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Note 13 - Income Taxes | 12 Months Ended
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Jun. 30, 2020
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
( 13 ) | Income Taxes
Income tax expense consists of the following components for the fiscal years ended June 30 ( in thousands):
|  | 2020 |  |  | 2019 |  |  | 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,432 |  |  | $ | 10,132 |  |  | $ | 10,289 |
State |  |  | 8 |  |  |  | 1,237 |  |  |  | 1,689 |
Foreign |  |  | 325 |  |  |  | 304 |  |  |  | 824 |
Total current |  |  | 2,765 |  |  |  | 11,673 |  |  |  | 12,802 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 181 |  |  |  | (3,091 | ) |  |  | 174 |
State |  |  | 2,368 |  |  |  | (381 | ) |  |  | (124 | )
Foreign |  |  | (25 | ) |  |  | (39 | ) |  |  | (156 | )
Total deferred |  |  | 2,524 |  |  |  | (3,511 | ) |  |  | (106 | )
Total Income tax expense |  | $ | 5,289 |  |  | $ | 8,162 |  |  | $ | 12,696 |
The following is a reconciliation of our effective tax rate to the U.S. federal income tax rate for the fiscal years ended June 30 ( in thousands):
|  | 2020 |  |  | 2019 |  |  | 2018 |
Expected income tax expense at U.S. federal income tax rate |  | $ | 2,980 |  |  |  | 21.0 | % |  | $ | 7,111 |  |  |  | 21.0 | % |  | $ | 13,739 |  |  |  | 28.0 | %
Increase (reduction) in income taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State income taxes, net of federal benefit |  |  | 159 |  |  |  | 1.1 | % |  |  | 737 |  |  |  | 2.2 | % |  |  | 1,263 |  |  |  | 2.6 | %
Change in valuation allowance |  |  | 2,534 |  |  |  | 17.9 | % |  |  | 602 |  |  |  | 1.8 | % |  |  | 42 |  |  |  | 0.1 | %
Remeasurement of deferred taxes for changes in statutory U.S. tax rate |  |  | - |  |  |  | 0.0 | % |  |  | - |  |  |  | 0.0 | % |  |  | (2,651 | ) |  |  | -5.4 | %
Section 199 Qualified Production Activities deduction |  |  | - |  |  |  | 0.0 | % |  |  | - |  |  |  | 0.0 | % |  |  | (678 | ) |  |  | -1.4 | %
Section 250 Foreign Derived Intangible Income deduction |  |  | - |  |  |  | 0.0 | % |  |  | (161 | ) |  |  | -0.5 | % |  |  | - |  |  |  | 0.0 | %
Unrecognized tax benefits |  |  | (215 | ) |  |  | -1.5 | % |  |  | 26 |  |  |  | 0.1 | % |  |  | 55 |  |  |  | 0.1 | %
Stock-based compensation - forfeitures and exercises |  |  | 17 |  |  |  | 0.1 | % |  |  | 184 |  |  |  | 0.5 | % |  |  | 570 |  |  |  | 1.2 | %
Other, net |  |  | (186 | ) |  |  | -1.3 | % |  |  | (337 | ) |  |  | -1.0 | % |  |  | 356 |  |  |  | 0.7 | %
Actual income tax expense (and corresponding effective tax rate) |  | $ | 5,289 |  |  |  | 37.3 | % |  | $ | 8,162 |  |  |  | 24.1 | % |  | $ | 12,696 |  |  |  | 25.9 | %
The significant components of deferred tax assets recorded within the consolidated balance sheet were as follows at June 30 ( in thousands):
|  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Leases |  | $ | 32,184 |  |  | $ | - |
Employee compensation accruals |  |  | 2,259 |  |  |  | 2,697 |
Stock-based compensation |  |  | 670 |  |  |  | 715 |
Deferred rent |  |  | - |  |  |  | 4,184 |
Net operating loss carryforwards |  |  | 2,002 |  |  |  | 4,259 |
Property, plant and equipment |  |  | 1,020 |  |  |  | 1,021 |
Other |  |  | 2,825 |  |  |  | 2,341 |
Subtotal deferred tax assets |  |  | 40,960 |  |  |  | 15,217 |
Less: Valuation allowance |  |  | (3,158 | ) |  |  | (3,197 | )
Total deferred tax assets |  | $ | 37,802 |  |  | $ | 12,020 |
The significant components of deferred tax liabilities recorded within the consolidated balance sheet were as follows at June 30 ( in thousands):
|  | 2020 |  |  | 2019 |
Operating lease right-of-use assets |  | $ | 27,334 |  |  | $ | - |
Intangible assets other than goodwill |  |  | 9,080 |  |  |  | 9,007 |
Commissions |  |  | 2,207 |  |  |  | 1,974 |
Other |  |  | 118 |  |  |  | - |
Total deferred tax liabilities |  | $ | 38,739 |  |  | $ | 10,981 |
Deferred tax balances are classified in the consolidated balance sheets as follows at June 30 ( in thousands):
|  | 2020 |  |  | 2019 |
Other assets |  | $ | 137 |  |  | $ | 2,108 |
Other non-current liabilities |  |  | 1,074 |  |  |  | 1,069 |
Total net deferred tax asset (liability) |  | $ | (937 | ) |  | $ | 1,039 |
We evaluate our deferred taxes to determine if the “more likely than not” standard of evidence has not been met thereby supporting the need for a valuation allowance. The evaluation of the amount of net deferred tax assets expected to be realized necessarily involves forecasting the amount of taxable income that will be generated in future years. We have forecasted future results using estimates management believes to be reasonable. Our forecasts are based on our best estimate of expected trends resulting from certain leading economic indicators. The realization of deferred income tax assets is dependent on future events. Actual results inevitably will vary from management's forecasts which may be impacted by the ongoing COVID- 19 pandemic, possibly resulting in a sustained economic downturn, or significantly extended economic recovery. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the financial statements. A valuation allowance must be established for deferred tax assets when it is more likely than not that assets will not be realized. At June 30, 2020, a valuation allowance of $3.2 million was in place against the retail segment's U.S. state and local and Canadian tax assets. At June 30, 2019, such an allowance was in place against the Belgian and Canadian foreign tax assets and totaled $3.2 million. With the liquidation of the Belgian subsidiary during fiscal 2020, the valuation allowance of $2.6 million was removed in the fourth quarter of fiscal 2020. During fiscal 2020, we recorded a $2.5 million valuation allowance on our U.S. retail segment's state and local deferred tax assets that are now not considered more likely than not to be realized. The deferred tax assets at June 30, 2020 associated with net operating loss carryforwards and the related expiration dates are as follows (in thousands):
|  | Deferred |  |  | Net Operating Loss |
|  | Tax Assets |  |  | Carryforwards |
Various U.S. state net operating losses, expiring between 2025 and 2040 |  | $ | 1,383 |  |  | $ | 25,501 |
Foreign capital losses, expiring between 2034 and 2040 |  | $ | 619 |  |  | $ | 2,335 |
Deferred federal income taxes were previously not provided for unremitted foreign earnings of our foreign subsidiaries because we expected those earnings to be indefinitely reinvested. As part of the Tax Act, the Company reported the Deemed Repatriation Transition Tax (the “Transition Tax”) on previously untaxed accumulated earnings and profits (“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we determined, in addition to other factors, the amount of post- 1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We reported a Transition Tax obligation of $0.1 million during fiscal 2018. On December 22, 2017, the Tax Act was enacted. Among the significant changes to the United States Internal Revenue Code, the Tax Act lowered the United States federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018, introduced a limitation on the deduction of certain interest expenses, introduced a deduction for certain business capital expenditures and introduced a system of taxing foreign-sourced income from multinational corporations. The Company computed its income tax expense for the 2018 fiscal year using a blended Federal Tax Rate of 28%. The 21% Federal Tax Rate applies to fiscal years ending June 30, 2019 and each year thereafter. The Company re-measured its net deferred tax assets and liabilities using the Federal Tax Rate that would apply when these amounts were expected to reverse. At June 30, 2018, the Company's re-measurement of its deferred tax assets and liabilities resulted in a discrete tax benefit $2.7 million, which lowered the effective tax rate by 5.4% for that fiscal year. Uncertain Tax Positions We recognize interest and penalties related to income tax matters as a component of income tax expense. If the $1.9 million of unrecognized tax benefits and related interest and penalties as of June 30, 2020 were recognized, approximately $1.5 million would be recorded as a benefit to income tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits including related interest and penalties as of June 30, 2020 and 2019 is as follows (in thousands):
|  | 2020 |  |  | 2019 |
Beginning balance |  | $ | 2,209 |  |  | $ | 2,187 |
Additions for tax positions taken during the current year |  |  | 214 |  |  |  | 329 |
Additions for tax positions taken during the prior year |  |  | 126 |  |  |  | 143 |
Reductions for tax positions taken during the prior year |  |  | - |  |  |  | - |
Decreases related to settlements with taxing authorities |  |  | - |  |  |  | - |
Reductions resulting from a lapse of the applicable statute of limitations |  |  | (616 | ) |  |  | (450 | )
Ending balance |  | $ | 1,933 |  |  | $ | 2,209 |
It is reasonably possible that various issues relating to approximately $0.4 million of the total gross unrecognized tax benefits as of June 30, 2020 will be resolved within the next twelve months as exams are completed or statutes expire. If recognized, approximately $0.4 million of unrecognized tax benefits would reduce our tax expense in the period realized. The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries files income tax returns in the United States, various state, and foreign jurisdictions. In the normal course of business, the Company is subject to examination by the taxing authorities in such major jurisdictions as the United States, Canada, Mexico and Honduras. As of June 30, 2020, the Company and certain subsidiaries are currently under audit from 2016 through 2018 in the United States. While the amount of uncertain tax benefits with respect to the entities and years under audit may change within the next twelve months, it is not anticipated that any of the changes will be significant.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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