Income Taxes

12 Months Ended

Aug. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 7 – Income Taxes 

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

	For the years ended August 31,
($ in thousands)	2021		2020		2019
United States	$	28,605	$	38,928	$	(1,949	)
Foreign		21,781		9,915		4,056
	$	50,386	$	48,843	$	2,107

Significant components of the income tax provision are as follows:

	For the years ended August 31,
($ in thousands)	2021			2020			2019
Current:
Federal	$	2,432		$	4,231		$	2,190
State		733			1,421			324
Foreign		2,738			3,178			3,107
Total current		5,903			8,830			5,621
Deferred:
Federal		2,251			2,630			(3,209	)
State		281			121			(624	)
Foreign		(621	)		(1,367	)		(1,853	)
Total deferred		1,911			1,384			(5,686	)
Total income tax provision	$	7,814		$	10,214		$	(65	)

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,
	2021						2020						2019
($ in thousands)	Amount			%			Amount			%			Amount			%
U.S. statutory rate	$	10,581			21.0		$	10,257			21.0		$	443			21.0
State and local taxes, net of federal tax benefit		859			1.7			1,079			2.2			(379	)		(18.0	)
Foreign tax rate differences		(390	)		(0.8	)		(292	)		(0.6	)		164			7.8
U.S. tax reform		339			0.7			(165	)		(0.3	)		160			7.6
Deferred tax asset valuation allowance		(2,169	)		(4.3	)		(479	)		(1.0	)		142			6.7
Federal credits		(629	)		(1.2	)		(419	)		(0.9	)		(338	)		(16.0	)
Uncertain tax benefits		(622	)		(1.2	)		165			0.3			(153	)		(7.3	)
Other		(155	)		(0.4	)		68			0.1			(104	)		(4.9	)
Effective rate	$	7,814			15.5		$	10,214			20.9		$	(65	)		(3.1	)

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)	2021			2020
Deferred tax assets:
Accrued expenses	$	10,172		$	10,376
Warranty		3,096			2,439
Defined benefit pension plan		1,626			1,767
Inventory		2,403			2,362
Share-based compensation		1,197			1,185
Vacation		749			780
Net operating loss and capital loss carry forwards		2,245			3,009
Deferred revenue		1,565			2,282
Allowance for doubtful accounts		870			683
Other		1,169			2,233
Gross deferred tax assets		25,092			27,116
Valuation allowance		(1,091	)		(3,218	)
Net deferred tax assets	$	24,001		$	23,898
Deferred tax liabilities:
Intangible assets	$	(5,607	)	$	(6,054	)
Property, plant, and equipment		(11,113	)		(8,798	)
Total deferred tax liabilities	$	(16,720	)	$	(14,852	)
Net deferred tax assets	$	7,281		$	9,046

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 fiscal 2021 include a benefit of $1.7 million related to the release of a valuation allowance related to net operating loss carryforwards in a foreign jurisdiction that are now expected to be realizable. The valuation allowance related to the net operating loss in the certain foreign tax jurisdiction amounted to $0 and $1.7 million as of August 31, 2021 and 2020, respectively. The Company has also recorded a valuation allowance of $0.8 million and $1.2 million as of August 31, 2021 and 2020, respectively, 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. Remaining valuation allowance relates 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)	2021			2020
Unrecognized tax benefits at beginning of the year	$	1,141		$	2,389
Increases for positions taken in current year		—			52
Increases for positions taken in prior years		—			266
Decreases for positions taken in prior years		(36	)		(1,360	)
Reduction resulting from lapse of applicable    statute of limitations		(287	)		(206	)
Decreases for settlements with tax authorities		(94	)		—
Unrecognized tax benefits at end of the year	$	724		$	1,141

The net amount of unrecognized tax benefits at both August 31, 2021 and 2020 that, if recognized, would impact the Company’s effective tax rate was $0.5 million and $0.8 million, respectively.  Recognition of these tax benefits would have a favorable impact on the Company’s effective tax rate.  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 $0.8 million and $1.1 million for each of the years ended August 31, 2021 and 2020, 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 2017. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years.