INCOME TAXES

12 Months Ended

Aug. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates includes the following components (in thousands):

	Years Ended August 31,
	2023		2022		2021
United States	$	57,941	$	55,667	$	33,818
Foreign	111,270		100,754		113,368
Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates	$	169,211	$	156,421	$	147,186

Significant components of the income tax provision are as follows (in thousands):

	Years Ended August 31,
	2023		2022		2021
Current:
U.S. tax expense	$	21,604	$	20,824	$	16,904
Foreign tax expense	41,639		34,334		35,918
Total	$	63,243	$	55,158	$	52,822
Deferred:
U.S. tax benefit	$	(11,958)	$	(11,894)	$	(10,212)
U.S. valuation allowance change	12,598		11,823		9,777
Foreign tax benefit	(3,935)		(3,259)		(3,125)
Foreign valuation allowance change	3		30		(293)
Total	$	(3,292)	$	(3,300)	$	(3,853)
Provision for income taxes	$	59,951	$	51,858	$	48,969

The reconciliation of income tax computed at the Federal statutory tax rate to the provision for income taxes is as follows (in percentages):

	Years Ended August 31,
	2023		2022		2021
Federal tax provision at statutory rates	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	0.3		0.2		0.1
Differences in foreign tax rates	6.8		7.1		6.9
Permanent items and other adjustments	(0.1)		(2.6)		(2.2)
Increase in valuation allowance	7.4		7.5		7.5
Provision for income taxes	35.4	%	33.2	%	33.3	%

Significant components of the Company’s deferred tax assets as of August 31, 2023 and 2022 are shown below (in thousands):

	August 31,
	2023		2022
Deferred tax assets:
Foreign tax credits	$	43,632	$	32,322
Deferred compensation	1,664		1,782
U.S. timing differences	6,845		7,746
Foreign net operating losses	4,911		5,026
Foreign timing differences:
Accrued expenses and other timing differences	9,365		9,937
Depreciation and amortization	15,160		13,019
Deferred income	7,338		7,749
Gross deferred tax assets	88,915		77,581
U.S. deferred tax liabilities (depreciation and other timing differences)	(3,035)		(2,273)
Foreign deferred tax liabilities netted against deferred tax assets	(5,552)		(8,697)
U.S. valuation allowance	(43,860)		(33,824)
Foreign valuation allowance	(4,430)		(4,432)
Net deferred tax assets	$	32,038	$	28,355

For fiscal year 2023, the effective tax rate was 35.4%. The increase in the effective rate versus the prior year was primarily attributable to the comparably favorable impact of 2.0% due to a greater portion of income falling into lower tax jurisdictions, offset by the comparably unfavorable impact of 1.8% from the AMT settlement and 2.2% from asset impairment and related closure costs.

For fiscal year 2023, management concluded that a valuation allowance continues to be necessary for certain U.S. and foreign deferred tax assets primarily because of the existence of negative objective evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, and the determination that certain net operating loss carryforward periods are not sufficient to realize the related deferred tax assets. The Company factored into its analysis the inherent risk of forecasting revenue and expenses over an extended period of time and also considered the potential risks associated with its business. The Company had net foreign deferred tax assets of $26.8 million and $22.6 million as of August 31, 2023 and 2022, respectively.

The Company does not provide for income taxes which would be payable if undistributed earnings of its foreign subsidiaries were remitted to the U.S. The Company considers earnings to be permanently reinvested for any jurisdiction

where distribution from a foreign affiliate would cause additional tax cost, and management has no plans to repatriate the

related undistributed earnings and profits from these foreign affiliates. As of August 31, 2023 and 2022 the undistributed earnings of these foreign subsidiaries are approximately $369.6 million and $335.5 million, respectively.

The Company accrues for the estimated additional amount of taxes for uncertain income tax positions if the likelihood of sustaining the tax position does not meet the more-likely-than-not-standard for recognition of tax benefits. These positions are recorded as unrecognized tax benefits.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Years Ended August 31,
	2023		2022		2021
Balance at beginning of fiscal year	$	5,041	$	3,911	$	4,573
Gross increase - tax positions in prior period	35		264		135
Gross decrease - tax positions in prior period	—		—		(306)
Additions based on tax positions related to the current year	143		1,356		333
Expiration of the statute of limitations for the assessment of taxes	(474)		(490)		(824)
Balance at end of fiscal year	$	4,745	$	5,041	$	3,911

As of August 31, 2023, the liability for income taxes associated with unrecognized tax benefits was $4.7 million and can be reduced by $1.4 million of tax benefits recorded as deferred tax assets and liabilities. The total $4.7 million unrecognized tax benefit includes $300,000 of associated timing adjustments. The net amount of $4.4 million would, if recognized, favorably affect the Company's financial statements and favorably affect the Company's effective income tax rate.

The Company recognizes interest and/or penalties related to unrecognized tax benefits in income tax expense. As of August 31, 2023 and 2022, the Company had accrued an additional $1.6 million and $1.5 million, respectively, for the payment of interest and penalties related to the above-mentioned unrecognized tax benefits.

The Company expects changes in the amount of unrecognized tax benefits in the next 12 months as the result of a lapse in various statutes of limitations. The lapse of statutes of limitations in the twelve-month period ending August 31, 2023 could result in a total income tax benefit amounting up to $600,000.

The Company has various appeals pending before tax courts in its subsidiaries' jurisdictions. Any possible settlement could increase or decrease earnings but is not expected to be significant. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.

In two countries where the Company operates, minimum income tax rules require the Company to pay taxes based on a percentage of sales if the resulting tax were greater than the tax payable based on a percentage of income (AMT). As a result, the Company is making AMT payments substantially in excess of those it would expect to pay based on taxable income. The Company had income tax receivables of $10.7 million and $11.0 million as of August 31, 2023 and August 31, 2022, respectively, and deferred tax assets of $3.7 million and $3.5 million as of August 31, 2023 and August 31, 2022, respectively, in these countries.

In the fourth quarter of fiscal year 2023, we recorded a $7.2 million charge to settle the AMT payment dispute in one of the aforementioned countries, $1.0 million of which was a reserve for an income tax receivable for one of the tax years for which we sought a refund and the remaining $6.2 million is an accrual for the unpaid years of the dispute in which the Company made tax payments using the original computation based on taxable income.

While the rules related to refunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of the remaining tax receivables, deferred tax assets or amounts that may be deemed under-paid, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests and appeals of these rules.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax authorities in its major jurisdictions except for the fiscal years subject to audit as set forth in the table below:

Tax Jurisdiction	Fiscal Years Subject to Audit
U.S. federal	2005, 2007, 2014* to 2017*, 2018, 2020 to the present
California (U.S.) (state return)	2005 and 2019 to the present
Florida (U.S.) (state return)	2011* to 2018*, 2020 to the present
Aruba	2018 to the present
Barbados	2017 to the present
Costa Rica	2011 to 2012, 2015 to 2016, 2019 to the present
Colombia	2017 to the present
Dominican Republic	2011 to 2012, 2016, 2020 to the present
El Salvador	2019 to the present
Guatemala	2012 to 2013, 2019 to the present
Honduras	2018 to the present
Jamaica	2017 to the present
Mexico	2019 to the present
Nicaragua	2019 to the present
Panama	2018 to the present
Trinidad	2016 to the present
U.S. Virgin Islands	2001 to the present
Spain	2020 to the present
Chile	2020* to the present

*Aeropost only

Generally for U.S. federal and U.S. Virgin Islands tax reporting purposes, the statute of limitations is three years from the date of filing of the income tax return. If and to the extent the tax year resulted in a taxable loss, the statute is extended to three years from the filing date of the income tax return in which the carryforward tax loss was used to offset taxable income in the carryforward year. Given the historical losses in these jurisdictions and the Section 382 change in control limitations on the use of the tax loss carryforwards, there is uncertainty and significant variation as to when a tax year is no longer subject to audit.