Income Taxes

12 Months Ended

Aug. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and the tax bases of assets and liabilities using currently enacted tax rates.

Provision and Components for Income Taxes

The provision for income taxes is as follows:

(in thousands)	Years ended August 31,
	2022			2021			2020
U.S. operations	$	281,971		$	311,767		$	280,283
Non-U.S. operations	161,623			155,850			146,851
Income before income taxes	$	443,594		$	467,617		$	427,134
U.S. operations	$	18,107		$	40,595		$	31,926
Non-U.S. operations	28,570			27,432			22,270
Total provision for income taxes	$	46,677		$	68,027		$	54,196
Effective tax rate	10.5		%	14.5		%	12.7		%

The components of the provision for income taxes consist of the following:

(in thousands)	Years ended August 31,
	2022		2021		2020
Current
U.S. federal	$	12,766	$	26,734	$	9,332
U.S. state and local	10,936		13,894		8,034
Non-U.S.	31,690		32,001		26,204
Total current taxes	$	55,392	$	72,629	$	43,570
Deferred
U.S. federal	$	(4,722)	$	1,031	$	13,332
U.S. state and local	(874)		(1,064)		2,665
Non-U.S.	(3,119)		(4,569)		(5,371)
Total deferred taxes	$	(8,715)	$	(4,602)	$	10,626
Total provision for income taxes	$	46,677	$	68,027	$	54,196

The fiscal 2022 provision for income taxes decreased 31.4% to $46.7 million, compared with $68.0 million in fiscal 2021. This decrease was primarily driven by lower pretax income and $11.7 million in higher tax benefits from the exercise of stock options for fiscal 2022, compared with the prior year period.

Our effective tax rate is based on recurring factors and non-recurring events, including the taxation of foreign income. Our effective tax rate will vary based on, among other things, changes in levels of foreign income, as well as discrete and other non-recurring events that may not be predictable. Our effective tax rate is lower than the applicable U.S. corporate income tax rate for fiscal 2022 driven mainly by research and development ("R&D") tax credits, a foreign derived intangible income ("FDII") deduction and a tax benefit from the exercise of stock options.

The following table presents a reconciliation between the U.S. corporate income tax rate and our effective tax rate:

	Years ended August 31,
(expressed as a percentage of income before income taxes)	2022		2021		2020
Tax at U.S. Federal statutory tax rate	21.0	%	21.0	%	21.0	%
Increase (decrease) in taxes resulting from:
State and local taxes, net of U.S. federal income tax benefit	1.8		2.1		3.1
Foreign income at other than U.S. rates	(1.2)		(1.0)		(1.4)
Foreign derived intangible income ("FDII") deduction	(2.2)		(1.9)		(1.8)
Income tax benefits from R&D tax credits	(4.1)		(3.9)		(3.8)
Stock-based payments	(3.4)		(2.2)		(3.7)
Other, net	(1.4)		0.4		(0.7)
Effective tax rate	10.5	%	14.5	%	12.7	%

We are permanently reinvested in all foreign unremitted earnings, except in jurisdictions where earnings can be repatriated substantially free of tax. It is not practicable to determine the amount of unremitted earnings that are permanently reinvested and the taxes that would be payable if these amounts were repatriated to the U.S.

Deferred Tax Assets and Liabilities

The significant components of deferred tax assets recorded within the Consolidated Balance Sheets were as follows:

(in thousands)	At August 31,
	2022		2021
Deferred tax assets:
Lease Liabilities	$	45,842	$	55,416
Stock-based compensation	30,382		22,847
Unrealized tax loss on investment	4,216		4,135
Other	19,943		11,199
Total deferred tax assets	$	100,383	$	93,597

At August 31, 2022, we had pre-tax federal and state net operating loss carryforwards ("NOLs") of approximately $34.8 million and $13.8 million, respectively. The carryforwards may be used to offset future taxable income. The federal NOLs have an indefinite carryforward and the state NOLs have various expiration dates, beginning August 31, 2025. Utilization of the NOLs may be subject to an annual limitation due to the ownership limitations provided by the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions. Any annual limitation may result in the expiration of net operating losses before utilization.

The significant components of deferred tax liabilities recorded within the Consolidated Balance Sheets were as follows:

(in thousands)	At August 31,
	2022		2021
Deferred tax liabilities:
Depreciation on property, equipment and leasehold improvements	$	19,855	$	17,133
Purchased intangible assets, including acquired technology	57,098		44,773
Lease right-of-use assets	27,540		43,904
Other	1,537		289
Total deferred tax liabilities	$	106,030	$	106,099

Unrecognized Tax Positions

Applicable accounting guidance prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions that a company has taken or expects to take on a tax return. We recognize the financial effect of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained based on its technical merits of the tax position. Otherwise, no benefit or expense can be recognized in the Consolidated Financial Statements. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon effective settlement with a taxing authority. Additionally, we accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws.

The determination of liabilities related to unrecognized tax benefits, including associated interest and penalties, requires significant estimates. There can be no assurance that we will accurately predict the audit outcomes, however, we have no reason to believe that such audits will result in the payment of additional taxes and/or penalties that would have a material adverse effect on our results of operations or financial position, beyond current estimates. For this reason and due to ongoing audits by multiple tax authorities, we will regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. We do not currently anticipate that the total amounts of unrecognized tax benefits will significantly change within the next 12 months.

We classify the liability for unrecognized tax benefits as Taxes Payable (non-current) and to the extent that we anticipate payment of cash within one year, the benefit will be classified as Taxes Payable (current). Additionally, we accrue interest on all tax exposures for which reserves have been established consistent with jurisdictional tax laws, recorded in Provision for income taxes in the Consolidated Statements of Income and Taxes Payable (non-current) within the Consolidated Balance Sheets.

The following table summarizes the changes in the balance of gross unrecognized tax benefits:

(in thousands)
Unrecognized income tax benefits as of August 31, 2019	$	10,884
Additions based on tax positions related to the current year	3,533
Release for tax positions of prior years	(2,086)
Unrecognized income tax benefits as of August 31, 2020(1)	$	12,331
Additions based on tax positions related to the current year	4,259
Release for tax positions of prior years	(1,720)
Unrecognized income tax benefits as of August 31, 2021(1)	$	14,870
Additions based on tax positions related to the current year	7,959
Release for tax positions of prior years	(2,658)
Unrecognized income tax benefits as of August 31, 2022(1)	$	20,171

(1)The unrecognized income tax benefits include accrued interest of $1.4 million, $1.3 million and $0.9 million as of August 31, 2022, 2021 and 2020, respectively.

In the normal course of business, our tax filings are subject to audit by federal, state and foreign tax authorities. At August 31, 2022, we remained subject to examination in the following major tax jurisdictions for the tax years as indicated below:

Major Tax Jurisdictions	Open Tax Years
U.S.
Federal	2019	through	2021
State (various)	2019	through	2021
Europe
United Kingdom	2019	through	2021
France	2019	through	2021
Germany	2018	through	2021