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Income Taxes
 12 Months Ended
Aug. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

Note 17 — Income Taxes

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

 

 

 

Year Ended August 31,

 

(In millions)

 

2022

 

 

2021

 

 

2020

 

Current

 

 

 

 

 

 

 

 

 

Federal

 

$

(6.7

)

 

$

(95.9

)

 

$

21.0

 

State

 

 

0.9

 

 

 

1.9

 

 

 

0.8

 

Foreign

 

 

19.2

 

 

 

4.3

 

 

 

25.4

 

 

 

 

13.4

 

 

 

(89.7

)

 

 

47.2

 

Deferred

 

 

 

 

 

 

 

 

 

Federal

 

 

2.2

 

 

 

54.1

 

 

 

(8.3

)

State

 

 

1.4

 

 

 

(2.3

)

 

 

0.7

 

Foreign

 

 

1.6

 

 

 

(3.4

)

 

 

0.5

 

 

 

 

5.2

 

 

 

48.4

 

 

 

(7.1

)

Change in valuation allowance

 

 

(0.5

)

 

 

1.1

 

 

 

0.1

 

Income tax expense (benefit)

 

$

18.1

 

 

$

(40.2

)

 

$

40.2

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income tax and earnings from unconsolidated affiliates for the years ended August 31, 2022, 2021 and 2020 were $12.4 million, ($30.7 million) and $71.2 million, respectively, for our domestic U.S. operations and $48.2 million, $22.1 million and $53.6 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, and 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2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.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 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 filed a Federal claim to carryback fiscal year 2021 tax losses to the fiscal years 2016 through 2018, allowing the recovery of Federal income taxes previously paid at 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 aggregate impact of the CARES Act resulted in a Federal tax benefit of $38.5 million.

On August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law. In general, the provisions of the IRA will be effective beginning with fiscal year 2023, with certain exceptions. The IRA includes a new 15% corporate minimum tax as well as a 1% excise tax on corporate stock repurchases applicable to repurchases after December 31, 2022. The Company is in the process of evaluating the potential impacts of the IRA and does not currently expect the IRA to have a material impact on our effective tax rate. However, the analysis is ongoing and incomplete, and it is possible that the IRA could have an adverse effect on the Company’s tax liability.

 

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

 

 

 

Year Ended August 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Federal statutory rate

 

 

21.0

%

 

 

(21.0

)%

 

 

21.0

%

State income taxes, net of federal benefit

 

 

3.4

 

 

 

(15.0

)

 

 

2.0

 

Foreign operations

 

 

9.0

 

 

 

25.5

 

 

 

4.5

 

Carryback rate benefit

 

 

(3.2

)

 

 

(379.1

)

 

 

—

 

Permanent differences

 

 

7.2

 

 

 

(45.6

)

 

 

8.9

 

Change in valuation allowance

 

 

(0.8

)

 

 

12.6

 

 

 

0.1

 

Uncertain tax positions

 

 

(1.8

)

 

 

(44.0

)

 

 

3.1

 

Noncontrolling interest in flow-through entity

 

 

(3.0

)

 

 

(2.9

)

 

 

(6.1

)

Other

 

 

(1.9

)

 

 

0.7

 

 

 

(1.3

)

Effective tax rate

 

 

29.9

%

 

 

(468.8

)%

 

 

32.2

%

 

 

 

 

 

 

 

 

 

 

 

 

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 millions)

 

2022

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

Accrued payroll and related liabilities

 

$

27.6

 

 

$

23.7

 

Deferred revenue

 

 

6.7

 

 

 

7.4

 

Inventories and other

 

 

9.8

 

 

 

16.8

 

Maintenance and warranty accruals

 

 

3.2

 

 

 

2.5

 

Lease liability

 

 

12.4

 

 

 

8.5

 

Net operating losses

 

 

19.6

 

 

 

15.9

 

Investment, asset tax credits and other

 

 

1.5

 

 

 

1.4

 

 

 

 

80.8

 

 

 

76.2

 

Valuation allowance

 

 

(9.9

)

 

 

(10.4

)

Deferred tax liabilities:

 

 

 

 

 

 

Fixed assets

 

 

(110.6

)

 

 

(106.1

)

Original issue discount

 

 

(0.1

)

 

 

(17.1

)

Intangibles

 

 

(5.3

)

 

 

(3.0

)

Right-of-use asset

 

 

(11.9

)

 

 

(8.9

)

Other

 

 

(11.7

)

 

 

(4.0

)

 

 

 

(139.5

)

 

 

(139.1

)

Net deferred tax liability

 

$

(68.6

)

 

$

(73.3

)

 

 

 

 

 

 

 

 

As of August 31, 2022, the Company had $104.8 million of state net operating loss carryforwards that will begin to expire in fiscal 2026, $1.2 million of state credit carryforwards that began to expire in 2022, $33.5 million of foreign net operating loss carryforwards that began to expire in fiscal 2022 and $26.1 million of foreign net operating loss carryforwards that do not expire. The Company has placed a valuation allowance of $9.9 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 decrease in the total valuation allowance was approximately $0.5 million for the year ended August 31, 2022.



The Company's cumulative undistributed foreign earnings, if repatriated, would be accompanied by foreign withholdings taxes. However, the Company does not intend to repatriate these foreign earnings and continues to assert that its foreign earnings are indefinitely reinvested. As a result, it has not recorded a liability for foreign withholding taxes associated with undistributed foreign earnings.

 

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

 

 

 

Year Ended August 31,

 

(In millions)

 

2022

 

 

2021

 

 

2020

 

Unrecognized Tax Benefit – Opening Balance

 

$

1.6

 

 

$

5.5

 

 

$

1.6

 

Gross increases – tax positions in prior period

 

 

—

 

 

 

—

 

 

 

4.0

 

Gross decreases – tax positions in prior period

 

 

(0.9

)

 

 

(3.6

)

 

 

—

 

Settlements

 

 

—

 

 

 

—

 

 

 

—

 

Lapse of statute of limitations

 

 

(0.3

)

 

 

(0.3

)

 

 

(0.1

)

Unrecognized Tax Benefit – Ending Balance

 

$

0.4

 

 

$

1.6

 

 

$

5.5

 

 

 

 

 

 

 

 

 

 

 

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 2015, to state and local examinations before 2015, or to foreign examinations before 2017.

Unrecognized tax benefits, excluding interest, at August 31, 2022 and 2021 were $0.4 million and $1.6 million, respectively which if recognized, would affect the effective tax rate. Accrued interest on unrecognized tax benefits as of August 31, 2022 and August 31, 2021 was $0.1 million and $0.4 million, respectively, and included a reduction of $0.3 million and $0.6 million during the period for changes in unrecognized tax benefits. The Company has not accrued any penalties on the unrecognized tax benefits, and does not anticipate a significant decrease in unrecognized tax benefits or accrued interest during the next twelve months.

Interest and penalties related to income taxes are 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.