| Income Taxes | 13. Income Taxes Income before income tax provision is summarized in the following table. Fiscal Year Ended July 31, 2019 2018 2017 (in thousands) U.S. operations $ (1,302 ) $ (948 ) $ 4,758 Foreign operations (primarily South American operations) 528 1,102 (80 ) (Loss) income before income tax provision $ (774 ) $ 154 $ 4,678 The Company’s income tax (benefit) provision is summarized in the following table. Fiscal Year Ended July 31, 2019 2018 2017 (in thousands) Current income tax provision (benefit): Federal $ 78 $ (62 ) $ (149 ) State 90 26 42 Foreign 494 228 282 Total current 662 192 175 Deferred income tax provision (benefit): Federal (24 ) 289 1,653 State 1 (75 ) 308 Foreign (1,303 ) (148 ) 31 Total deferred (1,326 ) 66 1,992 Total income tax (benefit) provision $ (664 ) $ 258 $ 2,167 On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”), which significantly revised U.S. corporate income tax regulations including, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. The Tax Act lowered our statutory federal tax rate from 34.0% (effective through December 31, 2017) to 21.0% (effective January 1, 2018). As the Company has a July 31 fiscal year-end, the lower corporate income tax rate was phased in, resulting in an average statutory federal tax rate of approximately 26.5% for the fiscal year ending July 31, 2018, and 21.0% for subsequent fiscal years. The statutory U.S. income tax rate was 21.0%, 26.5% and 34% during fiscal years 2019, 2018 and 2017, respectively. A reconciliation of the income tax provision using the statutory U.S. income tax rate compared with the actual income tax provision reported on the consolidated statements of operations is summarized in the following table. Fiscal Year Ended July 31, 2019 2018 2017 (in thousands) Income tax (benefit) provision at the U.S. federal statutory income tax rate $ (163 ) $ 41 $ 1,590 Tax on Foreign Earnings 138 129 --- Change in Tax Rates under Tax Act 16 322 --- International rate differences 80 27 33 Peru non-deductible expenses --- 14 53 Foreign dividend income --- --- 240 Income from “pass-through” entities taxable to noncontrolling partners (16 ) --- (1 ) Re-evaluation and settlements of tax contingencies --- --- (33 ) Transaction Costs 69 --- --- Change in valuation allowance (1,241 ) (19 ) 98 State taxes, net of federal benefit 75 (32 ) 200 Other foreign taxes, net of federal benefit 109 (95 ) (111 ) Other permanent differences 269 (129 ) 98 Income tax (benefit) provision, as reported on the consolidated statements of operations $ (664 ) $ 258 $ 2,167 The significant components of deferred tax assets and liabilities are summarized in the following table. July 31, 2019 2018 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 1,413 $ 1,081 Accrued compensation and expenses 623 611 Federal benefit from foreign accounting differences 448 460 Contract and other reserves 253 311 Foreign tax credit 296 296 Capital loss carryforwards 234 143 Fixed assets and intangibles 57 --- Other 155 202 Deferred tax assets 3,479 3,104 Less: valuation allowance (859 ) (2,006 ) Net deferred tax assets $ 2,620 $ 1,098 Deferred tax liabilities: Fixed assets and intangibles $ --- $ (39 ) Federal expense on state deferred taxes (62 ) (60 ) Federal expense from foreign accounting differences (2 ) (7 ) Unremitted foreign earnings (417 ) (206 ) Other (9 ) 3 Net deferred tax liabilities $ (490 ) $ (309 ) As of July 31, 2019, the Company has net operating losses attributable to operations in the U.S., Brazil and Peru. Foreign and U.S. net operating losses at July 31, 2019 were approximately $3.0 million and $1.4 million, respectively. Net operating losses in Brazil and U.S. federal net operating losses may be carried forward indefinitely and a portion of the net operating losses in Peru expire in four years, while the remainder have an indefinite life. U.S. state net operating losses have expiration dates in various years starting in fiscal year 2023 through and including a portion with an indefinite life. The Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Act require the Company to include in the U.S. income from foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. During fiscal year 2019, its first year of applicability, the Company included $0.6 million of GILTI income in the U.S. The Company has elected to account for GILTI in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for fiscal year 2019. The Company periodically evaluates the likelihood of realization of deferred tax assets and provides for a valuation allowance when necessary. Fiscal Year Ended July 31, 2019 2018 (in thousands) Balance at beginning of period $ 2,006 $ 2,020 Additions during the period 420 60 Reductions during period (1,567 ) (74 ) Balance at end of period $ 859 $ 2,006 As of July 31, 2019, the valuation allowance maintained by the Company primarily related to: (i) net operating losses related to operations in Peru, the utilization of which is dependent on future earnings; (ii) excess foreign tax credit carryforwards, the utilization of which is dependent on future foreign source income; and (iii) capital loss carryforwards, the utilization of which is dependent on future capital gains. Additions to the valuation allowance during fiscal year 2019 primarily related to the establishment of a valuation allowance recorded on deferred tax assets related to operating losses from operations in Peru and a capital loss incurred on the sale of operations in Ecuador. During the fiscal year 2019, based on available evidence including recent cumulated losses, management determined that it is more likely than not that the deferred tax assets in Peru will not be realized and therefore established a valuation allowance. During fiscal year 2016, the Company recorded a valuation allowance against deferred tax assets related to net operating losses in Brazil. During fiscal year 2019, based on available evidence including recent cumulative operating income, management determined that it is more likely than not that the deferred tax assets in Brazil will be realized and therefore reversed the related $1.6 million valuation allowance. During the fiscal years ended July 31, 2019, 2018 and 2017, the Company recorded $0.2 million $0.2 million and $0.6 million, respectively, of income taxes applicable to undistributed earnings of foreign subsidiaries in Chile and Peru that will not be indefinitely reinvested in those operations. The Company intends to recover the undistributed earnings through future dividend repatriations. As part of Tax Act, all foreign earnings were taxed in the U.S. through December 31, 2017. The Company had $4.1 million, $6.3 million and $5.6 million of taxed, but undistributed foreign earnings at July 31, 2019, 2018 and 2017, respectively. At July 31, 2019 and 2018, the Company had $2.3 million and $1.0 million of foreign earnings, occurring after January 1, 2018, that will be subject to a full dividend received deduction when distributed. The Company files numerous consolidated and separate income tax returns in U.S. federal, state and foreign jurisdictions. The Company’s U.S. federal tax matters for fiscal years 2016 through 2019 remain subject to examination by the IRS. The Company’s state, local and foreign tax matters for fiscal years 2015 through 2019 remain subject to examination by the respective tax authorities. No waivers have been executed that would extend the period subject to examination beyond the period prescribed by statute. The Company had no uncertain tax positions (“UTPs”) at July 31, 2019 and 2018. The Company recognizes interest accrued related to liabilities for UTPs in other accrued liabilities on the consolidated balance sheets and in selling, general and administrative expenses on the consolidated statements of operations. The Company recorded $0.1 million or less in each of the fiscal years ending July 31, 2019, 2018 and 2017. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company recorded final adjustments for the tax effects of the Tax Act during the fourth quarter of fiscal year 2018, and all tax effects of the Tax Act were recorded in its consolidated financial statements for the fiscal year ended July 31, 2018. |
