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Note I - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note I — Income Taxes

 

Coronavirus Aid, Relief and Economic Security Act

 

In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Under the CARES Act, corporate taxpayers may carryback net operating losses (“ NOLs”) realized during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation.  As of December 31, 2020, the Company filed federal net operating loss carryback claims resulting in an income tax refund for $6.4 million and $3.2 million for tax years 2019 and 2018, respectively.   As of December 31, 2021, the Company has received the tax refunds for the tax years 2019 and 2018 and expects to receive an income tax refund of $7.8 million as a result of the carryback of the loss generated in 2020. 

 

The components of income tax (benefit) expense are as follows:

 

  

Year Ended December 31,

 

In thousands

 

2021

  

2020

 

Current

        

Federal

 $(372) $(17,286)

State and local

  856   696 

Foreign

  804   219 

Total current

 $1,288  $(16,371)
         

Deferred

        

Federal

 $—  $1,398 

State and local

  —   (2,163)

Foreign

  —   521 

Total deferred

 $—  $(244)
         

Total income tax expense (benefit)

 $1,288  $(16,615)

 

The U.S. and foreign components of income (loss) before income taxes were as follows:

 

  

Year Ended December 31,

 

In thousands

 

2021

  

2020

 

United States

 $11,725  $(20,683)

Foreign

  4,534   2,374 

Total income (loss) before income taxes

 $16,259  $(18,309)

 

The differences between total income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate of 21% to income (loss) before income taxes were as follows:

 

  

Year Ended December 31,

 

In thousands

 

2021

  

2020

 

Computed expected income tax expense (benefit)

 $3,413  $(3,845)
         

Permanent Differences

  172   — 

Net effect of state income taxes

  520   (223)

Foreign subsidiary dividend inclusions

  447   1,208 

Foreign tax rate differential

  (224)  281 

Change in valuation allowance

  (1,424)  (7,538)

CARES Act NOL Carryback

  (343)  (6,816)

Stock-based compensation shortfalls

  (244)  296 

Return to Provision

  247   — 

Change in Rate

  (373)  — 

Credits

  (403)  — 

Adjustments to State Attributes

  1,561   — 

Gain on PPP Loan Forgiveness

  (2,122)  — 

Other Adjustments, net

  61   22 

Income tax expense (benefit) for the period

 $1,288  $(16,615)

 

Total income tax expense (benefit) was allocated as follows:

 

  

Year Ended December 31,

 

In thousands

 

2021

  

2020

 

Income (loss) from operations

 $1,288  $(16,615)

Stockholders’ deficit

  —   — 

Total

 $1,288  $(16,615)

 

We expect to receive a total of tax refunds of $17.4 million from NOL Carrybacks pursuant to the CARES Act. This amount is comprised of $9.6 million already received for carryback claims and we expect a $7.8 million refund from the carryback of the loss generated in 2020.    

 

 

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

 

  

Year Ended December 31,

 

In thousands

 

2021

  

2020

 

Deferred tax assets

        

Deferred compensation and retirement plan

 $13,135  $16,541 

Accrued expenses not deductible until paid

  181   237 

Lease liability

  5,873   6,346 

Employee stock-based compensation

  385   440 

Accrued payroll not deductible until paid

  96   108 

Accounts receivable, net

  59   53 

Investment in foreign subsidiaries, outside basis difference

  1,019   1,124 

Goodwill

  473   581 

Interest Expense limitations

  1,267   1,530 

Other, net

  452   440 

Foreign net operating loss carryforwards

  1,631   1,771 

State net operating loss carryforwards

  3,475   4,763 

Foreign tax credit carryforwards

  3,841   3,653 

Federal net operating loss carryforwards

  —   — 

Research & Development Tax Credit Carryforward

  215   — 

Total gross deferred tax assets

  32,102   37,587 

Less valuation allowances

  (25,894)  (30,841)

Net deferred tax assets

 $6,208  $6,746 
         

Deferred tax liabilities

        

Property, plant and equipment

 $(897) $(625)

Right-of-use asset

  (5,006)  (5,583)

Prepaid Expenses

  (305)  (318)

Other, net

  —   (220)

Total gross deferred tax liabilities

  (6,208)  (6,746)

Net deferred tax assets (liabilities)

 $—  $— 

 

A reconciliation of the beginning and ending balance of deferred tax valuation allowance is as follows:

 

In thousands

    

Balance at December 31, 2019

 $38,379 

Deferred Income Tax Expense

  (7,534)

Return to Provision Impact

  12 

Other Comprehensive Income

  (16)

Balance at December 31, 2020

  30,841 

Deferred Income Tax Expense

  (1,460)

Return to Provision Impact

  (297)

Other Comprehensive Income

  (3,190)

Balance at December 31, 2021

 $25,894 

 

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance for deferred tax assets was $25.9 million and $30.8 million as of  December 31, 2021 and 2020, respectively. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present, and additional weight may be given to subjective evidence such as changes in our growth projections.

 

We or one of our subsidiaries file income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state returns, we are no longer subject to tax examinations for years prior to 2016. For U.S. federal and foreign returns, we are no longer subject to tax examinations for years prior to 2016.  

 

There is no balance of unrecognized tax benefits as of December 31, 2021 and 2020.  Any adjustments to this liability as a result of the finalization of audits or potential settlements would not be material.

 

We have elected to classify any interest and penalties related to income taxes within income tax expense in our Consolidated Statements of Comprehensive Income (Loss). 

 

For U.S. tax return purposes, net operating losses and tax credits are normally available to be carried forward to future years, subject to limitations as discussed below.  As of December 31, 2021, the Company had no federal net operating loss carryforward.  The federal foreign tax carryforward credits of $3.8 million will expire on various dates from 2023 to 2031.  Federal research and development credit carryforwards of $0.2 million will begin to expire on various dates from 2035 to 2036.  The Company has state NOL carryforwards of $108.9 million, and foreign NOL carryforwards of $5.4 million.

 

Deferred income taxes have not been provided on the undistributed earnings of our foreign subsidiaries as these earnings have been, and under current plans will continue to be, permanently reinvested in these subsidiaries. It is not practicable to estimate the amount of additional taxes which may be payable upon the distribution of these earnings. However, because of the provisions in the Tax Reform Act, the tax cost of repatriation is immaterial and limited to foreign withholding taxes, currency translation and state taxes.