Income Taxes

12 Months Ended

Aug. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 12.    Income Taxes

Earnings before income taxes from continuing operations, are summarized as follows (in thousands):

	Year Ended August 31,
	2024		2023		2022
Domestic	$	59,688	$	26,442	$	10,176
Foreign	45,831		42,456		13,816
	$	105,519	$	68,898	$	23,992

Both domestic and foreign pre-tax earnings from continuing operations are impacted by changes in operating earnings, acquisition and divestiture activities, restructuring charges and the related benefits, growth investments, debt levels and the impact of changes in foreign currency exchange rates. In fiscal 2024, domestic earnings included non-cash impairment and other divestiture charges of $0.1 million. In fiscal 2023, domestic earnings included non-cash impairment and other divestiture benefits of $6.2 million. In fiscal 2022, domestic and foreign earnings included $1.3 million and $1.1 million of non-cash impairment and other divestiture charges, respectively. Substantially all of the non-cash impairment and other divestiture charges (benefits) did not result in a tax expense (benefit).

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

	Year ended August 31,
	2024		2023		2022
Currently payable:
Federal	$	10,106	$	5,181	$	1,765
Foreign	11,599		9,240		7,824
State	1,172		319		164
	22,877		14,740		9,753
Deferred:
Federal	(1,086)		(2,935)		1,580
Foreign	2,630		3,806		(7,538)
State	(1,109)		(362)		606
	435		509		(5,352)
Income tax expense	$	23,312	$	15,249	$	4,401

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,
	2024		2023		2022
Federal statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of Federal effect	1.3		0.7		2.3
Tax on foreign earnings (1)	4.2		6.0		1.3
Foreign derived intangible income deduction	(2.3)		(3.1)		(4.5)
Compensation adjustment	2.0		1.5		6.6
Impairment and other divestiture charges	—		—		1.1
Valuation allowance additions and releases	(4.1)		(0.8)		2.1
Changes in liability for unrecognized tax benefits	(1.3)		(0.1)		3.4
Repatriation of foreign earnings	1.6		—		—
Taxable liquidation of subsidiaries (2)	—		0.1		(11.4)
Foreign non-deductible expenses	0.3		1.7		8.5
Changes in tax rates	—		(2.0)		(3.6)
Audits and adjustments (3)	0.4		(2.9)		(6.7)
Research and development tax credit	(0.6)		(0.7)		(2.5)
Other items	(0.4)		0.7		0.7
Effective income tax rate	22.1	%	22.1	%	18.3	%

(1) The Company generated $3.4 million, $2.6 million and $1.5 million of withholding tax and U.S. tax on non-U.S. earnings, net of foreign tax credits for fiscal 2024, 2023 and 2022, respectively.

(2) During fiscal 2022, the Company generated a net benefit of $2.7 million as a result of taxable liquidations of subsidiaries.

(3) During fiscal 2024, the Company generated a $0.4 million tax expense related to audits and adjustments as compared to a tax benefit of $2.0 million and $1.6 million for fiscal 2023 and 2022, respectively.

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

	August 31,
	2024		2023
Deferred income tax assets:
Operating loss and tax credit carryforwards	$	73,406	$	70,933
Compensation related liabilities	4,440		7,372
Postretirement benefits	4,628		5,224
Inventory	977		1,715
Lease liabilities	8,063		8,594
Research and development capitalization	8,683		4,544
Book reserves and other items	5,096		6,548
Total deferred income tax assets	105,293		104,930
Valuation allowance	(57,743)		(61,432)
Net deferred income tax assets	47,550		43,498
Deferred income tax liabilities:
Depreciation and amortization	(25,920)		(23,844)
Lease assets	(7,918)		(8,594)
Other items	(2,716)		(1,020)
Deferred income tax liabilities	(36,554)		(33,458)
Net deferred income tax asset (1)	$	10,996	$	10,040

(1) The net deferred income tax asset is reflected on the balance sheet in two categories: an asset of $14.7 million and $15.7 million for fiscal 2024 and 2023, respectively, is included in "Other long-term assets" and a liability of $3.7 million and $5.7 million for fiscal 2024 and 2023, respectively, is included in "Deferred income taxes".

The Company has $61.9 million and $2.5 million of gross state net operating loss and credit carryforwards, respectively, which are available to reduce future state tax liabilities. These state net operating loss carryforwards expire at various times through 2044. The Company also has $78.9 million and $7.6 million of foreign loss and credit carryforwards, respectively, and $2.2 million of U.S. credit carryforwards, which are available to reduce certain future foreign and U.S. tax liabilities. The majority of the foreign loss carryforwards are not subject to any expiration dates, while the other balances expire at various times through 2034. The U.S. credit carryforwards expire at various times through 2034. The valuation allowance represents a reserve for deferred tax assets, including loss carryforwards and foreign tax credits, for which utilization is uncertain.

In general, the Company’s practice is to reinvest the earnings of its non-U.S. subsidiaries within those operations. Routinely, the Company analyzes the factors surrounding global cash needs and future cash utilization and determines if there are any exceptions. As of August 31, 2024, certain jurisdictions met this exception. On the undistributed foreign earnings of $11.3 million that are no longer permanently reinvested outside of the United States, the Company recorded a deferred tax liability of $1.7 million. If all remaining undistributed earnings were remitted, an additional income tax provision of $0.6 million would have been necessary as of August 31, 2024.

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

	2024		2023		2022
Beginning balance	$	14,754	$	15,380	$	15,658
Increases based on tax positions related to the current year	1,771		279		433
Increase for tax positions taken in a prior period	201		—		1,084
Decrease for tax positions taken in a prior period	—		(56)		(57)
Decrease due to lapse of statute of limitations	(3,054)		(951)		(1,271)
Decrease due to settlements	—		—		(31)
Changes in foreign currency exchange rates	41		102		(436)
Ending balance	$	13,713	$	14,754	$	15,380

Substantially all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. As of August 31, 2024, 2023 and 2022, the Company recognized $5.0 million, $5.2 million and $4.5 million, respectively, for interest and penalties related to unrecognized tax benefits. The Company recognizes interest and penalties related to underpayment of income taxes as a component of income tax expense. With few exceptions, the Company is no longer subject to U.S. federal, state and foreign income tax examinations by tax authorities in major tax jurisdictions for years prior to fiscal 2012. The

Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by up to $1.4 million throughout fiscal 2025.        

Cash paid for income taxes, net of refunds, totaled $23.8 million, $2.7 million and $5.7 million during the years ended August 31, 2024, 2023 and 2022, respectively.