KEWAUNEE SCIENTIFIC CORP /DE/KEQU
KEWAUNEE SCIENTIFIC CORP /DE/ Income Taxes Disclosure
Income Taxes
Effective August 1, 2019, the Company elected to revoke the indefinite reinvestment of foreign unremitted earnings position set forth by ASC 740-30-25-17 for multiple foreign subsidiaries. As a result of this election, the Company recorded a tax withholding expense imposed by the India Income Tax Department of $416,000 and $371,000 for the years ended April 30, 2025 and 2024, respectively.
The Company's accounting policy with respect to the Global Intangible Low-Taxed Income ("GILTI") tax rules is that GILTI will be treated as a periodic charge in the year in which it arises.
Income tax (benefit) expense consisted of the following:
| $ in thousands | 2025 | 2024 | ||||||||||||
Current tax (benefit) expense: | ||||||||||||||
| Federal | $ | 3,043 | $ | 2,332 | ||||||||||
| State and local | 610 | 65 | ||||||||||||
| Foreign | 1,752 | 2,661 | ||||||||||||
| Total current tax expense | 5,405 | 5,058 | ||||||||||||
Deferred tax (benefit) expense: | ||||||||||||||
| Federal | (1,433) | (10,378) | ||||||||||||
| State and local | (650) | (893) | ||||||||||||
| Foreign | (120) | 275 | ||||||||||||
Total deferred tax (benefit) expense | (2,203) | (10,996) | ||||||||||||
Net income tax (benefit) expense | $ | 3,202 | $ | (5,938) | ||||||||||
The reasons for the differences between the above net income tax (benefit) expense and the amounts computed by applying the statutory federal income tax rate to earnings before income taxes are as follows:
| $ in thousands | 2025 | 2024 | ||||||||||||
Income tax expense at statutory rate | $ | 3,105 | $ | 2,755 | ||||||||||
| State and local taxes, net of federal income tax benefit | (168) | 575 | ||||||||||||
Tax credits | (515) | (355) | ||||||||||||
| Effects of differing US and foreign tax rates | 183 | 243 | ||||||||||||
Non-deductible transaction costs | 348 | — | ||||||||||||
Effect of pension settlement | — | (3,870) | ||||||||||||
| Return to provision adjustment | (72) | 743 | ||||||||||||
| Impact of foreign subsidiary income to parent | 6 | 96 | ||||||||||||
Increase (decrease) in valuation allowance | 7 | (6,579) | ||||||||||||
Deferred taxes on unremitted earnings | 416 | 371 | ||||||||||||
| Other items, net | (108) | 83 | ||||||||||||
Net income tax (benefit) expense | $ | 3,202 | $ | (5,938) | ||||||||||
Significant items comprising deferred tax assets and liabilities as of April 30 were as follows:
| $ in thousands | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Accrued employee benefit expenses | $ | 417 | $ | 152 | ||||||||||
Allowance for credit losses | 151 | 151 | ||||||||||||
| Deferred compensation | 1,345 | 950 | ||||||||||||
| Tax credits (state, net of federal benefits) | 170 | 170 | ||||||||||||
| Foreign tax credit carryforwards | 638 | 638 | ||||||||||||
Section 174 R&E | 3,269 | 2,303 | ||||||||||||
Warranty Accrual | 193 | — | ||||||||||||
| Inventory reserves and capitalized costs | 478 | 296 | ||||||||||||
| Net operating loss carryforwards | 147 | 152 | ||||||||||||
Proceeds on sale leaseback | 6,550 | 6,316 | ||||||||||||
| Operating lease liabilities | 2,372 | 1,211 | ||||||||||||
| Other | 457 | 332 | ||||||||||||
| Total deferred tax assets | 16,187 | 12,671 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Book basis in excess of tax basis of property, plant and equipment | (3,024) | (1,678) | ||||||||||||
Book basis in excess of tax basis of sale leaseback property | (1,095) | (1,028) | ||||||||||||
Book basis in excess of tax basis of intangibles assets | (4,005) | — | ||||||||||||
| APB 23 Assertion | (1,507) | (1,572) | ||||||||||||
| Right of use assets | (2,589) | (1,142) | ||||||||||||
Debt Issuance Cost on sale leaseback | (138) | (142) | ||||||||||||
| Total deferred tax liabilities | (12,358) | (5,562) | ||||||||||||
| Valuation allowance | (933) | (926) | ||||||||||||
| Net deferred tax liabilities | $ | 2,896 | $ | 6,183 | ||||||||||
| Deferred tax assets (liabilities) classified in the balance sheet: | ||||||||||||||
Deferred tax assets, non-current | $ | 3,994 | $ | 7,401 | ||||||||||
Deferred tax liabilities, non-current | (1,098) | (1,218) | ||||||||||||
Net deferred tax assets (liabilities) | $ | 2,896 | $ | 6,183 | ||||||||||
The Company is required to evaluate the realization of the deferred tax asset and any requirement for a valuation allowance in accordance with ASC 740-10-30-2(b). This guidance provides that the future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on sufficient taxable income of the appropriate character within the carryback or carryforward period available under the tax law. The Company evaluates all available evidence, both positive and negative, to determine the amount of any required valuation allowance. As of April 30, 2025, our deferred tax assets primarily related to proceeds on a prior sale leaseback, Section 174 research and expenditures addbacks, and operating lease liabilities. A valuation allowance of $933,000 and $926,000 was recorded against our net deferred tax asset balance as of April 30, 2025 and 2024, respectively. For the year ended April 30, 2025, we recorded a net increase in valuation allowance of $7,000, as compared to a net decrease of $6,579,000 for the year ended April 30, 2024, based on management's reassessment of the amount of its deferred tax assets that are more likely than not to be realized.
The Company files federal, state and local tax returns with statutes of limitation generally ranging from 3 to 4 years. The Company is generally no longer subject to federal tax examinations for years prior to fiscal year 2021 or state and local tax examinations for years prior to fiscal year 2020. Tax returns filed by the Company's significant foreign subsidiaries are generally subject to statutes of limitations of 3 to 7 years and are generally no longer subject to examination for years prior to fiscal year 2019. The Company has no unrecognized tax benefits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Jul 2, 2025 | Showing above |
| 2024 | Jun 28, 2024 | |
| 2023 | Jun 30, 2023 | |
| 2022 | Jul 1, 2022 | |
| 2021 | Jul 15, 2021 | |
| 2020 | Jul 27, 2020 | |
| 2019 | Jul 11, 2019 | |
| 2018 | Jul 20, 2018 | |
| 2017 | Jul 21, 2017 | |
| 2016 | Jul 21, 2016 | |
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.