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Note 10 - Income Taxes | 12 Months Ended
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Jun. 30, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 10. Income Taxes On December 22, 2017, the Tax Cuts and Jobs Act (the “Act” or “TCJA”) was passed which, among other things, reduces the federal corporate tax rate to 21.0% effective for taxable years starting on or after January 1, 2018. For the year ending June 30, 2018, the Company recorded federal taxes using a blended federal rate of 28.0%. During the quarter ended December 31, 2017 ( Q2 FY2018 ), the Company reported provisional amounts for the toll/transition tax and the change in the U.S. deferred tax. Pursuant to SEC guidance provided in Staff Accounting Bulletin No. 118, the Company is utilizing the measurement period approach for the income tax effects of tax reform for which the accounting is incomplete and expects to complete process in FY19 as the FY18 tax returns are finalized. During the fourth quarter of 2018, the Company updated the impact of the tax law as follows: The Company recorded provision for income taxes of $56 thousand during the quarter due to a revaluation of the Company's estimated deferred tax assets as of December 31, 2017. The increase was a result of a change in the current year activity from the prior quarter for a total year-to date impact of approximately $1.34 million. The Company has recorded a tax benefit of approximately $1.49 million to its provision for income taxes during the quarter related to a mandatory deemed repatriation of foreign earnings. This amount includes a state tax benefit of $.54 million based on updated state guidance for a year-to date impact of approximately $11.7 million. This amount may change when the Company finalizes the calculation of post- 1986 foreign E&P previously deferred from U.S. federal taxation. In addition, further interpretations of the TCJA from U.S. federal and state governments and regulatory organizations may change the provisional tax liability or the accounting treatment of the provisional tax liability. Under the Act, the Company is permitted to pay this tax over an eight -year period commencing with the due date of the 2018 tax return. Since these provisions during the quarter are still based on estimates, the Company will continue to measure the impact of these areas and record any changes in subsequent quarters when information and guidance become available. Other law changes implemented by the Act such as the repeal of the Section 199 manufacturing deduction, changes to the calculation for Section 162 (m) executive compensation deduction, interest deduction limitation and Global Intangible Low Taxed Income (GILTI), and others will not have any impact on the Company until the fiscal year ending June 30, 2019. As allowed under US GAAP, the Company has elected to treat any taxes due on future U.S. inclusions in taxable income under the GILTI provision as a current-period expense when incurred. The Company will continue to monitor guidance regarding these changes for how it will impact the financial statements in later periods. In addition, as a result of the Tax Reform change on US federal taxation on cash repatriation, current US debts levels and updated cash flow planning, the Company has changed its position on reinvestment of foreign earnings in several foreign jurisdictions. As a result, the Company has recorded a tax provision of approximately $7.8 million during the quarter related to the anticipated foreign withholding taxes and state taxes on future cash repatriation. The components of income from continuing operations before income taxes are as follows (in thousands):
|  | 2018 |  |  | 2017 |  |  | 2016 |
U.S. Operations |  | $ | 7,525 |  |  | $ | 16,257 |  |  | $ | 23,996 |
Non-U.S. Operations |  |  | 69,727 |  |  |  | 45,675 |  |  |  | 44,529 |
Total |  | $ | 77,252 |  |  | $ | 61,932 |  |  | $ | 68,525 |
The Company utilizes the asset and liability method of accounting for income taxes. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the provisions of the enacted tax laws. The components of the provision for income taxes on continuing operations (in thousands) were as shown below:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 11,057 |  |  | $ | 2,229 |  |  | $ | 11,014 |
State |  |  | 498 |  |  |  | 230 |  |  |  | 523 |
Non-U.S. |  |  | 21,674 |  |  |  | 13,017 |  |  |  | 11,514 |
Total Current |  |  | 33,229 |  |  |  | 15,476 |  |  |  | 23,051 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,012 |  |  | $ | 2,141 |  |  | $ | (5,214 | )
State |  |  | 1,091 |  |  |  | (290 | ) |  |  | (1,060 | )
Non-U.S. |  |  | 4,288 |  |  |  | (1,972 | ) |  |  | (482 | )
Total Deferred |  |  | 7,391 |  |  |  | (121 | ) |  |  | (6,756 | )
Total |  | $ | 40,620 |  |  | $ | 15,355 |  |  | $ | 16,295 |
A reconciliation from the U.S. Federal income tax rate on continuing operations to the total tax provision is as follows:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Provision at statutory tax rate |  |  | 28.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State taxes |  |  | 1.5 | % |  |  | (0.1 | %) |  |  | (0.5 | %)
Impact of foreign operations |  |  | (0.9 | %) |  |  | (8.0 | %) |  |  | (6.7 | %)
Federal tax credits |  |  | (1.2 | %) |  |  | (1.3 | %) |  |  | (1.8 | %)
Tax Reform |  |  | 16.7 | % |  |  | 0.0 | % |  |  | 0.0 | %
Cash repatriation |  |  | 9.5 | % |  |  | 0.0 | % |  |  | 0.0 | %
Contributions, net |  |  | 0.0 | % |  |  | 0.0 | % |  |  | (1.3 | %)
Other |  |  | (1.0 | %) |  |  | (0.8 | %) |  |  | (0.9 | %)
Effective income tax provision |  |  | 52.6 | % |  |  | 24.8 | % |  |  | 23.8 | %
Due to the effective date of the Act’s rate reduction on our fiscal year, the Company recorded a blended statutory rate for the year ended June 30, 2018. Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, size of the Company’s income or loss and any one -time activities occurring during the period. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2018 was impacted by the following items: (i) a tax provision related to the impact of the Sec. 965 toll tax of $11.7 million, (ii) a tax provision related to a revaluation of deferred taxes due to the federal rate reduction of $1.3 million, and (iii) a tax provision related to expected foreign withholding taxes on cash repatriation of $7.8 million. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2017 was impacted by the following items: (i) a benefit of $0.6 million related to the R&D tax credit, and (ii) a benefit of $5.3 million due to the mix of income earned in jurisdictions with beneficial tax rates. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2016 was impacted by the following items: (i) a net benefit of $0.9 million related to a bargain-sale of idle property to a charitable organization, and (ii) a benefit of $0.7 million related to the R&D tax credit, and (iii) a benefit of $4.9 million due to the mix of income earned in jurisdictions with beneficial tax rates. Significant components of the Company’s deferred income taxes are as follows (in thousands):
|  | 2018 |  |  | 2017 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation and amortization |  | $ | (39,775 | ) |  | $ | (55,041 | )
Withholding Taxes |  |  | (7,833 | ) |  |  | - |
Other |  |  | - |  |  |  | - |
Total deferred tax liability |  | $ | (47,608 | ) |  | $ | (55,041 | )
Deferred tax assets: |  |  |  |  |  |  |  |
Accrued compensation |  | $ | 2,657 |  |  | $ | 4,127 |
Accrued expenses and reserves |  |  | 4,808 |  |  |  | 6,886 |
Pension |  |  | 13,522 |  |  |  | 26,309 |
Inventory |  |  | 1,613 |  |  |  | 2,677 |
Other |  |  | 452 |  |  |  | 939 |
Net operating loss and credit carry forwards |  |  | 8,668 |  |  |  | 6,773 |
Total deferred tax asset |  | $ | 31,720 |  |  | $ | 47,711 |
Less: Valuation allowance |  |  | (3,482 | ) |  |  | (1,530 | )
Net deferred tax asset (liability) |  | $ | (19,370 | ) |  | $ | (8,860 | )
The Company estimates the degree to which deferred tax assets, including net operating loss and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction and provides a valuation allowance for tax assets and loss carry forwards that it believes will more likely than not go unrealized. The valuation allowance at June 30, 2018 applies to state and foreign loss carry forwards, which management has concluded that it is more likely than not that these tax benefits will not be realized. The increase (decrease) in the valuation allowance from the prior year was due to the current year activity in those same state and foreign loss jurisdictions. As of June 30, 2018, the Company had gross state net operating loss ("NOL") and credit carry forwards of approximately $61.6 million and $2.5 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates from 2018 through 2037. In addition, the Company had foreign NOL carry forwards of approximately $3.1 million, $2.4 million of which carry forward indefinitely and $0.7 million that carry forward for 10 years. Under ASU 2016 - 09, Improvements to Employee Share-Based Payment Accounting , all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. Accordingly, we recorded discrete income tax benefits in the consolidated statements of income of $395 during the fiscal year ended June 30, 2018, for excess tax benefits related to equity compensation. As a result of the tax reform law passed on December 22, 2017, undistributed foreign earnings were subject to the U.S. one -time mandatory transition tax and are eligible to be repatriated to the U.S. without additional U.S. tax under the Tax Act and companies are now eligible to receive 100 percent dividend received deduction for foreign dividends. However, the permanent reinvestment assertion must still be assessed and made regarding potential liabilities for foreign withholding taxes. Historically, we have not provided deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries as theses were deemed to be permanently reinvested. As of June 30, 2018, we reassessed our position regarding our permanent reinvestment in various foreign jurisdictions. As a result, we determined that assessment of previously undistributed earnings of certain foreign subsidiaries no longer meet the requirements for indefinite reinvestment under applicable accounting guidance. Therefore, we recognized deferred tax liabilities of approximately $4.2 million that relate to foreign withholding taxes on these earnings. In addition, we have determined that current earnings from several foreign jurisdictions will no longer be reinvested. As such the Company has recorded deferred tax liabilities of approximately $3.1 million related to foreign withholding taxes on these current year earnings. It is expected deferred tax liabilities will continue to be recorded on current earnings in future periods from these jurisdictions. Lastly, the Company maintains its permanent reinvestment on earnings in certain foreign jurisdictions. If repatriated, these earnings would generate a tax liability of approximately $1.8 million. The total provision for income taxes included in the consolidated financial statements was as follows (in thousands):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Continuing operations |  | $ | 40,620 |  |  | $ | 15,355 |  |  | $ | 16,295 |
Discontinued operations |  |  | (15 | ) |  |  | (27 | ) |  |  | (55 | )
Total Provision |  | $ | 40,605 |  |  | $ | 15,328 |  |  | $ | 16,240 |
The changes in the amount of gross unrecognized tax benefits during 2018, 2017 and 2016 were as follows (in thousands):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Beginning Balance |  | $ | 2,991 |  |  | $ | 2,978 |  |  | $ | 1,054 |
Additions based on tax positions related to the current year |  |  | 12 |  |  |  | 12 |  |  |  | 2,125 |
Additions for tax positions of prior years |  |  | - |  |  |  | 1 |  |  |  | - |
Reductions for tax positions of prior years |  |  | - |  |  |  | - |  |  |  | (201 | )
Ending Balance |  | $ | 3,003 |  |  | $ | 2,991 |  |  | $ | 2,978 |
If the unrecognized tax benefits in the table above were recognized in a future period, $2.5 million of the unrecognized tax benefit would impact the Company’s effective tax rate. Within the next twelve months, the statute of limitations will close in various U.S., state and non-U.S. jurisdictions. As a result, it is reasonably expected that net unrecognized tax benefits from these various jurisdictions would be recognized within the next twelve months. The recognition of these tax benefits is not expected to have a material impact to the Company's financial statements. The Company does not reasonably expect any other significant changes in the next twelve months. The following tax years, in the major tax jurisdictions noted, are open for assessment or refund:
Country |  | Years Ending June 30, |
United States |  |  | 2015 | to | 2018 |
Canada |  |  | 2014 | to | 2018 |
Germany |  |  | 2016 | to | 2018 |
Ireland |  |  | 2016 | to | 2018 |
Portugal |  |  | 2014 | to | 2018 |
United Kingdom |  |  | 2016 | to | 2018 |
The Company’s policy is to include interest expense and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations. At both June 30, 2018 and June 30, 2017, the company had less than $0.1 million for accrued interest expense on unrecognized tax benefits.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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