Income Taxes

12 Months Ended

Aug. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 12.    Income Taxes

Income tax expense from continuing operations is summarized as follows (in thousands):

	Year ended August 31,
	2011			2010			2009
Currently payable:
Federal	$	2,402		$	9,708		$	—
Foreign		23,847			15,834			19,491
State		1,982			784			(1,570	)
		28,231			26,326			17,921
Deferred:
Federal		15,297			(4,892	)		(12,439	)
Foreign		(4,639	)		(2,147	)		(8,053	)
State		(4,178	)		(441	)		3,182
		6,480			(7,480	)		(17,310	)
Total income tax expense	$	34,711		$	18,846		$	611

Income tax expense from continuing operations recognized in the accompanying consolidated statements of earnings differs from the amounts computed by applying the Federal income tax rate to earnings from continuing operations before income tax expense. A reconciliation of income taxes at the Federal statutory rate to the effective tax rate is summarized in the following table:

	Year ended August 31,
	2011			2010			2009
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of Federal effect		0.5			0.4			2.0
Net effect of foreign tax rates and credits		(13.1	)		(23.5	)		(39.3	)
Restructuring and valuation allowance		(2.6	)		(1.9	)		15.4
Other items(1)		2.0			11.1			(10.8	)
Effective income tax rate		21.8	%		21.1	%		2.3	%

(1) Other items for the year ended August 31, 2010 of 11.1% includes provision to return adjustments and additional provisions for unrecognized tax benefits. Other items for the year ended August 31, 2009 of (10.8%) reflects the benefit of income tax reserve adjustments resulting from settling tax audits for amounts less than previously accrued.

Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities include the following items (in thousands):

	Year ended August 31,
	2011			2010
Deferred income tax assets:
Operating loss and tax credit carryforwards	$	19,312		$	21,391
Compensation related liabilities		8,122			12,766
Postretirement benefits		7,192			11,126
Inventory		9,202			6,522
Restructuring and idle facility reserves		5,674			2,248
Book reserves and other items		16,073			12,949
Total deferred income tax assets		65,575			67,002
Valuation allowance		(7,260	)		(8,542	)
Net deferred income tax assets		58,315			58,460
Deferred income tax liabilities:
Depreciation and amortization		(155,022	)		(107,738	)
2% Convertible Note interest		(34,579	)		(29,346	)
Other items		(2,198	)		(905	)
Deferred income tax liabilities		(191,799	)		(137,989	)
Net deferred income tax liability	$	(133,484	)	$	(79,529	)

The valuation allowance primarily represents a reserve for foreign loss carryforwards for which utilization is uncertain. Certain of these foreign loss carryforwards may be carried forward indefinitely, with the remaining $4.1 million expiring at various dates between 2018 and 2020.

The deductibility of the 2% Convertible Notes interest, for tax purposes, may have to be recaptured, in part or in whole, if the notes are redeemed or converted at a price below a calculated level.

Changes in the Company's gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):

	August 31,
	2011			2010			2009
Beginning balance	$	28,225		$	28,541		$	29,872
Increase for tax positions taken in a prior period		4,026			2,868			4,633
Decrease for tax positions taken in a prior period		(6,072	)		(484	)		—
Decrease due to settlements		—			(2,700	)		(5,964	)
Ending balance	$	26,179		$	28,225		$	28,541

Substantially all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. As of August 31, 2011, 2010 and 2009, the Company recognized $5.1 million, $4.2 million and $3.5 million, respectively for the payment of interest and penalties related to unrecognized tax benefits. With few exceptions, the Company is no longer subject to U.S. federal, state and local and foreign income tax examinations by tax authorities in our major tax jurisdictions for years before fiscal 2005. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could increase or decrease by approximately $3.5 million within the next twelve months.

The Company's policy is to remit earnings from foreign subsidiaries only to the extent any resultant foreign income taxes are creditable in the United States. Accordingly, the Company does not currently provide for the additional United States and foreign income taxes which would become payable upon remission of undistributed earnings of foreign subsidiaries. Undistributed earnings on which additional income taxes have not been provided amounted to approximately $288.7 million at August 31, 2011. If all such undistributed earnings were remitted, an additional income tax provision of approximately $61.9 million would have been necessary as of August 31, 2011.

Earnings before income taxes related to non-United States operations were $102.1 million, $33.1 million and $43.9 million for the years ended August 31, 2011, 2010 and 2009, respectively. Cash paid for income taxes, net of refunds was $23.1 million, $6.5 million and $20.1 million during the years ended August 31, 2011, 2010 and 2009, respectively.