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INCOME TAXES
 12 Months Ended
Aug. 31, 2022
INCOME TAXES [Abstract]  
INCOME TAXES NOTE 10 – INCOME TAXES

Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates includes the following components (in thousands):

Years Ended August 31,

2022

2021

2020

United States

$

55,667

$

33,818

$

24,771

Foreign

100,754

113,368

91,269

Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates

$

156,421

$

147,186

$

116,040

Significant components of the income tax provision are as follows (in thousands):

Years Ended August 31,

2022

2021

2020

Current:

U.S. tax expense

$

20,824

$

16,904

$

10,046

Foreign tax expense

34,334

35,918

31,122

Total

$

55,158

$

52,822

$

41,168

Deferred:

U.S. tax benefit

$

(11,894)

$

(10,212)

$

(5,945)

U.S. valuation allowance change

11,823

9,777

5,570

Foreign tax benefit

(3,259)

(3,125)

(3,157)

Foreign valuation allowance change

30

(293)

128

Total

$

(3,300)

$

(3,853)

$

(3,404)

Provision for income taxes

$

51,858

$

48,969

$

37,764

The reconciliation of income tax computed at the Federal statutory tax rate to the provision for income taxes is as follows (in percentages):

Years Ended August 31,

2022

2021

2020

Federal tax provision at statutory rates

21.0

%

21.0

%

21.0

%

State taxes, net of federal benefit

0.2

0.1

0.1

Differences in foreign tax rates

7.1

6.9

9.7

Permanent items and other adjustments

(2.6)

(2.2)

(4.4)

Increase in valuation allowance

7.5

7.5

6.1

Provision for income taxes

33.2

%

33.3

%

32.5

%

 Significant components of the Company’s deferred tax assets as of August 31, 2022 and 2021 are shown below (in thousands):

August 31,

2022

2021

Deferred tax assets:

U.S. net operating loss carryforward

$

—

$

2,866

Foreign tax credits

32,322

22,420

Deferred compensation

1,782

2,334

U.S. timing differences

7,746

3,759

Foreign net operating losses

5,026

5,051

Foreign timing differences:

Accrued expenses and other timing differences

9,937

7,636

Depreciation and amortization

13,019

10,498

Deferred income

7,749

6,422

Gross deferred tax assets

77,581

60,986

U.S. deferred tax liabilities (depreciation and other timing differences)

(2,273)

(4,083)

Foreign deferred tax liabilities netted against deferred tax assets

(8,697)

(5,753)

U.S. valuation allowance

(33,824)

(22,523)

Foreign valuation allowance

(4,432)

(4,402)

Net deferred tax assets

$

28,355

$

24,225

For fiscal 2022, the effective tax rate was 33.2%. The decrease in the effective rate versus the prior year was primarily attributable to the comparably favorable impact of 0.4% resulting from the effect of the change in foreign currency value and related adjustments.

For fiscal 2022, management concluded that a valuation allowance continues to be necessary for certain U.S. and foreign deferred tax assets primarily because of the existence of negative objective evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, and the determination that certain net operating loss carryforward periods are not sufficient to realize the related deferred tax assets. The Company factored into its analysis the inherent risk of forecasting revenue and expenses over an extended period of time and also considered the potential risks associated with its business. The Company had net foreign deferred tax assets of $22.6 million and $19.5 million as of August 31, 2022 and 2021, respectively.

The Company does not provide for income taxes which would be payable if undistributed earnings of its foreign subsidiaries were remitted to the U.S. because the Company considers these earnings to be permanently reinvested as management has no plans to repatriate undistributed earnings and profits of foreign affiliates. As of August 31, 2022 and 2021 the undistributed earnings of these foreign subsidiaries are approximately $335.5 million and $254.5 million, respectively.

The Company accrues for the estimated additional amount of taxes for uncertain income tax positions if the likelihood of sustaining the tax position does not meet the more-likely-than-not-standard for recognition of tax benefits. These positions are recorded as unrecognized tax benefits.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Years Ended August 31,

2022

2021

2020

Balance at beginning of fiscal year

$

3,911

$

4,573

$

6,490

Gross increase - tax positions in prior period

264

135

464

Gross decrease - tax positions in prior period

—

(306)

—

Additions based on tax positions related to the current year

1,356

333

186

Expiration of the statute of limitations for the assessment of taxes

(490)

(824)

(2,567)

Balance at end of fiscal year

$

5,041

$

3,911

$

4,573

As of August 31, 2022, the liability for income taxes associated with unrecognized tax benefits was $5.0 million and can be reduced by $1.5 million of tax benefits recorded as deferred tax assets and liabilities. The total $5.0 million unrecognized tax benefit includes $400,000 of associated timing adjustments. The net amount of $4.6 million would, if recognized, favorably affect the Company's financial statements and favorably affect the Company's effective income tax rate.

The Company recognizes interest and/or penalties related to unrecognized tax benefits in income tax expense. As of August 31, 2022 and 2021, the Company had accrued an additional $1.5 million and $1.6 million, respectively, for the payment of interest and penalties related to the above-mentioned unrecognized tax benefits.

The Company expects changes in the amount of unrecognized tax benefits in the next 12 months as the result of a lapse in various statutes of limitations. The lapse of statutes of limitations in the twelve-month period ending August 31, 2022 could result in a total income tax benefit amounting up to $800,000.

The Company has various appeals pending before tax courts in its subsidiaries' jurisdictions. Any possible settlement could increase or decrease earnings but is not expected to be significant. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.

In two countries where the Company operates, minimum income tax rules require the Company to pay taxes based on a percentage of sales rather than income. As a result, the Company is making income tax payments substantially in excess of those it would expect to pay based on taxable income. The Company had income tax receivables of $11.0 million as of August 31, 2022 and August 31, 2021, respectively, and deferred tax assets of $3.5 million and $3.3 million as of August 31, 2022 and August 31, 2021, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax authorities in its major jurisdictions except for the fiscal years subject to audit as set forth in the table below:

Tax Jurisdiction

Fiscal Years Subject to Audit

U.S. federal

2005, 2007, 2011* to 2017*, 2018 to the present

California (U.S.) (state return)

2005 and 2018 to the present

Florida (U.S.) (state return)

2011* to 2018*, 2019 to the present

Aruba

2017 to the present

Barbados

2016 to the present

Costa Rica

2011 to 2012, 2015 to 2016, 2018 to the present

Colombia

2016 to the present

Dominican Republic

2011 to 2012, 2016, 2019 to the present

El Salvador

2019 to the present

Guatemala

2012 to 2013, 2017 the present

Honduras

2017 to the present

Jamaica

2016 to the present

Mexico

2017 to the present

Nicaragua

2018 to the present

Panama

2018 to the present

Trinidad

2016 to the present

U.S. Virgin Islands

2001 to the present

Spain

2019 to the present

Chile

2019* to the present

*Aeropost only

Generally for U.S. federal and U.S. Virgin Islands tax reporting purposes, the statute of limitations is three years from the date of filing of the income tax return. If and to the extent the tax year resulted in a taxable loss, the statute is extended to three years from the filing date of the income tax return in which the carryforward tax loss was used to offset taxable income in the carryforward year. Given the historical losses in these jurisdictions and the Section 382 change in control limitations on the use of the tax loss carryforwards, there is uncertainty and significant variation as to when a tax year is no longer subject to audit.

 


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