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Note 14 - Income Taxes
 12 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

(14)

Income Taxes

 

Income tax expense is based on taxable income determined in accordance with current enacted laws and tax rates. Deferred income taxes are recorded for the temporary differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates.

 

Income tax expense for the fiscal years ended June 30 were as follows (in thousands):

 

   

2024

    

2023

    

2022

  

U.S. operations

   $ 83,362     $ 138,941     $ 135,077  

Non-U.S. operations

     2,084       2,084       3,044  

Income before income taxes

   $ 85,446     $ 141,025     $ 138,121  
                         

U.S. operations

   $ 21,001     $ 34,679     $ 34,682  

Non-U.S. operations

     629       539       159  

Total income tax expense

   $ 21,630     $ 35,218     $ 34,841  

Effective tax rate

     25.3 %     25.0 %     25.2 %

 

The components of income tax expense for the fiscal years ended June 30 were as follows (in thousands):

 

   

2024

    

2023

    

2022

  

Current:

                        

U.S. Federal

   $ 16,754     $ 29,139     $ 28,144  

U.S. State and Local

     4,150       7,076       6,474  

Foreign

     931       185       575  

Total current

     21,835       36,400       35,193  

Deferred:

                        

U.S. Federal

     (20 )     (1,362 )     (610 )

U.S. State and Local

     117       (174 )     674  

Foreign

     (302 )     354       (416 )

Total deferred

     (205 )     (1,182 )     (352 )

Total income tax expense

   $ 21,630     $ 35,218     $ 34,841  

 

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):

 

   

2024

    

2023

    

2022

  

Income tax expense at U.S. Federal statutory tax rate

   $ 17,944       21.0 %   $ 29,616       21.0 %   $ 29,005       21.0 %

Increase (decrease) in income taxes resulting from:

                                                

State and local income taxes, net of U.S. federal income benefit

     2,749       3.2 %     5,203       3.7 %     5,208       3.8 %

Change in valuation allowance

     491       0.6 %     -       -       (591 )     (0.4% )

Foreign derived intangible income ("FDII") deduction

     (137 )     (0.2% )     428       0.3 %     (289 )     (0.2% )

Unrecognized tax benefits

     709       0.8 %     (229 )     (0.2% )     390       0.3 %

Share-based compensation

     228       0.3 %     5       -       189       0.1 %

Other, net

     (354 )     (0.4% )     195       0.2 %     929       0.6 %

Total income tax expense (and corresponding effective tax rate)

   $ 21,630       25.3 %   $ 35,218       25.0 %   $ 34,841       25.2 %

 

 

The significant components of deferred tax assets and liabilities were as follows (in thousands):

 

   

June 30,

  
   

2024

    

2023

  

Assets

                

Lease liabilities

   $ 32,050     $ 32,411  

Employee compensation

     2,196       2,218  

Share-based compensation

     119       139  

Net operating loss carryforwards

     837       318  

Property, plant and equipment

     915       151  

Valuation allowance

     (491 )     -  

Other

     3,185       3,802  

Total deferred tax assets

   $ 38,811     $ 39,039  
                 

Liabilities

                

Operating lease right-of-use assts

   $ (28,490 )   $ (28,724 )

Intangible assets other than goodwill

     (9,014 )     (9,047 )

Commissions

     (2,868 )     (3,032 )

Other

     (650 )     (652 )

Total deferred tax liabilities

     (41,022 )     (41,455 )

Net deferred tax liabilities

   $ (2,211 )   $ (2,416 )

 

The deferred tax assets at June 30, 2024 associated with net operating loss carryforwards and the related expiration dates are as follows (in thousands):

 

   

Deferred

    

Net Operating

    
   

Tax Assets

    

Loss Carryforwards

  

Expiration

Various U.S. net operating losses

   $ 657     $ 8,907  

Fiscal 2031-2040

Canada net operating loss

   $ 180     $ 680  

Fiscal 2039

 

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 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. During fiscal 2024, we recorded a $0.5 million valuation allowance in our U.S. wholesale segment on deferred tax assets that are now not considered more likely than not to be realized.

 

Uncertain Tax Positions

 

We recognize interest and penalties related to income tax matters as a component of income tax expense. At June 30, 2024, we had gross unrecognized tax benefits totaling $3.9 million, an increase from $3.0 million as of June 30, 2023. A reconciliation of the beginning and ending amount of unrecognized tax benefits including related interest is as follows (in thousands):

 

   

June 30,

  
   

2024

    

2023

  

Beginning balance

   $ 3,000     $ 2,474  

Additions for tax positions related to the current year

     891       817  

Additions for tax positions of prior years

     335       170  

Reductions resulting from a lapse of the applicable statute of limitations

     (338 )     (461 )

Ending balance

   $ 3,888     $ 3,000  

 

We had approximately $0.5 million and $0.3 million accrued for interest at June 30, 2024 and 2023, respectively. If the $3.9 million of unrecognized tax benefits and related interest and penalties at June 30, 2024 were recognized, approximately $3.1 million would be recorded as a benefit to income tax expense. It is reasonably possible that various issues relating to approximately $0.8 million of the total gross unrecognized tax benefits at June 30, 2024 will be resolved within the next twelve months as exams are completed or statutes expire. If recognized, approximately $0.7 million of unrecognized tax benefits would reduce our income 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, our tax filings are subject to examination by federal, state, and foreign taxing authorities. As of June 30, 2024, our U.S. federal income tax return for the tax year of 2021 through the current period remain subject to examination. In addition, we conduct business in various states which are subject to audit from fiscal year 2018 to the current year. Our foreign operations in Canada are subject to examination from the 2020 year through the current period and from the 2018 year through the current period in Mexico. We are not subject to income tax in Honduras as we operate in a special economic zone.