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Note 20 - Income Tax | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
20. |  | Income Tax
Income tax from continuing operations was a benefit of approximately $0.8 million and $3.7 million for the years ended December 31, 2019 and 2018, respectively. The effective tax rate on continuing operations was 14.8% for the year ended December 31, 2019 compared with 46.1% for the same period in 2018. The difference between the Company’s effective tax rate year over year was primarily attributable to changes in the mix of pre-tax income and losses at individual subsidiaries as well as the impact of stock compensation deductions and windfalls in 2018. For the year ended December 31, 2019, there was no income tax expense or benefit recorded for discontinued operations. For the year ended December 31, 2018, income tax benefit for discontinued operations was $0.4 million. Income tax expense attributable to income from continued operations for years ended December 31, 2019 and 2018 consisted of:
|  | Year Ended December 31,
|  | 2019 |  | 2018
|  | (in thousands)
Current income tax (benefit) expense: |  |  |  |  |  |  |  |
Federal and state |  | $ | (707 | ) |  | $ | (191 | )
Foreign |  |  | 290 |  |  |  | 279 |
|  |  | (417 | ) |  |  | 88 |
Deferred income tax (benefit) expense: |  |  |  |  |  |  |  |
Federal and state |  |  | (281 | ) |  |  | (3,552 | )
Foreign |  |  | (117 | ) |  |  | (212 | )
|  |  | (398 | ) |  |  | (3,764 | )
Total income tax benefit from continuing operations |  | $ | (815 | ) |  | $ | (3,676 | )
The total benefit from income taxes included in the statement of operations is as follows:
|  | Year Ended December 31,
|  | 2019 |  | 2018
|  | (in thousands)
Continuing operations |  | $ | (815 | ) |  | $ | (3,676 | )
Discontinued operations |  |  | - |  |  |  | (441 | )
Total income tax benefit |  | $ | (815 | ) |  | $ | (4,117 | )
Income tax benefit for the years ended December 31, 2019 and 2018 differed from the amount computed by applying the U.S. federal income tax rate of 21% to pre-tax continuing operations income as a result of the following:
|  | Year Ended December 31,
|  | 2019 |  | 2018
|  | (in thousands)
Computed "expected" income tax benefit |  | $ | (1,161 | ) |  | $ | (1,674 | )
Increase (decrease) in income taxes resulting from: |  |  |  |  |  |  |  |
Permanent differences, net |  |  | 241 |  |  |  | (117 | )
Foreign tax rate differential |  |  | 42 |  |  |  | (11 | )
State income taxes, net of federal income tax benefit |  |  | (74 | ) |  |  | (121 | )
Non-deductible stock compensation expense |  |  | 205 |  |  |  | (329 | )
Acquisition costs |  |  | 3 |  |  |  | 438 |
Tax credits |  |  | 220 |  |  |  | (242 | )
Change in reserve for uncertain tax position |  |  | (111 | ) |  |  | 203 |
Impact of change to prior year tax accruals |  |  | 314 |  |  |  | 100 |
Change in valuation allowance allocated to income tax benefit |  |  | (578 | ) |  |  | (1,850 | )
Other |  |  | 84 |  |  |  | (73 | )
Total income tax benefit |  | $ | (815 | ) |  | $ | (3,676 | )
The Company’s policy is to account for Global Intangible Low-Taxed income (GILTI) as a period cost. Income tax (benefit) expense is based on the following pre-tax income from continuing operations for the years ended December 31, 2019 and 2018:
|  | Year Ended December 31,
|  | 2019 |  |  | 2018
|  |  | (in thousands)
Domestic |  | $ | (5,616 | ) |  | $ | (9,034 | )
Foreign |  |  | 114 |  |  |  | 1,059 |
Total |  | $ | (5,502 | ) |  | $ | (7,975 | )
The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 are as follows :
|  | December 31,
|  | 2019 |  | 2018
|  | (in thousands)
Deferred income tax assets: |  |  |  |
Inventory |  | $ | 1,079 |  |  | $ | 1,147 |
Operating loss and credit carryforwards |  |  | 18,802 |  |  |  | 20,095 |
Accrued expenses |  |  | 654 |  |  |  | 1,037 |
Deferred interest expense |  |  | 1,475 |  |  |  | 655 |
Stock compensation |  |  | 1,011 |  |  |  | 999 |
Lease liability |  |  | 2,081 |  |  |  | - |
Other assets |  |  | 223 |  |  |  | 339 |
Total gross deferred assets |  |  | 25,325 |  |  |  | 24,272 |
Less: valuation allowance |  |  | (13,745 | ) |  |  | (13,899 | )
Deferred tax assets |  | $ | 11,580 |  |  | $ | 10,373 |
Deferred income tax liabilities: |  |  |  |  |  |  |  |
Indefinite-lived intangible assets |  | $ | 2,048 |  |  | $ | 1,975 |
Definite-lived intangible assets |  |  | 9,168 |  |  |  | 10,221 |
Right-of-use asset |  |  | 1,580 |  |  |  | - |
Other liabilities |  |  | 507 |  |  |  | 267 |
Total deferred tax liabilities |  |  | 13,303 |  |  |  | 12,463 |
Deferred income tax liability, net |  | $ | (1,723 | ) |  | $ | (2,090 | )
Certain prior year amounts in the above table have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the Company’s consolidated financial statements. Deferred income tax assets and liabilities by classification on the consolidated balance sheets were as follows:
|  | December 31,
|  | 2019 |  | 2018
|  | (in thousands)
Deferred income tax assets (included in other long-term assets) |  | $ | 251 |  |  | $ | 211 |
Deferred income tax liabilities |  |  | (1,974 | ) |  |  | (2,301 | )
Deferred income tax liability, net |  | $ | (1,723 | ) |  | $ | (2,090 | )
As of December 31, 2019 and 2018, the Company maintained a total valuation allowance of $13.7 million and $13.9 million, respectively, which relates to foreign, federal, and state deferred tax assets in both years. The valuation allowance is based on estimates of taxable income in each of the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. The net change in total valuation allowance for each of the years ended December 31, 2019 and December 31, 2018 was a decrease of $( 0.2 ) million and an increase of $2.5 million, respectively. The movement in the valuation allowance in 2019 is primarily due to a change in estimate of the realizability of certain U.S. deferred tax assets offset by changes in UK pension asset and the expiration of U.S. state credits with full valuation allowances. The movement in the valuation allowance in 2018 is primarily due to the finalization of purchase accounting for the DSI acquisition and its impact on the valuation allowance related to certain U.S. deferred tax assets. At December 31, 2019, the Company had U.S. federal net operating loss carryforwards of $27.2 million, a portion of which ( $21.9 million) expires between 2020 and 2037; the remainder have an unlimited carryforward period. The Company’s state net operating loss carryforwards of $17.8 million expire between 2020 and 2037. The Company has net operating loss carryforwards of $5.5 million in certain foreign jurisdictions, partially offset by valuation allowances, as well as $0.3 million non-U.S. research and development credits. The Company has foreign tax credits of $0.2 million which begin to expire in 2020, as well as $8.7 million of research and development tax credit carryforwards which begin to expire in 2020. Approximately $1.0 million of the research and development tax credit carryforwards are offset by a reserve for uncertain tax positions. The Company had $0.8 million of alternative minimum tax credit carryforwards which are not subject to expiration and become refundable under the 2017 Tax Cuts and Jobs Act beginning in 2021. In addition, the Company had a total of $3.2 million of state investment tax credit carryforwards, research and development tax credit carryforwards, and EZ credit carryforwards, which begin to expire in 2020. The Internal Revenue Code (IRC) limits the amounts of net operating loss carryforwards or credits that a company may use in any one year in the event of a change in ownership under IRC Sections 382 or 383. As a result of the DSI acquisition as well as other acquisitions in prior years, certain losses and credit carryforwards are subject to these limitations. The Company has provided a full or partial valuation allowance for the portion of state NOLs and federal and state credit carryforwards the Company expects will expire before use. As of December 31, 2019 and December 31, 2018, cash and cash equivalents held by the Company’s foreign subsidiaries was $3.5 million and $3.2 million, respectively. A s of December 31, 2019, the Company maintained its indefinite reinvestment assertion, providing that all foreign cash balances above the level required for local operating expenses would be repatriated to the U.S. As a result of the 2017 Tax Cuts and Jobs Act, post- 2017 dividends from qualifying Controlled Foreign Corporations are no longer taxed in the U.S. However, any dividends to the U.S., as well as dividends between foreign subsidiaries, must still be assessed for withholding tax liability as well as foreign and state income tax liability. As a result of the Company’s assertion, the Company has determined the potential income tax liability related to available cash balances at foreign subsidiaries to be immaterial in 2019 and 2018. An accrued withholding tax liability of $55 thousand and $38 thousand was recorded as of December 31, 2019 and December 31, 2018, respectively, related to amounts determined to be available for repatriation. At December 31, 2019 and 2018 the amount of unrecognized tax benefits that would affect the Company’s effective tax rate are shown in the table below:
|  | (in thousands)
Balance at December 31, 2017 |  | $ | 323 |
Release due to expiration of statute of limitations positions of prior years |  |  | (94 | )
Additions based on tax positions of prior years |  |  | 242 |
Additions based on tax positions of acquired entities |  |  | 1,389 |
Balance at December 31, 2018 |  |  | 1,860 |
Additions based on tax positions of prior years |  |  | 68 |
Decreases based on tax positions of prior years |  |  | (133 | )
Additions based on tax position of current year |  |  | 21 |
Settlements |  |  | (398 | )
Decreases based on tax positions of acquired entities |  |  | (65 | )
Balance at December 31, 2019 |  | $ | 1,353 |
In 2018, the Company recorded a reserve of $0.2 million related to upcoming audits. Additionally, reserves of $1.4 million were recorded to purchase accounting based on tax positions of acquired entities, including $0.8 million for credits and $0.5 million related to state income tax issues. In 2019, a foreign income tax audit was closed without payment and a reserve for $0.1 million was reversed, and the Company settled U.S. state income tax liabilities of $0.4 million. In addition, the Company reduced the reserve on tax positions of acquired entities by $0.1 million and recorded a reserve of $0.1 million related to upcoming audits. The Company anticipates that the total unrecognized tax benefits will be reduced within the next 12 months by approximately $32 thousand due to the expected settlement of certain positions of acquired entities. The Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense. At December 31, 2019 and at December 31, 2018, the Company had accrued interest and penalties of $0.1 million and $0.1 million respectively. During 2019 and 2018, the Company recognized a net expense of $26 thousand and $31 thousand, respectively, for interest and penalties in its total tax provision. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities in foreign jurisdictions for years before 2015. In the U.S., the Company's net operating loss and tax credit carryforward amounts remain subject to federal and state examination for tax years starting in 2000 as a result of tax losses incurred in prior years. There are currently no pending federal or state tax examinations. The Company is subject to audits by various foreign taxing jurisdictions. At December 31, 2019, the Company anticipates an income tax examination to begin in 2020 at a foreign subsidiary for which reserves have been recorded.

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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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