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Income Taxes | 12 Months Ended
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May 02, 2021
Income Tax Disclosure [Abstract] |
Income Taxes |
1 2. | INCOME TAXES
Income Tax Expense and Effective Income Tax Rate Total income tax expense was allocated as follows:
(dollars in thousands) |  | 2021 |  |  | 2020 |  |  | 2019 |
income (loss) from continuing operations |  | $ | 7,693 |  |  | $ | 3,354 |  |  | $ | 6,537 |
loss from discontinued operation |  |  | — |  |  |  | (68 | ) |  |  | (113 | )
|  | $ | 7,693 |  |  | $ | 3,286 |  |  | $ | 6,424 |
Income tax expense attributable to income from continuing operations consists of:
(dollars in thousands) |  | 2021 |  |  | 2020 |  |  | 2019 |
current |  |  |  |  |  |  |  |  |  |  |  |
federal |  | $ | (17 | ) |  |  | — |  |  |  | (1,492 | )
state |  |  | 3 |  |  |  | 7 |  |  |  | 27 |
2017 Tax Cuts and Jobs Act |  |  | — |  |  |  | — |  |  |  | (282 | )
foreign |  |  | 4,151 |  |  |  | 4,248 |  |  |  | 6,144 |
uncertain income tax positions |  |  | (204 | ) |  |  | 725 |  |  |  | — |
|  |  | 3,933 |  |  |  | 4,980 |  |  |  | 4,397 |
deferred |  |  |  |  |  |  |  |  |  |  |  |
federal |  |  | (1,933 | ) |  |  | (1,875 | ) |  |  | 3,236 |
state |  |  | (80 | ) |  |  | (103 | ) |  |  | (96 | )
2017 Tax Cuts and Jobs Act |  |  | (3,674 | ) |  |  | — |  |  |  | (268 | )
undistributed earnings – foreign subsidiaries |  |  | 112 |  |  |  | (114 | ) |  |  | 3,735 |
U.S. Federal & State carryforwards and credits |  |  | 451 |  |  |  | 974 |  |  |  | 74 |
uncertain income tax positions |  |  | 380 |  |  |  | (380 | ) |  |  | — |
foreign |  |  | (22 | ) |  |  | (247 | ) |  |  | (85 | )
valuation allowance |  |  | 8,526 |  |  |  | 119 |  |  |  | (4,456 | )
|  |  | 3,760 |  |  |  | (1,626 | ) |  |  | 2,140 |
|  | $ | 7,693 |  |  |  | 3,354 |  |  |  | 6,537 |
Income (loss) before income taxes from continuing operations related to our foreign and U.S. operations consists of:
(dollars in thousands) |  | 2021 |  |  | 2020 |  |  | 2019 |
Foreign |  |  |  |  |  |  |  |  |  |  |  |
China |  | $ | 10,007 |  |  |  | 8,316 |  |  |  | 9,899 |
Canada |  |  | 4,764 |  |  |  | (1,391 | ) |  |  | 5,488 |
Haiti |  |  | 817 |  |  |  | — |  |  |  | — |
Cayman Islands |  |  | (5 | ) |  |  | (6 | ) |  |  | 280 |
Total Foreign |  |  | 15,583 |  |  |  | 6,919 |  |  |  | 15,667 |
United States |  |  | (4,703 | ) |  |  | (14,598 | ) |  |  | (2,945 | )
|  | $ | 10,880 |  |  |  | (7,679 | ) |  |  | 12,722 |
The following schedule summarizes the principal differences between the income tax expense from continuing operations at the federal income tax rate and the effective income tax rate from continuing operations reflected in the consolidated financial statements:
|  | 2021 |  |  | 2020 |  |  | 2019 |
U.S. federal income tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
valuation allowance |  |  | 78.4 |  |  |  | (1.6 | ) |  |  | (35.0 | )
write-off of U.S. foreign income tax credits |  |  | — |  |  |  | — |  |  |  | 35.1 |
income tax effects of the 2017 Tax Cuts and Jobs Act |  |  | (33.8 | ) |  |  | — |  |  |  | (4.3 | )
global intangible low taxed income tax (GILTI) |  |  | — |  |  |  | (19.0 | ) |  |  | 16.9 |
foreign tax rate differential |  |  | 10.9 |  |  |  | (5.4 | ) |  |  | 4.8 |
income tax effects of Chinese foreign exchange gains and losses |  |  | (8.4 | ) |  |  | (5.0 | ) |  |  | 2.2 |
withholding taxes associated with foreign tax jurisdictions |  |  | 7.7 |  |  |  | (16.0 | ) |  |  | 8.1 |
income tax effects of impairment of nondeductible goodwill |  |  | — |  |  |  | (11.3 | ) |  |  | — |
other |  |  | (5.1 | ) |  |  | (6.4 | ) |  |  | 2.6 |
|  |  | 70.7 | % |  |  | (43.7 | )% |  |  | 51.4 | %
Deferred Income Taxes - Overall The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities consist of the following:
(dollars in thousands) |  | 2021 |  |  | 2020 |
deferred tax assets: |  |  |  |  |  |  |  |
accounts receivable |  | $ | 362 |  |  |  | 263 |
inventories |  |  | 2,019 |  |  |  | 2,280 |
compensation |  |  | 3,284 |  |  |  | 1,970 |
liabilities and other |  |  | 23 |  |  |  | 166 |
intangible assets and goodwill |  |  | 690 |  |  |  | 856 |
property, plant, and equipment (1) |  |  | 202 |  |  |  | 185 |
operating lease liability |  |  | 836 |  |  |  | 671 |
foreign income tax credits - U.S. |  |  | 783 |  |  |  | 783 |
loss carryforwards – U.S. |  |  | 7,533 |  |  |  | 4,137 |
valuation allowance - U.S. |  |  | (11,674 | ) |  |  | (3,148 | )
total deferred tax assets |  |  | 4,058 |  |  |  | 8,163 |
deferred tax liabilities: |  |  |  |  |  |  |  |
undistributed earnings on foreign subsidiaries |  |  | (3,521 | ) |  |  | (3,409 | )
unrecognized tax benefits – U.S. |  |  | (380 | ) |  |  | — |
property, plant and equipment (2) |  |  | (3,968 | ) |  |  | (5,008 | )
right of use assets |  |  | (855 | ) |  |  | (690 | )
other |  |  | (119 | ) |  |  | (81 | )
total deferred tax liabilities |  |  | (8,843 | ) |  |  | (9,188 | )
Net deferred liabilities |  | $ | (4,785 | ) |  |  | (1,025 | )
(1) | Pertains to the company’s operations located in China.
(2) | Pertains to the company’s operations located in the U.S. and Canada.
As of May 2, 2021, our U.S. federal net operating loss carryforwards totaled $19.4 million with related future income tax benefits of $4.1 million. In accordance with the 2017 Tax Cuts and Jobs Act (“TCJA”), U.S. federal net operating loss carryforwards generated in fiscal 2019 and after do not expire. Our U.S. federal net operating loss carryforwards that were generated prior to fiscal 2019 have expiration dates ranging from fiscal years 2027 through 2038. As of May 2, 2021, our U.S. state net operating loss carryforwards totaled $28.9 million with related future income tax benefits of $953,000. Our U.S. state net operating loss carryforwards totaling $28.9 million have expiration dates ranging from fiscal years 2022 through 2040. Our U.S. foreign income tax credits of $783,000 will expire 10 years from when the associated earnings and profits from our foreign subsidiaries are repatriated to the U.S. 2017 Tax Cuts and Jobs Act On December 22, 2017 (the “Enactment Date”), TCJA was signed into law. TCJA contained significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing certain business assets, (iii) a one-time mandatory repatriation tax (the “Transition Tax”) related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) limitations on the use of foreign tax credits to reduce the U.S. income tax liability, (v) the repeal of the domestic production activities deduction, (vi) additional limitations on the deductibility of interest expense and executive compensation, and (vii) the creation of the Global Intangible Low Taxed Income (“GILTI”) tax. The re-measurement of our U.S. net deferred income tax balances to the new U.S. federal corporate income tax rate and the determination of the income tax effects of the Transition Tax on our accumulated earnings and profits associated with our foreign subsidiaries were components of the TCJA that significantly affected our financial statements during fiscal 2019 and 2018. During fiscal 2018, we were able to determine reasonable estimates for these components of the TCJA, and thus reported provisional amounts for these items under guidance provided by SEC Staff Bulletin No. 118 (“SAB 118”). SAB 118 provided a measurement period not to extend beyond one year from the Enactment Date to revise our provisional estimates that were recorded during fiscal 2018. During the third quarter of fiscal 2019, we completed our assessment of our U.S. net deferred income tax balances and recorded an income tax benefit of $268,000. In addition, we completed our assessment of the income tax effects of the Transition Tax and recorded an income tax benefit of $282,000 during the third quarter of fiscal 2019. GILTI Fiscal 2020 and 2019 In addition to the above components of the TJCA, GILTI became effective during fiscal 2019. Our policy to account for GILTI is to expense this tax in the period incurred. As a result, we recorded income tax charges of $1.9 million and $2.1 million during fiscal 2020 and 2019, respectively. Fiscal 2021 Effective July 20, 2020, the U.S. Treasury Department finalized and enacted previously proposed regulations regarding the GILTI tax provisions of the TCJA. With the enactment of these final regulations, we are now eligible for an exclusion from GILTI since we meet the provisions for the GILTI High-Tax exception included in the final regulations. In addition, the enactment of the new regulations and our eligibility for the GILTI High-Tax exception are retroactive to the original enactment of the GILTI tax provision, which includes our 2019 and 2020 fiscal years. As a result of the newly enacted regulations, we recorded a non-cash income tax benefit of $3.6 million resulting from the re-establishment of certain U.S. federal net operating loss carryforwards. This $3.6 million income tax benefit was recorded as a discrete event in which its full income tax effects were recorded during the first quarter of fiscal 2021. Deferred Income Taxes – Valuation Allowance Summary In accordance with ASC Topic 740, we evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required. ASC Topic 740 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law. As a result of the U.S. tax law change relating to the GILTI tax provisions of the TCJA, we assessed the need for an additional valuation allowance against our U.S. net deferred income taxes as of the end of the first quarter of fiscal 2021. GILTI represented a significant source of our U.S. taxable income during fiscal 2019 and 2020 that offset our U.S. pre-tax losses during such years, and which offset is now reversed as a result of the retroactivity of the new GILTI regulations. Consequently, due to the retroactivity of the new regulations, we experienced a recent history of cumulative U.S. taxable losses during our last two fiscal years, and we expected at the time of this assessment that our history of U.S. pre-tax losses would continue into fiscal 2021. As a result of the significant weight of this negative evidence, we believed it was more likely than not that our U.S. deferred income tax assets would not be fully realizable. Accordingly, we recorded a non-cash income tax charge of $7.0 million to provide for a full valuation allowance against our U.S. net deferred income tax assets. This $7.0 million income tax charge was recorded as a discrete event in which its full income tax effects were recorded during the first quarter of fiscal 2021. As of May 2, 2021, we evaluated the realizability our U.S. net deferred income tax assets to determine if a full valuation allowance was required. Based on our assessment, we have a recent history of significant cumulative U.S. taxable losses, and we have experienced U.S. taxable losses during each of the last three fiscal years. As a result of the significant weight of this negative evidence, we believe it is more likely than not that our U.S deferred income tax assets would not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets. Based on our assessments as of May 2, 2021, and May 3, 2020, valuation allowances against our deferred income taxes pertain to the following jurisdictions:
(dollars in thousands) |  | May 2, 2021 |  |  | May 3, 2020 |
U.S. federal and state net deferred income tax assets |  | $ | 9,344 |  |  |  | 867 |
U.S. capital loss carryforward |  |  | 2,330 |  |  |  | 2,281 |
|  | $ | 11,674 |  |  |  | 3,148 |
A summary of the change in the valuation allowances against our deferred income taxes follows:
(dollars in thousands) |  | 2021 |  |  | 2020 |  |  | 2019 |
beginning balance |  | $ | 3,148 |  |  |  | 748 |  |  |  | 5,204 |
change in judgement of beginning of year U.S. valuation allowance (1) |  |  | 6,964 |  |  |  | — |  |  |  | — |
change in valuation allowance associated with current year earnings |  |  | 1,004 |  |  |  | — |  |  |  | — |
establishment of valuation allowance (2) |  |  | — |  |  |  | 2,281 |  |  |  | — |
write-off of deferred income taxes (3) |  |  | — |  |  |  | — |  |  |  | (4,544 | )
change in estimate during current year (4) |  |  | 558 |  |  |  | 119 |  |  |  | 88 |
ending balance |  | $ | 11,674 |  |  |  | 3,148 |  |  |  | 748 |
(1) | Refer to the above Summary within the section titled Deferred Income Taxes – Valuation Allowance for further details regarding our assessment and conclusions reached for providing a full valuation allowance against our U.S net deferred income tax assets during the first quarter of fiscal 2021.
(2) | In connection with the sale of a discontinued operation that was treated as a partnership for income tax purposes, we generated a capital loss carryforward totaling $10.9 million with a related future income tax benefit of $2.3 million. Since capital losses can only be offset by capital gains, we established a full valuation allowance on this capital loss carryforward as we do not have capital assets that would generate capital gains that would utilize this carryforward.
(3) | During fiscal 2019, we recorded an income tax charge of $4.5 million for the write-off of certain U.S. foreign income tax credits, and in turn, we recorded an income tax benefit of $4.5 million for the reduction in our valuation allowance.
(4) | Amount represents changes in our U.S. net deferred income tax asset balances during the current year that pertain to (i) income tax provision to return adjustments, (ii) changes in estimates of our U.S. effective income tax rate that pertain to U.S. state income tax rates and apportionment percentages, and (iii) other immaterial items.
Deferred Income Taxes – Undistributed Earnings from Foreign Subsidiaries In accordance with ASC Topic 740, we assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company. ASC Topic 740 requires that a deferred income tax liability should be recorded for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As of May 2, 2021, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings from our foreign subsidiaries would not be reinvested indefinitely and would be eventually distributed to our U.S. parent company. The conclusion reached from this assessment has been consistent with prior years. As a result of the TCJA, a U.S. corporation is allowed a 100% dividend received deduction for earnings and profits received from a 10% owned foreign corporation. Therefore, a deferred income tax liability will only be required for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, we recorded a deferred income tax liability for withholding taxes on undistributed earnings and profits from our foreign subsidiaries totaling $3.5 million and $3.4 million as of May 2, 2021, and May 3, 2020, respectively. Uncertainty in Income Taxes Overall In accordance with ASC Topic 740, an unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the reporting period, or is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time. The following table sets forth the change in the company’s unrecognized income tax benefit:
(dollars in thousands) |  | 2021 |  |  | 2020 |  |  | 2019 |
beginning balance |  | $ | 1,269 |  |  |  | 903 |  |  |  | 844 |
increases from prior period tax positions |  |  | 249 |  |  |  | 106 |  |  |  | 135 |
decreases from prior period tax positions |  |  | (74 | ) |  |  | (85 | ) |  |  | (76 | )
increases from current period tax positions |  |  | — |  |  |  | 434 |  |  |  | — |
decreases from current period tax positions |  |  | — |  |  |  | (89 | ) |  |  | — |
ending balance |  | $ | 1,444 |  |  |  | 1,269 |  |  |  | 903 |
As of May 2, 2021, we had $1.4 million of total gross unrecognized tax benefits, of which $1.1 million would favorably affect the income tax rate in future periods. As of May 3, 2020, we had $1.3 million of total gross unrecognized tax benefits, of which the entire $1.3 million would favorably affect the income tax rate in future periods. As of May 2, 2021, we had $1.4 million of total gross unrecognized tax benefits, of which $1.1 million and $380,000 were classified as income taxes payable-long-term and noncurrent deferred income taxes, respectively, in the accompanying Consolidated Balance Sheets. As of May 3, 2020, we had $1.3 million of total gross unrecognized tax benefits, of which the entire $1.3 million was classified as income taxes payable-long-term in the accompanying Consolidated Balance Sheets. We elected to classify interest and penalties as part of income tax expense. As of May 2, 2021, and May 3, 2020, the gross amount of interest and penalties due to unrecognized tax benefits was $165,000 and $103,000, respectively. Our gross unrecognized income tax benefit of $1.4 million as of May 2, 2021, relates to income tax positions for which significant change is currently not expected within the next year. This amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions. United States federal income tax returns filed by us remain subject to examination for income tax years 2017 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2017 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2017 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2016 and subsequent. Income Taxes Paid The following table sets forth income taxes paid (refunded) by jurisdiction:
(dollars in thousands) |  | 2021 |  |  | 2020 |  |  | 2019 |
United States Federal - AMT credit refunds (1) |  | $ | (1,510 | ) |  | $ | — |  |  | $ | — |
United States Federal - transition tax |  |  | 226 |  |  |  | — |  |  |  | 600 |
Unites States state income tax payments |  |  | — |  |  |  | — |  |  |  | 60 |
China |  |  | 2,874 |  |  |  | 3,397 |  |  | $ | 3,543 |
Canada |  |  | 1,408 |  |  |  | 1,598 |  |  |  | 2,491 |
|  | $ | 2,998 |  |  | $ | 4,995 |  |  | $ | 6,694 |
(1) | In accordance with the TCJA, corporate taxpayers were eligible to treat prior AMT credit carryforwards as refundable. Accordingly, we elected to treat our prior AMT credit carryforward balance of $1.5 million as refundable, and as a result, 50% of the $1.5 million refundable balance was expected to be received in each of our fiscal years 2021 and 2022, respectively. We received our first 50% installment totaling $746,000 during the first quarter of fiscal 2021. In accordance with the CARES Act, 100% of AMT credit carryforwards for tax years beginning in the 2019 tax year were immediately refundable. Accordingly, we
| claimed credit for the remaining 50% installment of our refundable AMT credit carryforward in May 2020. We received our remaining 50% installment plus interest totaling $764,000 during the second quarter of fiscal 2021.

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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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