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Income Taxes
 12 Months Ended
Aug. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 17 — Income Taxes

Components of income tax expense (benefit) were as follows:

 

 

 

Years ended August 31,

 

(In thousands)

 

2021

 

 

2020

 

 

2019

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(95,875

)

 

$

21,040

 

 

$

18,894

 

State

 

 

1,853

 

 

 

785

 

 

 

4,775

 

Foreign

 

 

4,321

 

 

 

25,346

 

 

 

37,391

 

 

 

 

(89,701

)

 

 

47,171

 

 

 

61,060

 

Deferred

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

54,106

 

 

 

(8,294

)

 

 

(8,559

)

State

 

 

(2,351

)

 

 

688

 

 

 

(2,542

)

Foreign

 

 

(3,362

)

 

 

495

 

 

 

(8,433

)

 

 

 

48,393

 

 

 

(7,111

)

 

 

(19,534

)

Change in valuation allowance

 

 

1,085

 

 

 

124

 

 

 

62

 

Income tax expense (benefit)

 

$

(40,223

)

 

$

40,184

 

 

$

41,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income tax and earnings from unconsolidated affiliates for the years ended August 31, 2021, 2020 and 2019 were ($30.7 million), $71.2 million and $75.0 million, respectively, for our domestic U.S. operations and $22.1 million, $53.6 million and $78.2 million, respectively for our foreign operations.

In response to the COVID‑19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). Corporate taxpayers may carryback net operating losses (“NOLs”) originating in 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the existing limitation on taxable income of 80% by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income, plus business interest income, subject to the existing 30% limit under the 2017 Tax Act, for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation.

Due to the enactment of the CARES Act, the Company will file a U.S. Federal carryback claim for the fiscal year 2021 tax losses to the fiscal years 2016 through 2018, allowing the recovery of Federal income taxes previously paid. The income taxes associated with the carryback claims were paid at different Federal rates of 35.0% or 25.7%, rather than the current Federal rate of 21.0% in effect beginning with the fiscal year 2019. The overall net impact of the CARES Act resulted in a Federal tax benefit of $36.6 million.

 

 


The reconciliation between effective and statutory tax rates on operations is as follows:

 

 

 

Years ended August 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Federal statutory rate

 

 

(21.0

)%

 

 

21.0

%

 

 

21.0

%

State income taxes, net of federal benefit

 

 

(15.0

)

 

 

2.0

 

 

 

1.3

 

Foreign operations

 

 

25.5

 

 

 

4.5

 

 

 

5.8

 

Carryback rate benefit

 

 

(379.1

)

 

 

—

 

 

 

—

 

Permanent differences

 

 

(45.6

)

 

 

8.9

 

 

 

3.6

 

Change in valuation allowance

 

 

12.6

 

 

 

0.1

 

 

 

—

 

Uncertain tax positions

 

 

(44.0

)

 

 

3.1

 

 

 

—

 

Noncontrolling interest in flow-through entity

 

 

(2.9

)

 

 

(6.1

)

 

 

(5.7

)

Other

 

 

0.7

 

 

 

(1.3

)

 

 

1.1

 

Effective tax rate

 

 

(468.8

)%

 

 

32.2

%

 

 

27.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities were as follows:

 

 

 

As of August 31,

 

(In thousands)

 

2021

 

 

2020

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Accrued payroll and related liabilities

 

$

23,724

 

 

$

20,702

 

Deferred revenue

 

 

7,375

 

 

 

7,943

 

Inventories and other

 

 

16,760

 

 

 

17,191

 

Maintenance and warranty accruals

 

 

2,538

 

 

 

3,044

 

Lease liability

 

 

8,546

 

 

 

8,788

 

Net operating losses

 

 

15,929

 

 

 

12,247

 

Investment, asset tax credits and other

 

 

1,287

 

 

 

1,576

 

 

 

 

76,159

 

 

 

71,491

 

Valuation allowance

 

 

(10,356

)

 

 

(9,195

)

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Fixed assets

 

 

(106,051

)

 

 

(53,180

)

Original issue discount

 

 

(17,106

)

 

 

(4,992

)

Intangibles

 

 

(3,014

)

 

 

(2,820

)

Right-of-use asset

 

 

(8,921

)

 

 

(9,005

)

Other

 

 

(3,960

)

 

 

—

 

 

 

 

(139,052

)

 

 

(69,997

)

Net deferred tax liability

 

$

(73,249

)

 

$

(7,701

)

 

 

 

 

 

 

 

 

 

 

As of August 31, 2021, the Company had $68.2 million of state net operating loss carryforwards that will begin to expire in fiscal 2026, $1.2 million of state credit carryforwards that will begin to expire in 2022, $34.5 million of foreign net operating loss carryforwards that will begin to expire in fiscal 2022 and $26.0 million of foreign net operating loss carryforwards that do not expire. The Company has placed a valuation allowance of $10.4 million against the deferred tax assets for which no benefit is anticipated, including those for loss and credit carryforwards not likely to be used before their expiration dates or where the possibility of utilization is remote. The net increase in the total valuation allowance on deferred taxes for which no benefit is anticipated was approximately $1.1 million for the year ended August 31, 2021.

 

Prior to 2018 no provision had been made for U.S. income taxes on the Company’s cumulative undistributed earnings from foreign subsidiaries. During fiscal 2018 these earnings were subject to the one-time transition tax on the deemed repatriation of undistributed foreign earnings. Notwithstanding this deemed inclusion in taxable income, any actual repatriation would be accompanied by foreign withholding taxes. The Company does not intend to repatriate these foreign earnings and continues to assert that its foreign earnings are indefinitely reinvested.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

 

 

 

Years ended August 31,

 

(In thousands)

 

2021

 

 

2020

 

 

2019

 

Unrecognized Tax Benefit – Opening Balance

 

$

5,502

 

 

$

1,605

 

 

$

1,608

 

Gross increases – tax positions in prior period

 

 

—

 

 

 

4,034

 

 

 

—

 

Gross decreases – tax positions in prior period

 

 

(3,602

)

 

 

—

 

 

 

(3

)

Settlements

 

 

—

 

 

 

—

 

 

 

—

 

Lapse of statute of limitations

 

 

(335

)

 

 

(137

)

 

 

—

 

Unrecognized Tax Benefit – Ending Balance

 

$

1,565

 

 

$

5,502

 

 

$

1,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company is subject to taxation in the U.S. and in various states and foreign jurisdictions. The Company is effectively no longer subject to U.S. Federal examination for fiscal years ending before 2016, to state and local examinations before 2015, or to foreign examinations before 2016.

Unrecognized tax benefits, excluding interest, at August 31, 2021 and 2020 were $1.6 million and $5.5 million, respectively which if recognized, would affect the effective tax rate. Accrued interest on unrecognized tax benefits as of August 31, 2021 and 2020 were $0.4 million and $1.1 million, respectively. The Company recorded a reduction in accrued interest expense of approximately $0.6 million for changes in unrecognized tax benefits during the year ended August 31, 2021 and an increase in interest expense of $0.4 million during the year ended August 31, 2020. The Company has not accrued any penalties on the reserves. Interest and penalties related to income taxes are not classified as a component of income tax expense. Benefits from the realization of unrecognized tax benefits for deductible differences attributable to ordinary operations will be recognized as a reduction of income tax expense. The Company does not anticipate a significant decrease in the reserves for uncertain tax positions during the next twelve months.