Income Taxes
The components of income (loss) from continuing operations before income taxes are as follows:
|
| | | | | | | | | | | |
| Years Ended November 30, |
| 2017 | | 2016 | | 2015 |
| (Dollars in millions) |
Income (Loss) from Continuing Operations Before Income Taxes: | | | | | |
U.S. | $ | (9.1 | ) | | $ | 1.5 |
| | $ | (11.2 | ) |
Foreign | 5.0 |
| | 8.4 |
| | (9.9 | ) |
| $ | (4.1 | ) | | $ | 9.9 |
| | $ | (21.1 | ) |
|
| | | | | | | | | | | |
| Years Ended November 30, |
| 2017 | | 2016 | | 2015 |
| (Dollars in millions) |
Income Tax (Expense) Benefit: | | | | | |
Current: | | | | | |
U.S. Federal | $ | (.6 | ) | | $ | (.6 | ) | | $ | (.6 | ) |
U.S. State and Local | (.1 | ) | | (.2 | ) | | (.2 | ) |
Foreign | (5.9 | ) | | (4.3 | ) | | (2.7 | ) |
| (6.6 | ) | | (5.1 | ) | | (3.5 | ) |
Deferred: | | | | | |
U.S. Federal | (72.6 | ) | | (2.4 | ) | | 4.0 |
|
U.S. State and Local | (7.8 | ) | | (.5 | ) | | (.2 | ) |
Foreign | 3.3 |
| | (2.3 | ) | | 2.1 |
|
| (77.1 | ) | | (5.2 | ) | | 5.9 |
|
Income Tax (Expense) Benefit | $ | (83.7 | ) | | $ | (10.3 | ) | | $ | 2.4 |
|
|
| | | | | | | | | | | |
| Years Ended November 30, |
| 2017 | | 2016 | | 2015 |
| (Dollars in millions) |
Effective Income Tax Rate: | | | | | |
Tax at federal statutory rate | $ | 1.4 |
| | $ | (3.5 | ) | | $ | 7.4 |
|
Valuation allowance | (79.9 | ) | | (1.8 | ) | | (.6 | ) |
Foreign taxes at different rates | 1.3 |
| | 1.0 |
| | 3.1 |
|
U.S. tax on foreign dividends | (.4 | ) | | (2.2 | ) | | — |
|
Non-deductible impairment | (6.9 | ) | | — |
| | (6.2 | ) |
Executive stock compensation | .3 |
| | — |
| | (.2 | ) |
Other permanent items | (.1 | ) | | .1 |
| | — |
|
Uncertain tax positions | — |
| | (.1 | ) | | .9 |
|
State and local taxes | (.7 | ) | | (.7 | ) | | (.4 | ) |
Foreign withholding tax | (1.0 | ) | | (.6 | ) | ` | (.7 | ) |
Foreign non-deductible interest | (.7 | ) | | (.7 | ) | | (.9 | ) |
French business tax | (.5 | ) | | (.5 | ) | | (.4 | ) |
French legislation change | 3.4 |
| | (1.6 | ) | | — |
|
Non-taxable research and development | .2 |
| | .2 |
| | .2 |
|
Tax audit settlements | (.1 | ) | | — |
| | — |
|
Other, net | — |
| | .1 |
| | .2 |
|
Effective Income Tax Rate | $ | (83.7 | ) | | $ | (10.3 | ) | | $ | 2.4 |
|
As of November 30, 2017, the Company’s income tax expense was $83.7 million on global pretax loss of $4.1 million. The 2017 income tax expense was higher than the statutory income tax rate of 35% primarily as a result of a $79.9 million income tax expense recorded for valuation allowances on deferred tax assets. Of that amount, $75.7 million income tax expense was recorded in the U.S. during the fourth quarter of 2017, and $3.3 million income tax expense related to capital loss was recorded in the U.S. during the third quarter of 2017. These valuation allowances are discussed in more detail in Note A - Description of Business and Significant Accounting Policies under the heading "Income Taxes". Additionally, a $19.6 million goodwill impairment was recorded in the fourth quarter of 2017 for which no tax benefit was realized as the goodwill impairment is permanently non-deductible for tax purposes. The tax impact of the goodwill impairment is $6.9 million. These expenses were partially offset by a 3.4 million income tax benefit from French legislative changes during the year.
Deferred Income Taxes
|
| | | | | | | | | | | | | | | |
| November 30, |
| 2017 | | 2016 |
| (Dollars in millions) |
| Assets | | Liabilities | | Assets | | Liabilities |
Accrued estimated costs | $ | 9.7 |
| | $ | — |
| | $ | 10.6 |
| | $ | — |
|
Goodwill and intangible assets | — |
| | 17.0 |
| | — |
| | 21.6 |
|
Depreciation | — |
| | 16.6 |
| | — |
| | 12.0 |
|
Pension | 24.9 |
| | — |
| | 30.2 |
| | — |
|
NOLC’s and other carryforwards | 51.5 |
| | — |
| | 51.7 |
| | — |
|
Post-retirement employee benefits | 3.9 |
| | — |
| | 4.3 |
| | — |
|
Other | 9.1 |
| | — |
| | 6.2 |
| | — |
|
Valuation allowance | (88.8 | ) | | — |
| | (14.1 | ) | | — |
|
Deferred Income Taxes | $ | 10.3 |
| | $ | 33.6 |
| | $ | 88.9 |
| | $ | 33.6 |
|
A reconciliation of the beginning and ending deferred tax valuation allowance is as follows:
|
| | | | | | | | | | | |
| Years Ended November 30, |
| 2017 | | 2016 | | 2015 |
| (Dollars in millions) |
| | | | | |
Beginning balance December 1……………………………………………………… | $ | 14.1 |
| | $ | 10.2 |
| | $ | 11.1 |
|
Additions (Reductions) Charged to Expense……………………………………. | 79.9 |
| | 4.0 |
| | 2.1 |
|
Additions (Reductions) Charged to Other Accounts…………………………… | (2.6 | ) | | — |
| | — |
|
Reduction due to Entity Disposition…………………………………………….. | (3.9 | ) | | — |
| | (1.8 | ) |
Foreign Currency Effects | 1.3 |
| | (0.1 | ) | | (1.2 | ) |
Ending balance November 30………………………………………………………………… | $ | 88.8 |
| | $ | 14.1 |
| | $ | 10.2 |
|
At November 30, 2017, the Company has $91.1 million of U.S. federal net operating loss carryforwards (NOLCs), $8.6 million of U.S. federal capital loss carryforwards, $0.1 million of foreign tax credit carryforwards, $0.9 million of AMT credit carryforwards, and $86.8 million of state net operating loss carryforwards. As a result, cash tax payments in the U.S. are expected to be minimal for the foreseeable future. The Company utilized approximately $7.8 million, $15.6 million and $7.8 million of federal net operating loss carryforward for the years ended November 2017, 2016 and 2015, respectively. The U.S. federal net operating loss carryforward increased in 2017 by $7.0 million due to the recognition of windfall tax benefits as required under ASU 2016-09 which was adopted effective December 1, 2016. During 2017, the Company generated an $8.6 million U.S. federal capital loss as result of a stock sale of a foreign subsidiary. The majority of the federal, state and local NOLCs will expire in tax years 2023 through 2034 while the foreign tax credit carryforwards will expire in the tax years 2020 through 2022, and the capital loss will expire in tax year 2022.
As of November 30, 2017, the Company had approximately $45.0 million of foreign NOLC's of which $34.1 million have an indefinite carryforward period. The Company has recognized a valuation allowance against the $34.1 million foreign NOLC's which have an indefinite carryforward period as the Company does not anticipate utilizing these carryforwards. Cash paid for income taxes in 2017, 2016, and 2015 was $4.5 million, $4.2 million, and $3.8 million, respectively, and related primarily to foreign income taxes.
The total unrecognized tax benefits are $0.3 million at November 30, 2017 and 2016. There were minimal interest and penalties recognized in the consolidated balance sheets as of November 30, 2017 and 2016, respectively. Of the total $0.3 million of unrecognized tax benefits at November 30, 2017, $0.2 million would, if recognized, impact the Company's effective tax rate. The amount of unrecognized tax benefits which impacted the Company's effective tax rate were $0.1 million and $0.3 million in 2016 and 2015. There was no impact to the effective tax rate in 2017.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties is as follows:
|
| | | | | | | | | | | |
| Years Ended November 30, |
| 2017 | | 2016 | | 2015 |
| (Dollars in millions) |
Beginning balance December 1 | $ | .3 |
| | $ | — |
| | $ | .6 |
|
Increase based on tax positions related to current year | — |
| | .3 |
| | — |
|
Reduction due to lapse of statute of limitations | — |
| | — |
| | (.6 | ) |
Ending balance November 30 | $ | .3 |
| | $ | .3 |
| | $ | — |
|
Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. The Company recognized minimal income tax expense related to interest and penalties in 2017 and 2016. The Company recognized a $0.4 million income tax benefit related to interest and penalties in 2015.
With limited exceptions, the Company is no longer open to audit under the statutes of limitation by the Internal Revenue Service and various states and foreign taxing jurisdictions for years prior to 2012.