Note 13. Income Taxes
The pretax income attributable to domestic and foreign operations was as follows:
|
| | | | | | | | | | | |
| Year Ended |
| April 29,
2017 | | April 30,
2016 | | May 2,
2015 |
Domestic | $ | 16,010 |
| | $ | 3,264 |
| | $ | 29,194 |
|
Foreign | (422 | ) | | (138 | ) | | 2,489 |
|
Income before income taxes | $ | 15,588 |
| | $ | 3,126 |
| | $ | 31,683 |
|
Income tax expense consisted of the following:
|
| | | | | | | | | | | |
| Year Ended |
| April 29,
2017 | | April 30,
2016 | | May 2,
2015 |
Current: | | | | | |
Federal | $ | 5,268 |
| | $ | (467 | ) | | $ | 6,657 |
|
State | 1,158 |
| | 123 |
| | 1,150 |
|
Foreign | 863 |
| | 557 |
| | 848 |
|
Deferred: | | | | | |
Federal | (1,625 | ) | | 463 |
| | 1,906 |
|
State | (397 | ) | | (89 | ) | | 307 |
|
Foreign | (21 | ) | | 478 |
| | (67 | ) |
| $ | 5,246 |
| | $ | 1,065 |
| | $ | 10,801 |
|
A reconciliation of the provision for income taxes and the amount computed by applying the federal statutory rate to income before income taxes is as follows:
|
| | | | | | | | | | | | |
| | Year Ended |
| | April 29,
2017 | | April 30,
2016 | | May 2,
2015 |
Computed income tax expense at federal, state and local jurisdiction statutory rates | | $ | 5,456 |
| | $ | 1,063 |
| | $ | 11,089 |
|
State taxes, net of federal benefit | | 539 |
| | 40 |
| | 1,016 |
|
Research and development tax credit | | (1,573 | ) | | (2,015 | ) | | (1,292 | ) |
Meals and entertainment | | 299 |
| | 334 |
| | 369 |
|
Stock compensation | | 497 |
| | 525 |
| | 566 |
|
Dividends paid to retirement plan | | (293 | ) | | (323 | ) | | (352 | ) |
Domestic production activities deduction | | (542 | ) | | (91 | ) | | (529 | ) |
Change in valuation allowances | | 388 |
| | 1,265 |
| | (2,295 | ) |
Change in uncertain tax positions | | 97 |
| | 125 |
| | 2,357 |
|
Other, net | | 378 |
| | 142 |
| | (128 | ) |
| | $ | 5,246 |
| | $ | 1,065 |
| | $ | 10,801 |
|
The components of the net deferred tax asset were as follows:
|
| | | | | | | |
| April 29,
2017 | | April 30,
2016 |
Deferred tax assets: | | | |
Accrued warranty obligations | $ | 10,469 |
| | $ | 11,407 |
|
Vacation accrual | 2,100 |
| | 1,963 |
|
Net losses on investments | — |
| | 336 |
|
Deferred maintenance revenue | 1,336 |
| | 341 |
|
Allowance for excess and obsolete inventory | 1,254 |
| | 1,314 |
|
Equity compensation | 848 |
| | 745 |
|
Allowance for doubtful accounts | 677 |
| | 703 |
|
Inventory capitalization | 354 |
| | 595 |
|
Accrued compensation and benefits | 1,232 |
| | 1,015 |
|
Unrealized loss on foreign currency exchange | 226 |
| | — |
|
Net operating loss carry forwards | 1,772 |
| | 1,404 |
|
Research and development tax credit carry forwards | 311 |
| | 1,005 |
|
Other | 1,266 |
| | 617 |
|
| 21,845 |
| | 21,445 |
|
Valuation allowance | (2,061 | ) | | (1,673 | ) |
| 19,784 |
| | 19,772 |
|
| | | |
Deferred tax liabilities: | |
| | |
|
Property and equipment | (6,762 | ) | | (7,988 | ) |
Prepaid expenses | (601 | ) | | (631 | ) |
Intangible assets | (1,809 | ) | | (1,479 | ) |
Unrealized gain on foreign currency exchange | — |
| | (931 | ) |
Other | (156 | ) | | (60 | ) |
| (9,328 | ) | | (11,089 | ) |
| $ | 10,456 |
| | $ | 8,683 |
|
The classification of net deferred tax assets in the accompanying consolidated balance sheets is:
|
| | | | | | | |
| April 29,
2017 | | April 30,
2016 |
Non-current assets | $ | 11,292 |
| | $ | 9,437 |
|
Non-current liabilities | (836 | ) | | (754 | ) |
| $ | 10,456 |
| | $ | 8,683 |
|
The changes in the amounts recorded for uncertain tax positions are:
|
| | | | | | | | | |
| April 29, 2017 | April 30, 2016 | May 2, 2015 |
Balance at beginning of year | $ | 3,016 |
| $ | 2,891 |
| $ | 494 |
|
Gross increases related to prior period tax positions | 235 |
| 137 |
| 6 |
|
Gross increases related to current period tax positions | — |
| 8 |
| 2,496 |
|
Lapse of statute of limitations | (138 | ) | (20 | ) | (105 | ) |
Balance at end of year | $ | 3,113 |
| $ | 3,016 |
| $ | 2,891 |
|
All of our unrecognized tax benefits would have an impact on the effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits could change due to one or more of the following events in the next 12 months: expiring statutes, audit activity, tax payments, or competent authority proceedings. We are not able to reasonably estimate the amount or the future periods in which changes in unrecognized tax benefits may be resolved; however, we do not anticipate any significant changes within the next 12 months. Interest and penalties incurred associated with uncertain tax positions are included in income tax expense.
In fiscal 2015, the Tax Court's decision in Pilgrim's Pride Corporation v. Commissioner was overturned by the federal Fifth Circuit Court of Appeals. Hence, we abandoned our partnership interest and recorded an ordinary loss on our 2015 federal tax return, thereby moving the asset and valuation allowance into our current tax provision and recording a current deduction. Because our position has a chance of being disallowed, we believe we cannot reach the more-likely-than not conclusion that this ordinary loss will be realized. Therefore, we have maintained an uncertain tax accrual. We will continue to evaluate the facts and circumstances of this case and adjust our accrual accordingly.
As of April 29, 2017, we had foreign net operating loss (“NOL”) carryforwards of approximately $7,754 primarily related to our operations in Belgium and Ireland, which have indefinite lives. $138 of the NOL carryforwards is related to operations in Canada and expires in 2036. A deferred tax asset has been recorded for all NOL carryforwards totaling approximately $1,772. However, due to uncertainty in future taxable income in Ireland and Belgium, a full valuation allowance totaling approximately $1,724 has been recorded. If sufficient evidence of our ability to generate future taxable income in the jurisdictions in which we currently maintain a valuation allowance causes us to determine that our deferred tax assets are more likely than not realizable, we would release our valuation allowance, which would result in an income tax benefit being recorded in our consolidated statement of operations.
Additional tax information:
In the normal course of business, income tax authorities in various income tax jurisdictions both within the United States and internationally conduct routine audits of our income tax returns filed in prior years. Income tax years are open for the United States jurisdiction for fiscal years 2014 through 2016. International jurisdictions have open tax years varying by location beginning in fiscal 2007.
We have no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested. If circumstances change and it becomes apparent that some or all of the undistributed untaxed earnings of a subsidiary will be remitted to the United States, we will accrue a tax expense at that time. We have approximately $11,483 of untaxed earnings which have indefinitely been reinvested. Determination of the amount of any unrecognized deferred income tax liability on these earnings is not practicable.
We recognized a (benefit) expense of $(59), $232 and $14 in net interest and penalties during fiscal years ended 2017, 2016, and 2015, respectively. Interest and penalties recognized are recorded in income taxes in our consolidated statements of operations. We had accrued $170 and $94 in net interest or penalties as of April 29, 2017 and April 30, 2016, respectively.