Income Taxes

12 Months Ended

Aug. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 18 — Income Taxes

Components of income tax expense (benefit) were as follows:

	Year Ended August 31,
(In millions)	2023			2022			2021
Current
Federal	$	7.4		$	(6.7	)	$	(95.9	)
State		2.7			0.9			1.9
Foreign		9.7			19.2			4.3
		19.8			13.4			(89.7	)
Deferred
Federal		7.9			2.2			54.1
State		0.6			1.4			(2.3	)
Foreign		(3.4	)		1.6			(3.4	)
		5.1			5.2			48.4
Change in valuation allowance		(0.3	)		(0.5	)		1.1
Income tax expense (benefit)	$	24.6		$	18.1		$	(40.2	)

Earnings (loss) before income tax and earnings from unconsolidated affiliates for the years ended August 31, 2023, 2022 and 2021 were $32.2 million, $12.4 million and ($30.7 million), respectively, for our domestic U.S. operations and $58.8 million, $48.2 million and $22.1 million, respectively for our foreign operations.

Due to the enactment of the CARES Act, the Company filed a Federal claim to carryback fiscal year 2021 tax losses to the fiscal years 2016 through 2018, allowing the recovery of Federal income taxes previously paid at Federal rates of 35.0% or 25.7%, rather than the current Federal rate of 21.0% in effect beginning with the fiscal year 2019. The carryback resulted in a Federal tax benefit of $38.5 million.

On August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law. In general, the provisions of the IRA was effective beginning with fiscal year 2023, with certain exceptions. The IRA includes a new 15% corporate minimum tax as well as a 1% excise tax on corporate stock repurchases applicable to repurchases after December 31, 2022. The IRA did not have a material impact on our effective tax rate.

The reconciliation between effective and statutory tax rates on operations is as follows:

	Year Ended August 31,
	2023			2022			2021
Federal statutory rate		21.0	%		21.0	%		(21.0	)%
State income taxes, net of federal benefit		3.0			3.1			(15.0	)
Foreign operations		6.2			9.0			25.5
U.S. tax on foreign earnings		4.5			1.8			—
Carryback rate benefit		—			(3.2	)		(379.1	)
Permanent differences		(5.8	)		5.4			(45.6	)
Base erosion and anti-avoidance tax (BEAT)		1.6			—			—
Change in valuation allowance		(0.5	)		(0.8	)		12.6
Uncertain tax positions		1.4			(1.8	)		(44.0	)
Noncontrolling interest in flow-through entity		(2.7	)		(3.0	)		(2.9	)
Credits and Other		(1.7	)		(1.6	)		0.7
Effective tax rate		27.0	%		29.9	%		(468.8	)%

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities were as follows:

	As of August 31,
(In millions)	2023			2022
Deferred tax assets:
Accrued payroll and related liabilities	$	37.1		$	27.6
Deferred revenue		6.6			6.7
Inventories and other		12.4			9.8
Maintenance and warranty accruals		3.5			3.2
Lease liability		16.5			12.4
Net operating losses		18.4			19.6
Investment, asset tax credits and other		0.9			1.5
		95.4			80.8
Valuation allowance		(9.6	)		(9.9	)
Deferred tax liabilities:
Fixed assets		(131.9	)		(110.6	)
Intangibles		(5.1	)		(5.3	)
Right-of-use asset		(16.0	)		(11.9	)
Other		(13.8	)		(11.7	)
		(166.8	)		(139.5	)
Net deferred tax liability	$	(81.0	)	$	(68.6	)

As of August 31, 2023, the Company had $106.8 million of state net operating loss carryforwards that will begin to expire in 2024, $0.6 million of state credit carryforwards that begin to expire in 2025, $25.1 million of foreign net operating loss carryforwards that begin to expire in calendar 2023 and $26.1 million of foreign net operating loss carryforwards that do not expire. The Company has placed a valuation allowance of $9.6 million against the deferred tax assets for which no benefit is anticipated, including those for loss and credit carryforwards not likely to be used before their expiration dates or where the possibility of utilization is remote. The net decrease in the total valuation allowance was approximately $0.3 million for the year ended August 31, 2023.
 

The Company's cumulative undistributed foreign earnings, if repatriated, would be accompanied by foreign withholdings taxes. However, the Company does not intend to repatriate these foreign earnings and continues to assert that its foreign earnings are indefinitely reinvested. As a result, it has not recorded a liability for foreign withholding taxes associated with undistributed foreign earnings.
 

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

	Year Ended August 31,
(In millions)	2023		2022			2021
Unrecognized Tax Benefit – Opening Balance	$	0.4	$	1.6		$	5.5
Gross increases – tax positions in prior period		1.3		—			—
Gross decreases – tax positions in prior period		—		(0.9	)		(3.6	)
Settlements		—		—			—
Lapse of statute of limitations		—		(0.3	)		(0.3	)
Unrecognized Tax Benefit – Ending Balance	$	1.7	$	0.4		$	1.6

The Company is subject to taxation in the U.S. and in various states and foreign jurisdictions. The Company is effectively no longer subject to U.S. Federal examination for fiscal years ending before 2016, to state and local examinations before 2015, or to foreign examinations before 2016. The Company currently has ongoing examinations in the United States, Poland, and Romania.

Unrecognized tax benefits, excluding interest, at August 31, 2023 and 2022 were $1.7 million and $0.4 million, respectively which if recognized, would affect the effective tax rate. Accrued interest on unrecognized tax benefits as of August 31, 2023 and August 31, 2022 was $0.6 million and $0.1 million, respectively. The Company recorded an increase in accrued interest expenses of approximately $0.5 million and a reduction of approximately $0.3 million for changes in unrecognized tax benefits during the years ended August 31, 2023 and 2022 respectively. The Company has not accrued any penalties on the reserves. The Company does not anticipate a significant decrease in the reserves for uncertain tax positions during the next twelve months.

Interest and penalties related to income taxes are classified as a component of income tax expense. Benefits from the realization of unrecognized tax benefits for deductible differences attributable to ordinary operations will be recognized as a reduction of income tax expense.