ENERPAC TOOL GROUP CORPEPAC

ENERPAC TOOL GROUP CORP Income Taxes Disclosure

10-KFiled Oct 17, 20255 min read
Note 13.    Income Taxes
Earnings before income taxes from continuing operations, are summarized as follows (in thousands):
  Year Ended August 31,
 202520242023
Domestic$70,722 $59,688 $26,442 
Foreign50,007 45,831 42,456 
$120,729 $105,519 $68,898 
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 2025, domestic earnings did not include impairment and other divestiture charges. In fiscal 2024, domestic earnings included $0.1 million of non-cash impairment and other divestiture charges, and fiscal 2023 results included $6.2 million of impairment and divestiture benefits. 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,
 202520242023
Currently payable:
Federal$14,993 $10,106 $5,181 
Foreign12,341 11,599 9,240 
State832 1,172 319 
28,166 22,877 14,740 
Deferred:
Federal16 (1,086)(2,935)
Foreign(634)2,630 3,806 
State432 (1,109)(362)
(186)435 509 
Income tax expense$27,980 $23,312 $15,249 
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,
 202520242023
Federal statutory rate21.0 %21.0 %21.0 %
State income taxes, net of Federal effect0.2 1.3 0.7 
Tax on foreign earnings (1)
3.3 4.2 6.0 
Foreign derived intangible income deduction(1.9)(2.3)(3.1)
Compensation adjustment0.7 2.0 1.5 
Valuation allowance additions and releases— (4.1)(0.8)
Changes in liability for unrecognized tax benefits0.2 (1.3)(0.1)
Repatriation of foreign earnings(0.7)1.6 — 
Taxable liquidation of subsidiaries— — 0.1 
Foreign non-deductible expenses— 0.3 1.7 
Changes in tax rates— — (2.0)
Audits and adjustments (2)
0.3 0.4 (2.9)
Research and development tax credit(0.4)(0.6)(0.7)
Other items0.5 (0.4)0.7 
Effective income tax rate23.2 %22.1 %22.1 %
(1) The Company generated $3.0 million, $3.4 million and $2.6 million of withholding tax and U.S. tax on non-U.S. earnings, net of foreign tax credits for fiscal 2025, 2024 and 2023, respectively.
(2) During both fiscal 2025 and 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 for fiscal 2023.
Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities include the following items (in thousands):
 August 31,
 20252024
Deferred income tax assets:
Operating loss and tax credit carryforwards$37,504 $73,406 
Compensation related liabilities4,855 4,440 
Postretirement benefits3,204 4,628 
Inventory768 977 
Lease liabilities9,451 8,063 
Research and development capitalization10,563 8,683 
Book reserves and other items6,785 5,096 
Total deferred income tax assets73,130 105,293 
Valuation allowance(27,734)(57,743)
Net deferred income tax assets45,396 47,550 
Deferred income tax liabilities:
Depreciation and amortization(26,847)(25,920)
Lease assets(9,021)(7,918)
Other items(2,065)(2,716)
Deferred income tax liabilities(37,933)(36,554)
Net deferred income tax asset (1)
$7,463 $10,996 
(1) The net deferred income tax asset is reflected on the balance sheet in two categories: an asset of $13.7 million and $14.7 million for fiscal 2025 and 2024, respectively, is included in "Other long-term assets" and a liability of $6.2 million and $3.7 million for fiscal 2025 and 2024, respectively, is included in "Deferred income taxes".
The Company has $54.3 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 2045. The Company also has $108.8 million and $7.8 million of foreign loss and credit carryforwards, respectively, and $1.4 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 2035. The U.S. credit carryforwards expire at various times through 2035. 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, 2025, certain jurisdictions met this exception. On the undistributed foreign earnings of $6.5 million that are no longer permanently reinvested outside of the United States, the Company recorded a deferred tax liability of $0.9 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, 2025.
Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):
202520242023
Beginning balance$13,713 $14,754 $15,380 
Increases based on tax positions related to the current year621 1,771 279 
Increase for tax positions taken in a prior period748 201 — 
Decrease for tax positions taken in a prior period(1,060)— (56)
Decrease due to lapse of statute of limitations(620)(3,054)(951)
Decrease due to settlements(69)— — 
Changes in foreign currency exchange rates107 41 102 
Ending balance$13,440 $13,713 $14,754 
Substantially all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. As of August 31, 2025, 2024 and 2023, the Company recognized $5.7 million, $5.0 million and $5.2 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 2013. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by up to $2.2 million throughout fiscal 2026.        
Cash paid for income taxes, net of refunds, totaled $26.6 million, $23.8 million and $2.7 million during the years ended August 31, 2025, 2024 and 2023, respectively.
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Historical Timeline

Fiscal YearFiled
2025Oct 17, 2025Showing above
2024Oct 21, 2024
2023Oct 20, 2023
2022Oct 25, 2022
2021Oct 25, 2021
2020Oct 26, 2020
2019Oct 29, 2019
2018Oct 29, 2018
2017Oct 26, 2017
2016Oct 28, 2016
2015Oct 28, 2015

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

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