Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

9. Income Taxes

Income (loss) before income taxes is as follows:

	Year ended December 31,
	2020		2019		2018
	(in thousands)
United States	$	25,308	$	17,989	$	22,256
Foreign		2,048		3,690		6,188
Total	$	27,356	$	21,679	$	28,444

Certain of our foreign subsidiaries are included in the U.S. tax return as branches but are included as foreign for purposes of the table above.

The provision (benefit) for income taxes is as follows:

	Year ended December 31,
	2020			2019		2018
				(in thousands)
Current:
Federal	$	4,594		$	1,501	$	4,262
State		806			304		673
Foreign		1,064			1,116		2,718
		6,464			2,921		7,653
Deferred:
Federal		(397	)		538		(1,512	)
State		(48	)		144		(145	)
Foreign		117			142		(495	)
		(328	)		824		(2,152	)
Provision for income taxes	$	6,136		$	3,745	$	5,501

We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of December 31, 2020, the gross amount of unrecognized tax benefits exclusive of interest and penalties was $0.8 million, which may increase within the twelve months ending December 31, 2021. We recognized a reduction of unrecognized tax benefits in 2020 due to the settlement of a 2013-2016 Corporate Tax audit by the German Tax Authority. We remain subject to examination until the statute of limitations expires for each remaining respective tax jurisdiction. The statute of limitations will be open with respect to these tax positions through 2028. A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows:

	2020			2019		2018
	(in thousands)
Unrecognized tax benefits at the beginning of year	$	848		$	711	$	525
Additions for tax positions of current year		-			74		73
Additions for tax positions of prior years		37			63		113
Reductions for settlements with taxing authorities.		(65	)		-		-
Reductions for lapses of the applicable statutes of limitations		-			-		-
Unrecognized tax benefits at the end of the year	$	820		$	848	$	711

Deferred taxes are attributable to the following temporary differences:

	As of December 31,
	2020			2019
	(in thousands)
Deferred tax assets:
Inventory	$	1,629		$	840
Net operating loss carryforwards		1,348			1,289
Tax credit carryforwards		1,019			944
Capital loss carryforwards		521			277
Reserves and accruals		994			787
Operating lease liabilities		3,664			3,343
Intangible assets		4,386			2,764
Stock options		359			342
Other		105			20
Total deferred tax assets		14,025			10,606
Deferred tax liabilities:
Property and equipment		(1,831	)		(1,520	)
Goodwill		(4,055	)		(3,459	)
Operating lease right-of-use assets		(3,503	)		(3,224	)
Foreign branch deferred offset		(954	)		(923	)
Other		(299	)		(187	)
Total deferred tax liabilities		(10,642	)		(9,313	)
Net deferred tax assets before valuation allowance		3,383			1,293
Valuation allowance		(1,824	)		(1,388	)
Net deferred tax liabiltity	$	1,559		$	(95	)
Deferred tax classification
Long-term deferred tax asset	$	1,686		$	1,084
Long-term deferred tax liability		(127	)		(1,179	)
Net long-term deferred tax liability	$	1,559		$	(95	)

In 2019, we increased our valuation allowance by $0.1 million mainly attributable to Australian net operating loss carry forwards and Massachusetts credit carryforwards. In 2020, we increased our valuation allowance by $0.4 million mainly attributable to Australian net operating loss carry forwards and Massachusetts credit carryforwards.

As of December 31, 2020, we have provided a valuation allowance of $1.8 million for deferred tax assets primarily related to Australian net operating loss and capital loss carry forwards and Massachusetts tax credit carry forwards that are not expected to be realized. The valuation allowance against our deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance.

Realization of our deferred tax assets is dependent on our generating sufficient taxable income in future periods. Although we believe it is more likely than not that future taxable income will be sufficient to allow us to recover substantially all of the value of our deferred tax assets remaining after we apply the valuation allowances, realization is not assured and future events could cause us to change our judgment. In the event that actual results differ from our estimates, or we adjust these estimates in the future periods, further adjustments to our valuation allowance may be recorded, which could materially impact our financial position and net income (loss) in the period of the adjustment.

As of December 31, 2020, we have net operating loss carryforwards in Australia of $1.5 million that do not expire, in France of $2.5 million that do not expire, in Spain of $0.9 million that do not expire, and in Norway of $0.1 million that do not expire. We have a capital loss carryforward in Australia of $1.7 million that does not expire. We also have state tax credit carryforwards of approximately $1.6 million that are available to reduce future tax liabilities, which begin to expire in 2021, or can be carried forward indefinitely.

In December 2018, we reevaluated our international operations and as a result, are no longer indefinitely reinvested with respect to undistributed earnings from our German and Australian subsidiaries. There was no material deferred tax expense recorded for foreign and state tax costs associated with the future remittance of these undistributed earnings. We remain permanently reinvested with respect to undistributed earnings from our other foreign subsidiaries. It is not practicable to estimate the amount of deferred tax liability, if any, with respect to these permanently reinvested undistributed earnings.

A reconciliation of the U.S. federal statutory rate to our effective tax rate is as follows:

	2020			2019			2018
Federal statutory rate		21.0	%		21.0	%		21.0	%
State tax, net of federal benefit		2.2	%		1.9	%		1.4	%
Effect of foreign taxes		1.1	%		2.1	%		3.8	%
Federal tax on foreign income		0.4	%		0.8	%		1.4	%
Valuation allowance		1.4	%		0.6	%		(3.2	%)
Foreign deferred tax liability offset		(0.2	%)		(0.4	%)		(0.3	%)
Manufacturing deduction		0.0	%		0.0	%		0.0	%
Research & development tax credits		(0.6	%)		(1.2	%)		(0.7	%)
Stock options		(2.3	%)		(8.8	%)		(3.3	%)
Uncertain tax positions		0.3	%		1.0	%		0.8	%
Other permanent differences		(0.6	%)		0.5	%		(0.7	%)
Change in tax laws		0.0	%		0.0	%		0.0	%
Deferred tax remeasurement		0.0	%		0.0	%		0.0	%
Other		(0.3	%)		(0.2	%)		(0.9	%)
Effective tax rate		22.4	%		17.3	%		19.3	%

In August 2018, the German tax authority commenced an audit of our German subsidiary for the tax years 2013 through 2016. This audit concluded in 2020 and our German subsidiary settled for an immaterial amount of additional German tax. We are not currently under audit in any other tax jurisdictions.

As of December 31, 2020, a summary of the tax years that remain subject to examination in our most significant tax jurisdictions are:

United States	2017 and forward
Foreign	2013 and forward

Supplemental disclosures of cash flow information are as follows:

	Year ended December 31,
	2020		2019		2018
	(in thousands)
Cash paid for income taxes, net	$	4,470	$	4,817	$	5,521