Income Taxes
The components of our loss from continuing operations before income taxes are as follows (in thousands):
|
| | | | | | | | | | | |
| Fiscal year ended |
| December 31, 2017 | | December 25, 2016 | | December 27, 2015 |
U.S. | $ | (56,808 | ) | | $ | (140,190 | ) | | $ | (225,473 | ) |
Foreign | (43,097 | ) | | (38,150 | ) | | (15,535 | ) |
Loss from continuing operations before income taxes | $ | (99,905 | ) | | $ | (178,340 | ) | | $ | (241,008 | ) |
The components of our benefit for income taxes are as follows (in thousands):
|
| | | | | | | | | | | |
| Fiscal year ended |
| December 31, 2017 | | December 25, 2016 | | December 27, 2015 |
Current (benefit) provision: | | | | | |
U.S.: | | | | | |
Federal | $ | (23,781 | ) | | $ | (1,971 | ) | | $ | — |
|
State | 390 |
| | (281 | ) | | 255 |
|
Foreign | 2,214 |
| | 3,860 |
| | 562 |
|
Total current (benefit) provision | (21,177 | ) | | 1,608 |
| | 817 |
|
Deferred (benefit) provision: | | | | | |
U.S.: | | | | | |
Federal | (5,098 | ) | | 1,244 |
| | (1,450 | ) |
State | (93 | ) | | 142 |
| | (166 | ) |
Foreign | (8,600 | ) | | (16,400 | ) | | (2,853 | ) |
Total deferred benefit | (13,791 | ) | | (15,014 | ) | | (4,469 | ) |
Total benefit for income taxes | $ | (34,968 | ) | | $ | (13,406 | ) | | $ | (3,652 | ) |
A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate for continuing operations is as follows:
|
| | | | | | | | |
| Fiscal year ended |
| December 31, 2017 | | December 25, 2016 | | December 27, 2015 |
Income tax benefit at statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes | 1.5 | % | | 2.9 | % | | 3.7 | % |
Change in valuation allowance | (3.5 | )% | | (32.6 | )% | | (36.5 | )% |
CVR fair market value adjustment | (1.9 | )% | | (1.7 | )% | | 1.1 | % |
Foreign income tax rate differential | (6.1 | )% | | 3.3 | % | | (0.9 | )% |
Changes in tax reserves | 2.9 | % | | 0.8 | % | | (0.1 | )% |
Effects of U.S. tax reform | 6.5 | % | | — | % | | — | % |
Other, net | 0.6 | % | | (0.2 | )% | | (0.6 | )% |
Total | 35.0 | % | | 7.5 | % | | 1.7 | % |
The significant components of our deferred income taxes as of December 31, 2017 and December 25, 2016 are as follows (in thousands):
|
| | | | | | | |
| Fiscal year ended |
| December 31, 2017 | | December 25, 2016 |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 283,708 |
| | $ | 333,282 |
|
General business credit carryforwards | 12,993 |
| | 5,671 |
|
Reserves and allowances | 90,246 |
| | 158,834 |
|
Share-based compensation expense | 13,679 |
| | 20,818 |
|
Convertible debt notes and conversion options | 10,747 |
| | 28,437 |
|
Other | 1,642 |
| | 1,173 |
|
Valuation allowance | (366,825 | ) | | (479,404 | ) |
| | | |
Total deferred tax assets | 46,190 |
| | 68,811 |
|
| | | |
Deferred tax liabilities: | | | |
Depreciation | 6,383 |
| | 10,055 |
|
Intangible assets | 42,862 |
| | 52,123 |
|
Convertible notes bond hedges | 11,668 |
| | 30,120 |
|
Other | 120 |
| | 2,565 |
|
| | | |
Total deferred tax liabilities | 61,033 |
| | 94,863 |
|
| | | |
Net deferred tax liabilities | $ | (14,843 | ) | | $ | (26,052 | ) |
The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act includes a number of changes in existing tax law impacting businesses, including a one-time deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory rate from 35% to 21%. We recognized the income tax effects of the 2017 Tax Act in our 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. As such, our financial results include an approximate $6.6 million benefit resulting from the revaluation of our net deferred tax liabilities and reduction of our valuation allowance due to the change in the net operating loss carryforward period. Our analysis is complete with respect to these items. While we have included a provisional amount pertaining to the one-time deemed repatriation charge, there is no net income tax impact due to the valuation allowance provided on our U.S. deferred tax assets. Based on current guidance and interpretations, we did not identify other items for which the income tax effects of the 2017 Tax Act have not been completed and a reasonable estimate could not be determined as of December 31, 2017.
At December 31, 2017, we had net operating loss carryforwards for U.S. federal income tax purposes of approximately $960.0 million. The federal net operating losses begin to expire in 2018 and extend through 2037. State net operating loss carryforwards at December 31, 2017 totaled approximately $1.0 billion, which begin to expire in 2018 and extend through 2037. Additionally, we had general business credit carryforwards of approximately $13.0 million, which begin to expire in 2018 and extend through 2037. At December 31, 2017, we had foreign net operating loss carryforwards of approximately $137.0 million, $65.0 million of which do not expire and $72.0 million which begin to expire in 2018 and extend through 2026.
At December 31, 2017 and December 25, 2016, we had a valuation allowance of $367.0 million and $479.0 million, respectively, related to certain U.S. and foreign deferred tax assets. We realized a net decrease in the valuation allowance of $112.0 million during the fiscal year ended December 31, 2017, of which approximately $30.0 million was recognized as an income tax benefit. The net decrease was primarily due to recent U.S. tax reform and change in the realizability of certain U.S. deferred tax assets, offset by the valuation allowance on projected current year taxable losses. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable income, projections of future taxable income and the reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowance.
It is our current practice and intention to reinvest the earnings of our subsidiaries in those operations. Therefore, we do not provide for deferred taxes on the excess of the financial reporting over the tax basis in our investments in subsidiaries that are essentially permanent in duration. We would recognize a deferred income tax liability if we were to determine that such earnings are no longer indefinitely reinvested. Due to the number of tax jurisdictions involved, the complexity of our legal entity structure, and the complexity of the tax laws in the relevant jurisdictions, we believe it is not practicable to estimate the amount of additional taxes which may be payable upon distribution of these earnings, however it is not expected to be significant. Further, the 2017 Tax Act imposed a mandatory transition tax on accumulated foreign earnings of our U.S. controlled foreign subsidiaries and eliminates U.S. income taxes on distributions from U.S. controlled foreign subsidiaries.
As of December 31, 2017, our unrecognized tax benefits totaled approximately $6.0 million. The total amount of net unrecognized tax benefits that, if recognized, would affect the tax rate was approximately $3.0 million at December 31, 2017. Our 2015 U.S. federal income tax return and our 2012-2015 French corporate income tax returns are currently under audit by the respective tax authorities. It is, therefore, reasonably possible that our unrecognized tax benefits could change in the next twelve months as a result of settlements with taxing authorities as well as expirations of the statutes of limitations.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
| | | | | | | |
| Fiscal year ended |
| December 31, 2017 | | December 25, 2016 |
Balance at beginning of fiscal year | $ | 8,095 |
| | $ | 9,941 |
|
Additions for tax positions related to current year | 215 |
| | 407 |
|
Additions for tax positions of prior years | 20 |
| | 721 |
|
Reductions for tax positions of prior years | (3,174 | ) | | (2,657 | ) |
Settlements | — |
| | (74 | ) |
Foreign currency translation | 869 |
| | (243 | ) |
Balance at end of fiscal year | $ | 6,025 |
| | $ | 8,095 |
|
We accrue interest required to be paid by the tax law for the underpayment of taxes on the difference between the amount claimed or expected to be claimed on the tax return and the tax benefit recognized in the financial statements. Management has made the policy election to record this interest as interest expense and penalties, that if incurred, would be recognized as penalty expense within “Other expense (income)” on our consolidated statements of operations. As of December 31, 2017, accrued interest and penalties related to our unrecognized tax benefits totaled approximately $0.2 million.
We file numerous consolidated and separate company income tax returns in the United States and in many foreign jurisdictions. With few exceptions, we are subject to U.S. federal, state, and local income tax examinations for years 2014 through 2016. We are no longer subject to foreign income tax examinations by tax authorities in significant jurisdictions for years before 2012. However, U.S. and foreign tax authorities have the ability to review years prior to these to the extent that we utilize tax attributes carried forward from those prior years.