Income Taxes

Income (loss) from continuing operations before income taxes was as follows for the years ended August 31 (in thousands):



	2014			2013			2012
United States	$	10,796		$	(196,289	)	$	54,304
Foreign	(61		)	(141,160		)	(11,348		)
Total	$	10,735		$	(337,449	)	$	42,956

Income tax expense (benefit) from continuing operations consisted of the following for the years ended August 31 (in thousands):



	2014			2013			2012
Current:
Federal	$	5,927		$	556		$	5,267
State	229			356			453
Foreign	177			764			(2		)
Total current tax expense (benefit)	$	6,333		$	1,676		$	5,718
Deferred:
Federal	$	(4,911	)	$	(58,194	)	$	13,166
State	880			(264		)	(2,748		)
Foreign	(301		)	(644		)	(2,097		)
Total deferred tax expense (benefit)	(4,332		)	(59,102		)	8,321
Total income tax expense (benefit)	$	2,001		$	(57,426	)	$	14,039

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:



	2014		2013		2012
Federal statutory rate	35.0	%	35.0	%	35.0	%
State taxes, net of credits	(7.1	)	1.2		(5.7	)
Foreign income taxed at different rates	(8.1	)	(3.5	)	4.2
Section 199 deduction	(6.9	)	0.5		(0.3	)
Non-deductible officers’ compensation	2.7		(0.1	)	1.5
Noncontrolling interests	(12.1	)	0.2		(2.2	)
Research and development credits	(1.0	)	0.2		(2.0	)
Fixed asset tax basis adjustment	(21.3	)	—		—
Valuation allowance on deferred tax assets	21.8		(8.6	)	—
Unrecognized tax benefits	18.0		—		—
Non-deductible goodwill	—		(7.1	)	—
Foreign interest income	—		—		0.7
Other	(2.4	)	(0.8	)	1.5
Effective tax rate	18.6	%	17.0	%	32.7	%

In fiscal 2014, the effective tax rate was lower than the U.S. federal statutory rate of 35%. The effective tax rate benefited from a fixed asset tax basis study performed during fiscal 2014 which resulted in the recognition of a tax benefit of $2 million, as well as the aggregate impact of excluding income associated with noncontrolling interests, foreign income taxed at different rates, and certain deductions and credits. Other significant items impacting the effective tax rate included the recognition of a valuation allowance against certain foreign and state deferred tax assets and the recognition of a liability for unrecognized tax benefits of $2 million. The valuation allowance on deferred tax assets of certain foreign and state tax jurisdictions increased by $2 million compared to the prior year and was recognized as a result of negative evidence, including recent losses in certain foreign and state jurisdictions, outweighing the more subjective positive evidence, indicating that it is more likely than not that the associated tax benefit will not be realized.

In fiscal 2013, the effective tax rate differed from the U.S. federal statutory rate of 35% primarily due to the recognition of a valuation allowance of $29 million on deferred tax assets mainly related to a foreign subsidiary, the impact of the non-deductible portion of the goodwill impairment charge and the impact of the foreign tax rate differential on operating losses recorded by our foreign subsidiaries. The deferred tax assets at the foreign subsidiary for which a valuation allowance was recorded were related primarily to deductible temporary differences created in fiscal 2013 by the impairment charge of goodwill and by net operating losses at the subsidiary. The valuation allowance was recognized as a result of negative evidence, including recent losses at the subsidiary, outweighing the more subjective positive evidence, indicating that it is more likely than not that the associated tax benefit will not be realized.

In fiscal 2012 the effective tax rate differed from the U.S. federal statutory rate of 35% primarily due to state tax benefits and research and development credits, partially offset by the adverse impact of foreign subsidiaries’ results taxed at different tax rates.

Realization of the foreign subsidiaries’ deferred tax assets is dependent upon the Company generating sufficient taxable income in these tax jurisdictions in future years to benefit from the reversal of net deductible temporary differences and from the utilization of net operating losses. Management believes that it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, as of August 31, 2014.

Deferred tax assets and liabilities were comprised of the following as of August 31 (in thousands):



	2014			2013
Deferred tax assets:
Environmental liabilities	$	11,975		$	12,390
Employee benefit accruals	14,983			9,378
State income tax and other	3,096			2,478
Net operating loss carryforwards	11,357			11,758
State credit carryforwards	5,567			5,360
Inventory valuation methods	242			1,390
Amortizable goodwill and other intangibles	34,102			38,820
Valuation allowances	(32,086		)	(29,696		)
Total deferred tax assets	$	49,236		$	51,878
Deferred tax liabilities:
Accelerated depreciation and other basis differences	$	62,774		$	68,609
Prepaid expense acceleration	2,250			2,418
Foreign currency translation adjustment	93			30
Total deferred tax liabilities	65,117			71,057
Net deferred tax liability	$	15,881		$	19,179

As of August 31, 2014, foreign operating loss carryforwards were $38 million, which expire if not used between 2015 and 2033. State credit carryforwards will expire if not used between 2015 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):



	2014		2013			2012
Unrecognized tax benefits, as of the beginning of the year	$	526	$	491		$	303
Additions for tax positions of prior years	1		—			—
Reductions for tax positions of prior years	—		(31		)	(143		)
Additions for tax positions of the current year	2,253		66			331
Unrecognized tax benefits, as of the end of the year	$	2,780	$	526		$	491

The Company does not anticipate any material changes to the reserve in the next 12 months.

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. The federal statute of limitations has expired for fiscal 2010 and prior years. The U.S., Canada and multiple state tax authorities are currently examining the Company’s income tax returns for fiscal years 2009 to 2012.