Income Taxes

12 Months Ended

Aug. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 7 – Income Taxes

For financial reporting purposes earnings before income taxes include the following components:

	For the years ended August 31,
($ in thousands)	2023		2022		2021
United States	$	40,066	$	34,465	$	28,605
Foreign		60,309		53,403		21,781
	$	100,375	$	87,868	$	50,386

Significant components of the income tax provision are as follows:

	For the years ended August 31,
($ in thousands)	2023			2022			2021
Current:
Federal	$	8,119		$	5,678		$	2,432
State		1,690			1,310			733
Foreign		18,187			17,474			2,738
Total current		27,996			24,462			5,903
Deferred:
Federal		(684	)		244			2,251
State		(76	)		34			281
Foreign		760			(2,341	)		(621	)
Total deferred	—				(2,063	)		1,911
Total income tax provision	$	27,996		$	22,399		$	7,814

Total income tax provision resulted in effective tax rates differing from that of the statutory United States federal income tax rates. The reasons for these differences are:

	For the years ended August 31,
	2023						2022						2021
($ in thousands)	Amount			%			Amount			%			Amount			%
U.S. statutory rate	$	21,079			21.0		$	18,452			21.0		$	10,581			21.0
State and local taxes, net of federal tax benefit		1,259			1.3			1,069			1.2			859			1.7
Foreign tax rate differences		6,017			6.0			3,318			3.8			(390	)		(0.8	)
U.S. tax reform		(103	)		(0.1	)		313			0.4			339			0.7
Deferred tax asset valuation allowance		(610	)		(0.6	)	—			—				(2,169	)		(4.3	)
Federal credits		(445	)		(0.4	)		(444	)		(0.6	)		(629	)		(1.2	)
Uncertain tax benefits		(84	)		(0.1	)		(369	)		(0.4	)		(622	)		(1.2	)
Capital gains		529			0.5		—			—			—			—
Other		354			0.3			60			0.1			(155	)		(0.3	)
Effective rate	$	27,996			27.9		$	22,399			25.5		$	7,814			15.5

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	August 31,
($ in thousands)	2023			2022
Deferred tax assets:
Accrued expenses	$	11,467		$	12,569
Warranty		3,433			3,336
Defined benefit pension plan		1,253			1,391
Inventory		2,749			2,544
Share-based compensation		1,722			1,474
Vacation		935			773
Net operating loss and capital loss carry forwards		189			1,208
Deferred revenue		1,379			1,422
Allowance for doubtful accounts		1,338			1,122
Lease liabilities		3,656			3,868
Capitalized research and development expenditures		2,009			—
Other		1,490			878
Gross deferred tax assets		31,620			30,585
Valuation allowance		(491	)		(1,203	)
Net deferred tax assets	$	31,129		$	29,382
Deferred tax liabilities:
Intangible assets	$	(5,085	)	$	(5,389	)
Property, plant, and equipment		(12,718	)		(11,441	)
Lease assets		(2,844	)		(2,999	)
Derivative contract		(286	)		(1,294	)
Total deferred tax liabilities	$	(20,933	)	$	(21,123	)
Net deferred tax assets	$	10,196		$	8,259

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The discrete items recorded in both fiscal 2023 and 2022 were not significant. As of August 31, 2023, the Company had a valuation allowance of $0.5 million related to deferred tax assets in a jurisdiction where the Company does not expect to realize the deferred benefit. The Company also had recorded a valuation allowance of $0.8 million as of August 31, 2022 related to capital losses from business divestitures where the Company believes it is more likely than not that the benefit from the capital loss will not be realized. The remaining valuation allowance related to deferred tax assets in a certain foreign tax jurisdiction not subject to tax due to a free trade zone exemption.

The Company does not intend to, and has not historically, repatriated earnings of its foreign subsidiaries. Thus, the Company has not provided a deferred income tax liability on these undistributed earnings that are indefinitely reinvested. The Company would recognize a deferred income tax liability if the Company were to determine that such earnings were no longer indefinitely reinvested. There are other taxes that may be incurred if the Company would repatriate earnings of its foreign subsidiaries. It is not practicable to estimate the amount of income taxes that would be incurred if the Company would repatriate earnings of its foreign subsidiaries.

The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.

A reconciliation of changes in unrecognized tax benefits is as follows:

	August 31,
($ in thousands)	2023			2022
Unrecognized tax benefits at beginning of the year	$	574		$	724
Increases for positions taken in current year		33			158
Decreases for positions taken in prior years		(15	)		—
Reduction resulting from lapse of applicable    statute of limitations		(144	)		(308	)
Decreases for settlements with tax authorities		(48	)		—
Unrecognized tax benefits at end of the year	$	400		$	574

The net amount of unrecognized tax benefits at August 31, 2023 and 2022 that, if recognized, would impact the Company’s effective tax rate was $0.3 million and $0.5 million, respectively. The Company recognized $0.2 million and $0.4 million of interest and penalties recognized in the consolidated statement of earnings for the years ended August 31, 2023 and 2022, respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. Total accrued liabilities for interest and penalties included in the unrecognized tax benefits liability were $0.3 million and $0.4 million for each of the years ended August 31, 2023 and 2022, respectively.

While it is expected that the amount of unrecognized tax benefits will change in the next twelve months as a result of the expiration of statutes of limitations, the Company does not expect this change to have a significant impact on its results of operations or financial position.

The Company files income tax returns in the United States and various state and foreign jurisdictions. The Company is no longer subject to income tax examination by US federal and most state tax authorities for tax years prior to fiscal 2020. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from three to six years.