Income Taxes
Income (loss) from continuing operations before income taxes was as follows for the years ended August 31 (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
United States | $ | 43,871 |
| | $ | (4,303 | ) | | $ | (113,084 | ) |
Foreign | 4,819 |
| | (11,202 | ) | | (87,380 | ) |
Total | $ | 48,690 |
| | $ | (15,505 | ) | | $ | (200,464 | ) |
Income tax expense (benefit) from continuing operations consisted of the following for the years ended August 31 (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | (1,130 | ) | | $ | 23 |
| | $ | (11,275 | ) |
State | 190 |
| | 180 |
| | (84 | ) |
Foreign | (16 | ) | | 25 |
| | 732 |
|
Total current tax expense (benefit) | $ | (956 | ) | | $ | 228 |
| | $ | (10,627 | ) |
Deferred: | | | | | |
Federal | $ | 2,046 |
| | $ | 502 |
| | $ | (4,752 | ) |
State | 232 |
| | 54 |
| | 2,805 |
|
Foreign | — |
| | (49 | ) | | (41 | ) |
Total deferred tax expense (benefit) | 2,278 |
| | 507 |
| | (1,988 | ) |
Total income tax expense (benefit) | $ | 1,322 |
| | $ | 735 |
| | $ | (12,615 | ) |
A reconciliation of the difference between the federal statutory rate and the Company’s effective tax rate for the years ended August 31 is as follows:
|
| | | | | | | | |
| 2017 | | 2016 | | 2015 |
Federal statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State taxes, net of credits | 1.8 |
| | 1.3 |
| | 1.1 |
|
Foreign income taxed at different rates | (1.9 | ) | | (12.0 | ) | | (7.7 | ) |
Non-deductible officers’ compensation | 2.2 |
| | (2.0 | ) | | (0.1 | ) |
Noncontrolling interests | (1.8 | ) | | 4.1 |
| | 0.3 |
|
Research and development credits | (1.5 | ) | | 2.4 |
| | 0.3 |
|
Valuation allowance on deferred tax assets | (31.2 | ) | | (59.0 | ) | | (25.2 | ) |
Unrecognized tax benefits | 1.3 |
| | (3.6 | ) | | (0.6 | ) |
Non-deductible goodwill | — |
| | (0.9 | ) | | (2.5 | ) |
Realized foreign investment basis | (0.9 | ) | | 29.4 |
| | 6.3 |
|
Other | (0.3 | ) | | 0.6 |
| | (0.6 | ) |
Effective tax rate | 2.7 | % | | (4.7 | )% | | 6.3 | % |
The Company's effective tax rate from continuing operations in fiscal 2017 was an expense of 2.7%, which was lower than the U.S. federal statutory rate of 35% primarily due to the Company's full valuation allowance positions and federal income tax refund claims, partially offset by increases in deferred tax liabilities from indefinite-lived assets in all jurisdictions. The valuation allowances on the Company's deferred tax assets are the result of negative objective evidence, including the effects of historical losses in our tax jurisdictions, outweighing positive objective and subjective evidence, indicating that it is more likely than not that the associated tax benefit will not be realized.
The Company's effective tax rate from continuing operations in fiscal 2016 was an expense of 4.7%, which was lower than the U.S. federal statutory rate of 35%. The effective tax rate was reduced for valuation allowances on deferred tax assets and the aggregate impact of foreign income taxed at different rates. Those reductions were partially offset by the realization of deductible foreign investment basis for tax purposes. The Company’s income tax expense is comprised primarily of the increase in deferred tax liabilities from indefinite-lived assets plus certain state cash tax expenses. The increase in valuation allowance on deferred tax assets was recognized as a result of negative evidence, including recent losses in all tax jurisdictions, outweighing the more subjective positive evidence, indicating that it is more likely than not that the associated tax benefit will not be realized. Realization of the deferred tax assets is dependent upon generating sufficient taxable income in the associated tax jurisdictions in future years to benefit from the reversal of net deductible temporary differences and from the utilization of net operating losses.
The Company's effective tax rate from continuing operations in fiscal 2015 was a benefit of 6.3% which was lower than the U.S. federal statutory rate of 35%. The effective tax rate was reduced by 33% for valuation allowances on deferred tax assets and the aggregate impact of excluding foreign income taxed at different rates. Those expenses were partially offset by the recognition of a $13 million benefit related to the realization of deductible foreign investment basis for tax purposes. The increase in valuation allowance on deferred tax assets was recognized as a result of negative evidence, including recent losses in all tax jurisdictions, outweighing the more subjective positive evidence, indicating that it is more likely than not that the associated tax benefit will not be realized.
Deferred tax assets and liabilities were comprised of the following as of August 31 (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Environmental liabilities | $ | 11,187 |
| | $ | 11,048 |
|
Employee benefit accruals | 13,692 |
| | 12,620 |
|
State income tax and other | 7,608 |
| | 8,518 |
|
Net operating loss carryforwards | 9,243 |
| | 19,723 |
|
State credit carryforwards | 6,678 |
| | 6,352 |
|
Inventory valuation methods | 690 |
| | — |
|
Amortizable goodwill and other intangibles | 41,793 |
| | 47,023 |
|
Valuation allowances | (70,374 | ) | | (86,917 | ) |
Total deferred tax assets | $ | 20,517 |
| | $ | 18,367 |
|
Deferred tax liabilities: | | | |
Accelerated depreciation and other basis differences | $ | 37,096 |
| | $ | 32,528 |
|
Prepaid expense acceleration | 2,568 |
| | 2,402 |
|
Inventory valuation methods | — |
| | 119 |
|
Total deferred tax liabilities | 39,664 |
| | 35,049 |
|
Net deferred tax liability | $ | 19,147 |
| | $ | 16,682 |
|
As of August 31, 2017, the Company had federal net operating loss carryforwards of $12 million, which will expire if not used by 2036. Foreign operating loss carryforwards were $27 million, which expire if not used between 2024 and 2037. State credit carryforwards will expire if not used between 2018 and 2025.
Accounting for Uncertainty in Income Taxes
The following table summarizes the activity related to the Company’s reserve for unrecognized tax benefits, excluding interest and penalties, for the years ended August 31 (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Unrecognized tax benefits, as of the beginning of the year | $ | 4,724 |
| | $ | 3,970 |
| | $ | 2,780 |
|
Additions for tax positions of prior years | — |
| | — |
| | — |
|
Reductions for tax positions of prior years | (120 | ) | | (56 | ) | | — |
|
Additions for tax positions of the current year | 944 |
| | 810 |
| | 1,571 |
|
Settlements with tax authorities | — |
| | — |
| | (381 | ) |
Unrecognized tax benefits, as of the end of the year | $ | 5,548 |
| | $ | 4,724 |
| | $ | 3,970 |
|
The Company does not anticipate any material changes to the reserve in the next 12 months. Reserves pertaining to positions claimed on the fiscal year 2013 through 2017 tax returns would result in net operating loss offsets in the event the positions were successfully challenged. Pursuant to FASB's Accounting Standards Update 2013-11, the reserves are netted against deferred tax assets related to net operating loss carryforwards. The Company believes that it is reasonably possible that approximately $2 million of its currently remaining unrecognized tax benefits may be recognized by the end of fiscal 2018 as a result of a lapse of the statute of limitations.
The recognized amounts of tax-related penalties and interest were not material for all periods presented.
The Company files federal and state income tax returns in the U.S. and foreign tax returns in Puerto Rico and Canada. For U.S. federal income tax returns, fiscal years 2013 to 2016 remain subject to examination under the statute of limitations.