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Note 11 - Income Taxes | 12 Months Ended
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Jun. 30, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 11. 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 transition year ending June 30, 2018, the Company recorded federal taxes using a federal rate of 28.0%. For the year ending June 30, 2019, the Company recorded federal taxes using a blended federal rate of 21.0%. During the quarter ended December 31, 2018, the Company recorded a tax benefit of approximately $0.8 million to its provision for income taxes related to a mandatory deemed repatriation of foreign earnings and considered the toll tax calculation to be complete. The provision for fiscal year ending June 30, 2019 was impacted by several 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). 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 and their impact on the financial statements in later periods. U.S. tax law allows a one -hundred percent dividend received deduction for foreign dividends and the Company has begun to bring back cash from foreign subsidiaries. However, the permanent reinvestment assertion must still be assessed and made regarding potential liabilities for foreign withholding taxes. As of June 30, 2019, the Company maintained the assessment that previously undistributed earnings of certain foreign subsidiaries no longer meet the requirements for indefinite reinvestment under applicable accounting guidance. Therefore, the Company recognized deferred tax liabilities of approximately $2.1 million that relate to withholding taxes on the current earnings of certain foreign subsidiaries. It is expected deferred tax liabilities will continue to be recorded on current earnings in future periods from these subsidiaries. The Company maintains the permanent reinvestment assertion on earnings in certain foreign jurisdictions. If repatriated, these earnings would generate a tax liability of approximately $1.8 million The components of income from continuing operations before income taxes are as follows (in thousands):
|  | 2019 |  |  | 2018 |  |  | 2017 |
U.S. Operations |  | $ | 5,434 |  |  | $ | 937 |  |  | $ | 5,641 |
Non-U.S. Operations |  |  | 60,179 |  |  |  | 69,310 |  |  |  | 45,318 |
Total |  | $ | 65,613 |  |  | $ | 70,247 |  |  | $ | 50,959 |
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:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 432 |  |  | $ | 9,505 |  |  | $ | (1,058 | )
State |  |  | 191 |  |  |  | 333 |  |  |  | (18 | )
Non-U.S. |  |  | 21,310 |  |  |  | 21,675 |  |  |  | 13,019 |
Total Current |  | $ | 21,933 |  |  | $ | 31,513 |  |  | $ | 11,943 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 206 |  |  | $ | 2,012 |  |  | $ | 2,141 |
State |  |  | 207 |  |  |  | 1,091 |  |  |  | (290 | )
Non-U.S. |  |  | (3,922 | ) |  |  | 4,288 |  |  |  | (1,972 | )
Total Deferred |  |  | (3,509 | ) |  |  | 7,391 |  |  |  | (121 | )
Total |  | $ | 18,424 |  |  | $ | 38,904 |  |  | $ | 11,822 |
A reconciliation from the U.S. Federal income tax rate on continuing operations to the total tax provision is as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Provision at statutory tax rate |  |  | 21.0 | % |  |  | 28.0 | % |  |  | 35.0 | %
State taxes |  |  | 0.5 | % |  |  | 1.5 | % |  |  | (0.4 | %)
Impact of foreign operations |  |  | 5.0 | % |  |  | (0.6 | %) |  |  | (9.8 | %)
Federal tax credits |  |  | (1.5 | %) |  |  | (1.4 | %) |  |  | (1.6 | %)
Tax Reform |  |  | (1.3 | %) |  |  | 18.3 | % |  |  | 0.0 | %
Cash repatriation |  |  | 3.3 | % |  |  | 10.5 | % |  |  | 0.0 | %
SubF/GILTI |  |  | 0.4 | % |  |  | 0.0 | % |  |  | 0.0 | %
Other |  |  | 0.7 | % |  |  | (0.9 | %) |  |  | (0.1 | %)
Effective income tax provision |  |  | 28.1 | % |  |  | 55.4 | % |  |  | 23.1 | %
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. 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 and used a 21% rate for the year ended June 30, 2019. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2019 was impacted by the following items: (i) $2.1 million of expenses related to expected foreign withholding taxes on cash repatriation (ii) a tax expense of $0.3 million related to the elimination of the performance based compensation exception for executive compensation under Sec. 162 (m) of the Internal Revenue Code, offset by (iii) a tax benefit of $0.8 million related to the impact of the Sec. 965 toll tax. 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. Significant components of the Company’s deferred income taxes are as follows (in thousands):
|  | 2019 |  |  | 2018 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation and amortization |  | $ | (35,420 | ) |  | $ | (39,775 | )
Withholding Taxes |  |  | (5,606 | ) |  |  | (7,833 | )
Total deferred tax liability |  | $ | (41,026 | ) |  | $ | (47,608 | )
Deferred tax assets: |  |  |  |  |  |  |  |
Accrued compensation |  | $ | 2,280 |  |  | $ | 2,657 |
Accrued expenses and reserves |  |  | 3,967 |  |  |  | 4,808 |
Pension |  |  | 18,228 |  |  |  | 13,522 |
Inventory |  |  | 927 |  |  |  | 1,613 |
Other |  |  | 355 |  |  |  | 452 |
Net operating loss and credit carry forwards |  |  | 17,939 |  |  |  | 8,668 |
Total deferred tax asset |  | $ | 43,696 |  |  | $ | 31,720 |
Less: Valuation allowance |  |  | (11,354 | ) |  |  | (3,482 | )
Net deferred tax asset (liability) |  | $ | (8,684 | ) |  | $ | (19,370 | )
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, 2019 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. In addition, the sale of the Cooking Solutions Group in the fiscal year generated a significant capital loss for tax purposes due to a higher tax basis in the stock than book basis. As of June 30, 2019, the Company expects that it is more likely than not that the majority of this loss will not be realizable in future years. As such, the valuation allowance increased by $6.3 million. As of June 30, 2019, the Company had gross state net operating loss ("NOL") and credit carry forwards of approximately $68.5 million and $2.7 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates from 2019 through 2038. In addition, the Company had foreign NOL carry forwards of approximately $3.8 million, $2.8 million of which carry forward indefinitely and $1.0 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, the we recorded discrete income tax benefits in the consolidated statements of income of $0.2 million during the fiscal year ended June 30, 2019, for excess tax benefits related to equity compensation. The total provision (benefit) for income taxes included in the consolidated financial statements was as follows (in thousands):
|  | 2019 |  |  | 2018 |  |  | 2017 |
Continuing operations |  | $ | 18,424 |  |  | $ | 38,904 |  |  | $ | 11,822 |
Discontinued operations |  |  | (2,189 | ) |  |  | 1,701 |  |  |  | 3,506 |
Total Provision |  | $ | 16,235 |  |  | $ | 40,605 |  |  | $ | 15,328 |
The tax benefit for discontinued operations relates mostly to the write-off of deferred tax liabilities from the sale of the Cooking Solutions Group. The changes in the amount of gross unrecognized tax benefits during 2019 , 2018 and 2017 were as follows (in thousands):
|  | 2019 |  |  | 2018 |  |  | 2017 |
Beginning Balance |  | $ | 3,003 |  |  | $ | 2,991 |  |  | $ | 2,978 |
Additions based on tax positions related to the current year |  |  | 4 |  |  |  | 12 |  |  |  | 12 |
Additions for tax positions of prior years |  |  | 8,281 |  |  |  | - |  |  |  | 1 |
Reductions for tax positions of prior years |  |  | (37 | ) |  |  | - |  |  |  | - |
Ending Balance |  | $ | 11,251 |  |  | $ | 3,003 |  |  | $ | 2,991 |
The Company increased its uncertain tax position in the third quarter due to a technical position taken on the 2018 tax return filed in April concerning the impact of the mandatory repatriation. The expense related to this position was recorded in the prior year and resulted in a balance sheet reclassification only. If the unrecognized tax benefits in the table above were recognized in a future period, $10.4 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 |  | 2016 to 2019 |
Canada |  | 2015 to 2019 |
Germany |  | 2016 to 2019 |
Ireland |  | 2019 |
Portugal |  | 2018 to 2019 |
United Kingdom |  | 2016 to 2019 |
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, 2019 and June 30, 2018, 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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