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Income Taxes | 12 Months Ended
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Aug. 31, 2013
Income Taxes [Abstract] |
Income Taxes | 15. INCOME TAXES Our provision for income taxes consisted of the following (in thousands):
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2013 |  | 2012 |  | 2011
Current: |  |  |  |  |  |
Federal | $ | 1,251 | $ | - | $ | -
State |  | 273 |  | 228 |  | 204
Foreign |  | 3,256 |  | 2,553 |  | 1,643
|  | 4,780 |  | 2,781 |  | 1,847
Deferred: |  |  |  |  |  |
Federal |  | 5,176 |  | 1,311 |  | (430)
State |  | (414) |  | (3) |  | (149)
Foreign |  | (151) |  | (269) |  | 45
Benefit of foreign tax credit |  |  |  |  |  |
carryforward |  | (5,404) |  | (2,677) |  | (3,788)
Utilization of net loss carryforwards |  | 189 |  | 4,763 |  | 6,012
Provision resulting from the allocation |  |  |  |  |  |
of certain tax items directly to |  |  |  |  |  |
contributed capital |  | 903 |  | - |  | 102
|  | 299 |  | 3,125 |  | 1,792
| $ | 5,079 | $ | 5,906 | $ | 3,639
The allocation of the total income tax provision is as follows (in thousands):
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2013 |  | 2012 |  | 2011
Net income | $ | 5,079 | $ | 5,906 | $ | 3,639
Other comprehensive income |  | (260) |  | (73) |  | 310
| $ | 4,819 | $ | 5,833 | $ | 3,949
Income before income taxes consisted of the following (in thousands):
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2013 |  | 2012 |  | 2011
United States | $ | 14,939 | $ | 11,006 | $ | 7,438
Foreign |  | 4,459 |  | 2,741 |  | 1,008
| $ | 19,398 | $ | 13,747 | $ | 8,446
The differences between income taxes at the statutory federal income tax rate and the consolidated income tax rate reported in our consolidated income statements were as follows:
YEAR ENDED AUGUST 31, | 2013 | 2012 | 2011
Federal statutory income tax rate | 35.0% | 35.0% | 35.0%
State income taxes, net of federal effect | 1.6 | 2.7 | 3.7
Foreign jurisdictions tax differential | 1.0 | 1.8 | 0.3
Tax differential on income subject to both U.S. and foreign taxes | (3.3) | (3.4) | (5.7)
Effect of claiming foreign tax credits instead of deductions for prior years | (12.2) | - | -
Uncertain tax positions | 1.8 | 3.2 | 3.7
Management stock loan interest and non-deductible expenses | 1.3 | 2.2 | 3.6
Non-deductible executive compensation | 0.9 | 1.4 | 1.3
Non-deductible meals and entertainment | 0.8 | 0.9 | 1.5
Other | (0.7) | (0.8) | (0.3)
| 26.2% | 43.0% | 43.1%
In prior fiscal years, we elected to take deductions on our U.S. federal income tax returns for foreign income taxes paid, rather than claiming foreign tax credits. During those years we either generated or used net operating loss carryforwards and were therefore unable to utilize foreign tax credits. In fiscal 2011 we began claiming foreign tax credits on our U.S. federal income tax returns. Although we could not utilize the credits we claimed for fiscal 2012 and fiscal 2011 in those respective years, we concluded it was more likely than not that these foreign tax credits will be utilized in the future. As of August 31, 2013, we have no remaining U.S. federal net operating loss carryforwards. Additionally, overall U.S. taxable income and foreign source income for fiscal 2013 are sufficient to utilize all of the foreign tax credits generated in during the fiscal year, plus additional credits generated in prior years. Accordingly, we plan to amend our U.S. federal income tax returns from fiscal 2003 through fiscal 2007 to claim foreign tax credits instead of foreign tax deductions. The net tax benefit resulting from claiming these additional foreign tax credits totaled $2.4 million in fiscal 2013. We accrued taxable interest income on outstanding management common stock loans (Note 11). Consistent with the accounting treatment for these loans, we did not recognize interest income, thus resulting in a permanent book versus tax difference. We also recognized expenses during fiscal 2013 in connection with the resolution of the management stock loans, which were not deductible for income tax purposes. The significant components of our deferred tax assets and liabilities were comprised of the following (in thousands):
YEAR ENDED |  |  |  |
AUGUST 31, |  | 2013 |  | 2012
Deferred income tax assets: |  |  |  |
Sale and financing of corporate |  |  |  |
headquarters | $ | 10,289 | $ | 10,953
Foreign income tax credit |  |  |  |
carryforward |  | 5,423 |  | 6,205
Deferred compensation |  | 2,405 |  | 2,296
Bonus and other accruals |  | 1,430 |  | 1,399
Unearned revenue |  | 2,257 |  | 1,188
Inventory and bad debt reserves |  | 731 |  | 746
Other |  | 1,089 |  | 1,372
Total deferred income tax assets |  | 23,624 |  | 24,159
Less: valuation allowance |  | - |  | -
Net deferred income tax assets |  | 23,624 |  | 24,159
Deferred income tax liabilities: |  |  |  |
Intangibles step-ups – indefinite lived |  | (8,418) |  | (8,667)
Intangibles step-ups – definite lived |  | (7,580) |  | (8,371)
Property and equipment depreciation |  | (4,290) |  | (4,822)
Intangible asset impairment and |  |  |  |
amortization |  | (4,614) |  | (4,919)
Unremitted earnings of foreign |  |  |  |
subsidiaries |  | (428) |  | (582)
Other |  | (63) |  | (142)
Total deferred income tax liabilities |  | (25,393) |  | (27,503)
Net deferred income taxes | $ | (1,769) | $ | (3,344)
Deferred income tax amounts are recorded as follows in our consolidated balance sheets (in thousands):
YEAR ENDED |  |  |  |
AUGUST 31, |  | 2013 |  | 2012
Current assets | $ | 4,685 | $ | 3,634
Long-term assets |  | 25 |  | 23
Long-term liabilities |  | (6,479) |  | (7,001)
Net deferred income tax liability | $ | (1,769) | $ | (3,344)
As of August 31, 2013 we have utilized all of our U.S. federal net operating loss carryforwards. The Company still has U.S. state net operating loss carryforwards generated in various jurisdictions that expire primarily between August 31, 2014 and August 31, 2029. Our U.S. foreign income tax credit carryforwards were comprised of the following (in thousands):
Credit Generated in |  |  |  |  |  | Credits Used |  | Credits Used |  | Credits
Fiscal Year Ended |  | Credit Expires |  | Credits |  | in Prior |  | in Fiscal |  | Carried
August 31, |  | August 31, |  | Generated |  | Years |  | 2013 |  | Forward
2003 |  | 2013 | $ | 585 | $ | - | $ | (585) | $ | -
2004 |  | 2014 |  | 625 |  | - |  | (625) |  | -
2005 |  | 2015 |  | 877 |  | - |  | (877) |  | -
2006 |  | 2016 |  | 625 |  | - |  | (625) |  | -
2007 |  | 2017 |  | 1,071 |  | - |  | (917) |  | 154
2011 |  | 2021 |  | 3,531 |  | - |  | - |  | 3,531
2012 |  | 2022 |  | 2,645 |  | (907) |  | - |  | 1,738
2013 |  | 2023 |  | 3,064 |  | - |  | (3,064) |  | -
|  |  | $ | 13,023 | $ | (907) | $ | (6,693) | $ | 5,423
We plan to amend our U.S. federal income tax returns from fiscal 2003 through fiscal 2007 to claim foreign tax credits instead of the foreign tax deductions that were previously claimed. The additional taxable income from claiming these foreign credits results in the complete utilization of our remaining net operating loss carryforwards in fiscal 2012 and in the ability to utilize a portion of the foreign tax credit generated in fiscal 2012. We have determined that projected future taxable income is adequate to allow for realization of all deferred tax assets. We considered sources of taxable income, including future reversals of taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and reasonable, practical tax-planning strategies to generate additional taxable income. Based on the factors described above, we concluded that realization of all our deferred tax assets is more likely than not at August 31, 2013. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
YEAR ENDED |  |  |  |  |  |
AUGUST 31, |  | 2013 |  | 2012 |  | 2011
Beginning balance | $ | 4,212 | $ | 3,703 | $ | 3,940
Additions based on tax positions |  |  |  |  |  |
related to the current year |  | 720 |  | 297 |  | 6
Additions for tax positions in |  |  |  |  |  |
prior years |  | 69 |  | 327 |  | 384
Reductions for tax positions of prior |  |  |  |  |  |
years resulting from the lapse of |  |  |  |  |  |
applicable statute of limitations |  | (74) |  | - |  | -
Other reductions for tax positions of |  |  |  |  |  |
prior years |  | (798) |  | (115) |  | (627)
Ending balance | $ | 4,129 | $ | 4,212 | $ | 3,703
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $3.1 million at August 31, 2013 and 2012. Included in the ending balance of gross unrecognized tax benefits is $3.0 million related to individual states’ net operating loss carryforwards. Interest and penalties related to uncertain tax positions are recognized as components of income tax expense. The net accruals and reversals of interest and penalties increased income tax expense by $0.1 million in fiscal 2013, increased income tax expense by $0.1 million in fiscal 2012, and increased income tax expense by an insignificant amount in fiscal 2011. The balance of interest and penalties included on our consolidated balance sheets at August 31, 2013 and 2012 was $0.3 million and $0.2 million, respectively. We do not expect a material change in our unrecognized tax benefits over the next twelve months. We file United States federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The tax years that remain subject to examinations for our major tax jurisdictions are shown below. Additionally, any net operating losses that were generated in prior years and utilized in these years may be subject to examination.
2006-2013 | Canada
2006-2013 | Australia
2008-2013 | Japan, United Kingdom
2009-2013 | United States – state and local income tax
2010-2013 | United States – federal income tax

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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