Annual report pursuant to Section 13 and 15(d)

Note 13 - Income Taxes

v3.22.2.2
Note 13 - Income Taxes
12 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

(13)

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):

 

   

2022

   

2021

   

2020

 

U.S. operations

  $ 135,077     $ 75,458     $ 12,690  

Non-U.S. operations

    3,044       953       1,499  

Income before income taxes

  $ 138,121     $ 76,411     $ 14,189  
                         

U.S. operations

    34,682       15,812       4,989  

Non-U.S. operations

    159       594       300  

Total income tax expense

  $ 34,841     $ 16,406     $ 5,289  

Effective tax rate

    25.2 %     21.5 %     37.3 %

 

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

 

   

2022

   

2021

   

2020

 

Current:

                       

Federal

  $ 28,144     $ 10,617     $ 2,432  

State

    6,474       1,647       8  

Foreign

    575       492       325  

Total current

    35,193       12,756       2,765  

Deferred:

                       

Federal

    (610 )     4,462       181  

State

    674       (914 )     2,368  

Foreign

    (416 )     102       (25 )

Total deferred

    (352 )     3,650       2,524  

Total income tax expense

  $ 34,841     $ 16,406     $ 5,289  

 

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):

 

   

2022

   

2021

   

2020

 
                                                 

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

  $ 29,005       21.0 %   $ 16,046       21.0 %   $ 2,980       21.0 %

Increase (decrease) in income taxes resulting from:

                                               

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

    5,208       3.8 %     2,565       3.4 %     159       1.1 %

Change in valuation allowance

    (591 )     -0.4 %     (2,565 )     -3.4 %     2,534       17.9 %

Foreign derived intangible income ("FDII") deduction

    (289 )     -0.2 %     (130 )     -0.2 %     -       0.0 %

Unrecognized tax benefits

    390       0.3 %     48       0.1 %     (215 )     -1.5 %

Share-based compensation

    189       0.1 %     72       0.1 %     17       0.1 %

Other, net

    929       0.6 %     370       0.5 %     (186 )     -1.3 %

Actual income tax expense (and corresponding effective tax rate)

  $ 34,841       25.2 %   $ 16,406       21.5 %   $ 5,289       37.3 %

 

The significant components of deferred tax assets recorded within the consolidated balance sheet were as follows (in thousands):

 

   

June 30,

 
   

2022

   

2021

 

Leases

  $ 28,621     $ 30,692  

Employee compensation accruals

    2,167       2,131  

Share-based compensation

    271       727  

Net operating loss carryforwards

    340       1,420  

Property, plant and equipment

    1,309       1,446  

Other

    3,321       2,263  

Subtotal deferred tax assets

    36,029       38,679  

Less: Valuation allowance

    -       (593 )

Total deferred tax assets

  $ 36,029     $ 38,086  

 

The significant components of deferred tax liabilities recorded within the consolidated balance sheet were as follows (in thousands):

 

   

June 30,

 
   

2022

   

2021

 

Operating lease right-of-use assets

  $ 24,965     $ 26,811  

Intangible assets other than goodwill

    9,041       8,979  

Commissions

    5,006       5,744  

Other

    615       502  

Total deferred tax liabilities

  $ 39,627     $ 42,036  

 

Deferred tax balances are classified in the consolidated balance sheets as follows (in thousands):

 

   

June 30,

 
   

2022

   

2021

 

Other assets

  $ 820     $ 1,078  

Other non-current liabilities

    (4,418 )     (5,028 )

Total net deferred tax asset (liability)

  $ (3,598 )   $ (3,950 )

 

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 the ongoing COVID-19 pandemic, possibly resulting in 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.

 

At  June 30, 2022, there was no valuation allowance in place against the Company’s tax assets. The valuation allowance previously recorded of $0.6 million against the retail segment’s Canadian tax assets was removed during fiscal 2022 as it was now considered more likely than not to be realized based on the performance and related positive earnings generated by the retail segment’s Canadian operations over the past 36 months. At June 30, 2021, a valuation allowance of $0.6 million was in place against the retail segment’s Canadian tax assets.

 

The deferred tax assets at June 30, 2022 associated with net operating loss carryforwards and the related expiration dates are as follows (in thousands):

 

   

Deferred

   

Net Operating Loss

 
   

Tax Assets

   

Carryforwards

 

Various U.S. state net operating losses, expiring between 2025 and 2040

  $ 340     $ 3,953  

 

Uncertain Tax Positions

 

We recognize interest and penalties related to income tax matters as a component of income tax expense. If the $2.5 million of unrecognized tax benefits and related interest and penalties as of  June 30, 2022 were recognized, approximately $2.0 million would be recorded as a benefit to income tax expense.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits including related interest and penalties is as follows (in thousands):

 

   

June 30,

 
   

2022

   

2021

 

Beginning balance

  $ 1,984     $ 1,933  

Additions for tax positions related to the current year

    853       452  

Additions for tax positions of prior years

    94       117  

Reductions resulting from a lapse of the applicable statute of limitations

    (457 )     (518 )

Ending balance

  $ 2,474     $ 1,984  

 

It is reasonably possible that various issues relating to approximately $0.5 million of the total gross unrecognized tax benefits as of  June 30, 2022 will be resolved within the next twelve months as exams are completed or statutes expire. If recognized, approximately $0.4 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, the Company is subject to examination by the taxing authorities in such major jurisdictions as the United States, Canada, Mexico and Honduras. As of  June 30, 2022, the Company and certain subsidiaries are currently under audit from 2017 through 2020 in the United States. While the amount of uncertain tax benefits with respect to the entities and years under audit may change within the next twelve months, it is not anticipated that any of the changes will be significant.