019 to 2038 and foreign net operating losses of $762.4 million that expire in varying amounts beginning in 2019 (with certain amounts having indefinite carry forward periods). 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, 2018, the Company reduced valuation allowances by $5.4 million primarily related to changes in net operating loss carryforwards in certain state and foreign jurisdictions for which utilization is uncertain, partially offset by increases to valuation allowances for certain state research and development credits. Additionally, a new valuation allowance was established relating to the TCJA for foreign tax credits generated as a result of the one-time toll charge on certain undistributed earnings of non-U.S. subsidiaries. During the year ended August 31, 2017, the Company recorded valuation allowances of $121.0 million, related to net operating loss carryforwards in certain state and foreign jurisdictions due to the uncertainty of their realization. These valuation allowances were largely attributed to losses generated by foreign tax impairment charges on valuation of subsidiaries. A reconciliation of the beginning and ending amounts of unrecognized income tax benefits is as follows:
|  | August 31,
(in thousands) |  | 2018 |  | 2017 |  | 2016
Balance at September 1 |  | $ | 9,283 |  |  | $ | 9,522 |  |  | $ | 27,349 |
Change for tax positions of prior years |  | 3,121 |  |  | — |  |  | — |
Reductions due to settlements with taxing authorities |  | (8,028 | ) |  | (239 | ) |  | (17,827 | )
Reductions due to lapse of statute of limitations |  | (1,255 | ) |  | — |  |  | — |
Balance at August 31 (1) |  | $ | 3,121 |  |  | $ | 9,283 |  |  | $ | 9,522 |
_________________
(1) | The full balance of unrecognized income tax benefits in each year, if recognized, would have impacted the Company’s effective income tax rate at the end of each respective year.
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, 2018, accrued interest and penalties related to uncertain tax positions was not material. At August 31, 2017, the Company had accrued interest and penalties related to uncertain tax positions of $1.2 million. 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 — 2015 and forward U.S. States — 2009 and forward Foreign — 2011 and forward During the fiscal year ended August 31, 2018, the Company 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. In addition, the Company is under examination with certain state revenue authorities for fiscal 2009 and fiscal years 2015 through 2017. Management believes the Company's recorded income tax liabilities as of August 31, 2018 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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