Income Taxes
Income (loss) from continuing operations before provision for income taxes during fiscal year 2017, 2016 and 2015 consisted of the following:
|
| | | | | | | | | | | |
| Fiscal Year |
(In thousands) | 2017 | | 2016 | | 2015 |
United States | $ | 10,979 |
| | $ | (4,248 | ) | | $ | (18,603 | ) |
Foreign | (11,584 | ) | | (24,295 | ) | | (7,355 | ) |
Total loss from continuing operations before income taxes | $ | (605 | ) | | $ | (28,543 | ) | | $ | (25,958 | ) |
Provision for (benefit from) income taxes from continuing operations for fiscal year 2017, 2016 and 2015 were summarized as follows:
|
| | | | | | | | | | | |
| Fiscal Year |
(In thousands) | 2017 | | 2016 | | 2015 |
Current provision (benefit): | | | | | |
Federal | $ | (14 | ) | | $ | 131 |
| | $ | — |
|
Foreign | (52 | ) | | 1,814 |
| | 3,378 |
|
State and local | 7 |
| | 24 |
| | 23 |
|
| (59 | ) | | 1,969 |
| | 3,401 |
|
Deferred provision (benefit): | | | | | |
Federal | 168 |
| | (468 | ) | | (216 | ) |
Foreign | (93 | ) | | 134 |
| | (4,495 | ) |
| 75 |
| | (334 | ) | | (4,711 | ) |
Total provision for (benefit from) income taxes from continuing operations | $ | 16 |
| | $ | 1,635 |
| | $ | (1,310 | ) |
The provision for (benefit from) income taxes from continuing operations differed from the amount computed by applying the federal statutory rate of 35% to our income before provision for income taxes as follows:
|
| | | | | | | | | | | |
| Fiscal Year |
(In thousands) | 2017 | | 2016 | | 2015 |
Tax benefit at statutory rate | $ | (196 | ) | | $ | (9,990 | ) | | $ | (9,065 | ) |
Valuation allowances | (1,346 | ) | | 6,609 |
| | (3,900 | ) |
Foreign non-deductible expenses | 628 |
| | 103 |
| | (80 | ) |
State and local taxes, net of U.S. federal tax benefit | 358 |
| | (134 | ) | | (500 | ) |
Foreign income taxed at rates less than the U.S. statutory rate | 2,062 |
| | 6,019 |
| | 9,970 |
|
Dividend from foreign subsidiary | — |
| | (1,781 | ) | | — |
|
Foreign branch income/withholding taxes | 1,116 |
| | 292 |
| | 1,350 |
|
Singapore refund | (3,778 | ) | | — |
| | — |
|
Change in uncertain tax positions | 1,173 |
| | 437 |
| | 610 |
|
Other | (1 | ) | | 80 |
| | 305 |
|
Total provision for (benefit from) income taxes from continuing operations | $ | 16 |
| | $ | 1,635 |
| | $ | (1,310 | ) |
The income tax expense (benefit) from continuing operations was $16 thousand of expense for fiscal 2017, $1.6 million of expense for fiscal 2016 and $1.3 million of benefit for fiscal 2015. The difference between our income tax expense (benefit) from continuing operations and income tax expense at the statutory rate of 35% was primarily attributable to losses in tax jurisdictions in which we cannot recognize a tax benefit and increase in foreign withholding taxes. During fiscal 2017, we recorded a $3.7 million tax benefit from the audit assessment refund received from the Inland Revenue Authority of Singapore. During fiscal 2015, we released approximately $4.4 million of the deferred tax valuation allowance in jurisdictions where management believed the utilization of deferred tax assets was more likely than not based on the weighting of positive and negative evidence.
The components of deferred tax assets and liabilities were as follows:
|
| | | | | | | |
(In thousands) | June 30, 2017 | | July 1, 2016 |
Deferred tax assets: | | | |
Inventory | $ | 4,390 |
| | $ | 6,652 |
|
Accruals and reserves | 2,611 |
| | 2,497 |
|
Bad debts | 669 |
| | 1,091 |
|
Amortization | 1,870 |
| | 3,148 |
|
Stock compensation | 2,266 |
| | 2,599 |
|
Deferred revenue | 3,127 |
| | 1,759 |
|
Unrealized exchange gain/loss | 3,295 |
| | 3,422 |
|
Other | 3,715 |
| | 6,623 |
|
Tax credit carryforwards | 15,337 |
| | 18,016 |
|
Tax loss carryforwards | 168,115 |
| | 167,468 |
|
Total deferred tax assets before valuation allowance | 205,395 |
| | 213,275 |
|
Valuation allowance | (197,951 | ) | | (202,824 | ) |
Total deferred tax assets | 7,444 |
| | 10,451 |
|
Deferred tax liabilities: | | | |
Branch undistributed earnings reserve | 990 |
| | 822 |
|
Depreciation | 1,501 |
| | 4,596 |
|
Other | 456 |
| | 462 |
|
Total deferred tax liabilities | 2,947 |
| | 5,880 |
|
Net deferred tax assets | $ | 4,497 |
| | $ | 4,571 |
|
| | | |
As Reported on the Consolidated Balance Sheets | | | |
Deferred income tax assets | $ | 6,178 |
| | $ | 6,068 |
|
Deferred income tax liabilities | 1,681 |
| | 1,497 |
|
Total net deferred income taxes | $ | 4,497 |
| | $ | 4,571 |
|
Our valuation allowance related to deferred income taxes, as reflected in our consolidated balance sheets, was $198.0 million as of June 30, 2017 and $202.8 million as of July 1, 2016. The decrease in valuation allowance in fiscal 2017 was primarily due to the release of valuation allowance in certain foreign jurisdictions, partially offset by losses in tax jurisdictions in which we cannot recognize tax benefits.
Tax loss and credit carryforwards as of June 30, 2017 have expiration dates ranging between one year and no expiration in certain instances. The amount of U.S. federal tax loss carryforwards as of June 30, 2017 and July 1, 2016 were $339.8 million and $345.3 million, respectively, and begin to expire in fiscal 2023. The amount of U.S. federal and state tax credit carryforwards as of June 30, 2017 were $16.4 million, and certain credits will begin to expire in fiscal 2018. The amount of foreign tax loss carryforwards as of June 30, 2017 was $232.1 million and certain losses begin to expire in fiscal 2018. The amount of foreign tax credit carryforwards as of June 30, 2017 were $4.4 million, and certain credits will begin to expire in fiscal 2023.
United States income taxes have not been provided on basis differences in foreign subsidiaries of $5.0 million and $5.6 million, respectively, as of June 30, 2017 and July 1, 2016, because of our intention to reinvest these earnings indefinitely. The residual U.S. tax liability, if such amounts were remitted, would be nominal.
We entered into a tax sharing agreement with Harris effective on January 26, 2007, the date of the acquisition of Stratex. The tax sharing agreement addresses, among other things, the settlement process associated with pre-merger tax liabilities and tax attributes that are attributable to the Microwave Communication Division when it was a division of Harris. There were no settlement payments recorded in fiscal year 2017, 2016 or 2015.
As of June 30, 2017 and July 1, 2016, we had unrecognized tax benefits of $18.7 million and $27.0 million, respectively, for various federal, foreign, and state income tax matters. Unrecognized tax benefits decreased by $8.3 million. Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $2.5 million and $1.4 million, respectively, as of June 30, 2017 and July 1, 2016. These unrecognized tax benefits are presented on the accompanying consolidated balance sheets net of the tax effects of net operating loss carryforwards.
We account for interest and penalties related to unrecognized tax benefits as part of our provision for income taxes. The interest accrued was $0.2 million as of June 30, 2017 and immaterial as of July 1, 2016. No penalties have been accrued.
Our unrecognized tax benefit activity for fiscal 2017, 2016 and 2015 was as follows:
|
| | | |
(In thousands) | Amount |
Unrecognized tax benefit as of June 27, 2014 | $ | 28,209 |
|
Additions for tax positions in prior periods | 673 |
|
Decreases for tax positions in prior periods | (227 | ) |
Decreases related to change of foreign exchange rate | (1,745 | ) |
Unrecognized tax benefit as of July 3, 2015 | 26,910 |
|
Additions for tax positions in current periods | 397 |
|
Additions for tax positions in prior periods | 246 |
|
Decreases related to change of foreign exchange rate | (515 | ) |
Unrecognized tax benefit as of July 1, 2016 | 27,038 |
|
Additions for tax positions in prior periods | 626 |
|
Additions for tax positions in current periods | 831 |
|
Decreases for tax positions in prior periods | (9,279 | ) |
Decreases related to change of foreign exchange rate | (477 | ) |
Unrecognized tax benefit as of June 30, 2017 | $ | 18,739 |
|
During the fiscal year 2014, we received an assessment letter from the Inland Revenue Authority of Singapore (“IRAS”) related to deductions claimed in prior years and made a payment of $13.2 million related to tax years 2007 through 2010, reflecting all of the taxes incrementally assessed by IRAS. While we disagreed with the IRAS assessment, the payment was a required step in order to continue our appeal. Since the initial assessment, we have continued to challenge this assessment. During the first quarter of fiscal year 2017, we received an initial refund of $3.7 million from IRAS and recognized a discrete benefit in the first quarter of fiscal year 2017. During the first quarter of fiscal 2018, we received an additional refund of $1.3 million from IRAS which represents a final settlement. We will recognize the refund as a discrete tax benefit in the first quarter of fiscal 2018. During the next twelve months, it is reasonably possible that our unrecognized tax benefits will be impacted by up to $3.0 million.
We have a number of years with open tax audits which vary from jurisdiction to jurisdiction. Our major tax jurisdictions include the U.S., Singapore, Nigeria and the Ivory Coast. The earliest years still open and subject to potential audits for these jurisdictions are as follows: U.S. —2003; Singapore — 2006; Nigeria — 2011, and Ivory Coast — 2016.