XML 34 R21.htm IDEA: XBRL DOCUMENT

Note 14 - Income Tax

12 Months Ended

Dec. 31, 2020

14.

Income Tax

Income tax expense (benefit) for years ended December 31, 2020 and 2019 consisted of:

	Year Ended December 31,
(in thousands)	2020			2019
Current income tax (benefit) expense:
Federal and state	$	169		$	(707	)
Foreign		492			290
		661			(417	)
Deferred income tax (benefit) expense:
Federal and state		245			(281	)
Foreign		(388	)		(117	)
		(143	)		(398	)
Total income tax (benefit) expense	$	518		$	(815	)

The effective tax rate for the year ended December 31, 2020 was (7.1)% as compared with 14.9% for the same period in 2019. 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 different tax rates in certain foreign jurisdictions, and the impact of the change in valuation allowance.

Income tax benefit for the years ended December 31, 2020 and 2019 differed from the amount computed by applying the U.S. federal income tax rate of 21% to pre-tax operations income as a result of the following:

	Year Ended December 31,
(in thousands)	2020					2019
Computed "expected" income tax benefit	$	(1,531	)	21.0	%	$	(1,161	)	21.0	%
Increase (decrease) in income taxes resulting from:
Permanent differences, net		141		(1.9	)%		241		(4.4	)%
Foreign tax rate differential		(14	)	0.2	%		42		(0.8	)%
State income taxes, net of federal income tax benefit		(77	)	1.1	%		(74	)	1.3	%
Non-deductible stock compensation expense		94		(1.3	)%		205		(3.7	)%
Tax credits		(192	)	2.6	%		220		(4.0	)%
Change in reserve for uncertain tax position		259		(3.6	)%		(111	)	2.0	%
Impact of change to prior year tax accruals		168		(2.3	)%		314		(5.7	)%
Change in valuation allowance allocated to income tax		2,130		(29.2	)%		(578	)	10.5	%
Other		(460	)	6.3	%		87		(1.4	)%
Total income tax expense (benefit)	$	518		(7.1	)%	$	(815	)	14.8	%

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 (loss) income from operations:

	Year Ended December 31,
(in thousands)	2020			2019
Domestic	$	(7,954	)	$	(5,616	)
Foreign		662			114
Total	$	(7,292	)	$	(5,502	)

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are as follows:

	Year Ended December 31,
(in thousands)	2020			2019
Deferred income tax assets:
Inventory	$	1,144		$	1,079
Operating loss and credit carryforwards		19,220			18,802
Accrued expenses		555			654
Deferred interest expense		1,476			1,475
Stock compensation		1,079			1,011
Lease liability		1,823			2,081
Other assets		458			223
Total gross deferred assets		25,755			25,325
Less: valuation allowance		(16,682	)		(13,745	)
Deferred tax assets:	$	9,073		$	11,580

Deferred income tax liabilities:
Indefinite-lived intangible assets	$	1,822		$	2,048
Definite-lived intangible assets		7,493			9,168
Right-of-use asset		1,388			1,580
Other Liabilities		14			507
Total deferred tax liabilities		10,717			13,303
Deferred income tax liability, net	$	(1,644	)	$	(1,723	)

Deferred income tax assets and liabilities by classification on the consolidated balance sheets were as follows:

	Year Ended December 31,
(in thousands)	2020			2019
Deferred tax assets (included in other long-term assets)	$	255		$	251
Deferred income tax liabilities		(1,899	)		(1,974	)
Deferred income tax liability, net	$	(1,644	)	$	(1,723	)

As of December 31, 2020 and 2019, the Company maintained a total valuation allowance of $16.7 million and $13.7 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 the Company operates and the period over which deferred tax assets will be recoverable. The net change in total valuation allowance for each of the years ended December 31, 2020 and December 31, 2019 was an increase of $2.9 million and a decrease of $(0.2) million, respectively. The movement in the valuation allowance in 2020 is primarily due to increases in the valuation allowance against net operating losses (NOLs) as a result of changes made by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and movement of $0.7 million was recorded to equity during the year ended December 31, 2020 related to the UK pension asset. 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.

At December 31, 2020, the Company had U.S. federal net operating loss carryforwards of $28.1 million, of which $22.8 million expires between 2021 and 2037, with the remainder having an unlimited carryforward period. The Company’s state net operating loss carryforwards of $19.0 million expire between 2021 and 2040. The Company has net operating loss carryforwards of $7.3 million in certain foreign jurisdictions, partially offset by valuation allowances, as well as $0.2 million non-U.S. research and development credits. The Company has foreign tax credits of $0.2 million which begin to expire in 2021, as well as $8.5 million of research and development tax credit carryforwards which begin to expire in 2021. 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. 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 2021. 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, 2020 and December 31, 2019, cash and cash equivalents held by the Company’s foreign subsidiaries was $2.5 million and $3.5 million, respectively. As of December 31, 2020, the Company has determined the potential income tax and withholding liability related to available cash balances at foreign subsidiaries to be immaterial.

At December 31, 2020 and 2019 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, 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 positions of current years		21
Settlements		(398	)
Decreases based on tax positions of acquired entities		(65	)
Balance at December 31, 2019		1,353
Additions based on tax positions of prior years		157
Decreases based on tax positions of prior years		(11	)
Additions based on tax positions of current years		213
Settlements		(39	)
Balance at December 31, 2020	$	1,673

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. In 2020, income tax examinations began at two foreign subsidiaries and related reserves were increased approximately $0.3 million and certain state income tax issues were settled for $0.1 million.

The Company anticipates that the total unrecognized tax benefits will be reduced within the next 12 months by approximately $0.3 million due to the expected settlement of certain positions related to ongoing audits at foreign subsidiaries. The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $1.7 million. The Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense, which has not been significant during the years ended December 31, 2020 and 2019, respectively.

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 2016. 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 2001 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.

On March 27, 2020, the CARES Act was signed into law. Under the CARES Act, the limitation on the deduction of business interest under Section 163j of the Internal Revenue Code was increased to 50% of adjusted taxable income (from 30%) for taxable years beginning in 2019 or 2020. In addition, the CARES Act corrected the Tax Cuts and Jobs Act to provide that net operating losses with unlimited carryover period are those arising in tax years beginning after December 31, 2017, rather than in tax years ending after that date. This change impacted $5.3 million of NOLs from the DSI acquisition in 2018, which no longer have an unlimited carryforward period. As a result, the Company increased the valuation allowance against these NOLs by $1.1 million. Finally, the CARES Act permits the delay of payment of employer payroll taxes from the effective date of the Act through December 31, 2020. Any payments deferred will be due 50% by December 31, 2021, and the remaining 50% by December 31, 2022.

- 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 + Details