| Income Taxes | 10. Income Taxes
The provision for income taxes on loss from continuing operations
for fiscal 2017, 2016 and 2015 consists of the following (in
thousands):
2017 2016 2015
Federal:
Current $
— $
— $
—
Deferred
—
—
—
—
—
—
State:
Current 13 5 6
Deferred
—
—
—
13 5 6
Foreign:
Current 1,091 237 561
Deferred (1 ) 9 (12 )
1,090 246 549
Total $ 1,103 $ 251 $ 555
Income (loss) before income taxes for fiscal 2017, 2016 and
2015 consisted of the following (in thousands):
2017 2016 2015
U.S $ (794 ) $ (8,703 ) $ (9,538 )
Foreign 6,015 1,513 927
$ 5,221 $ (7,190 ) $ (8,611 )
Effective tax rate 21.1 % (3.5 )% (6.4 )%
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts for income tax
purposes. Significant components of deferred tax assets are as
follows (in thousands):
December 30, December 31,
Deferred tax assets:
Vacation, warranty and other accruals $ 601 $ 926
Depreciation and amortization 91 600
Intangible amortization 1,071 2,060
Inventory valuation 1,341 3,091
Deferred income 22 29
Equity-based compensation 2,636 3,821
Net operating loss, research and other tax credit carryforwards 52,882 54,844
Other 543 918
59,187 66,289
Valuation allowance for deferred tax assets (58,455 ) (65,189 )
Total deferred tax assets 732 1,100
Deferred tax liabilities:
Purchased technology (307 ) (720 )
Unbilled revenue (421 ) (377 )
Total deferred tax liabilities (728 ) (1,097 )
Net deferred tax assets $ 4 $ 3
As reported on the balance sheet:
Non-current $ 4 $ 3
Intevac accounts for income taxes in accordance with accounting
standards for such taxes, which requires that deferred tax assets
and liabilities be recognized using enacted tax rates for the
effect of temporary differences between the financial reporting and
tax bases of recorded assets and liabilities.
Accounting standards also require that deferred tax assets be
reduced by a valuation allowance if it is more likely than not that
some portion of or all of the deferred tax asset will not be
realized. Management assesses the available positive and negative
evidence to estimate if sufficient future taxable income will be
generated to use the existing deferred tax assets. In
fiscal 2014, a valuation allowance of $9.4 million was
established to record the portion of the Singapore deferred tax
asset that more likely than not will not be realized. The Company
recorded valuation allowance decreases of $603,000 for
fiscal 2017 and $136,000 for fiscal 2016, respectively,
for the Singapore deferred tax asset. The Company recorded a
valuation allowance increase of $631,000 for fiscal 2015 for
the Singapore deferred tax asset.
In fiscal 2012, a valuation allowance of $23.4 million
was established to record the portion of the U.S. federal deferred
tax asset that more likely than not will not be realized. For
fiscal 2017, a valuation allowance decrease of $6.9 million
for the U.S. federal deferred tax asset was recorded. This decrease
was a result of revaluing our deferred tax assets and liabilities
at the newly enacted U.S federal tax rate. For fiscal 2016, 2015,
2014 and 2013, valuation allowance increases of $3.3 million,
$1.6 million, $4.7 million and $7.2 million,
respectively, for the U.S. federal deferred tax asset were
recorded. A valuation allowance is recorded against the entire
state deferred tax asset which consists of state income tax
temporary differences and deferred research and other tax credits
that are not realizable in the foreseeable future.
The amount of the deferred tax asset considered realizable,
however, could be adjusted if estimates of future taxable income
during the carryforward period are reduced or increased, or if
objective negative evidence in the form of cumulative losses is no
longer present and additional weight may be given to subjective
evidence such as our projections for growth.
As of December 30, 2017, our federal, foreign and state
net operating loss carryforwards for income tax purposes were
approximately $65.1 million, $54.8 million and
$56.2 million, respectively. The federal and state net
operating loss carryforwards are subject to various limitations
under Section 382 of the Internal Revenue Code and applicable
state tax laws. If not utilized, the federal net operating loss
carryforwards and the state net operating loss carryforwards will
begin to expire in 2028. The foreign net operating loss
carryforwards do not expire. As of December 30, 2017, our
federal and state tax credit carryforwards for income tax purposes
were approximately $15.5 million and $14.3 million,
respectively. If not utilized, the federal tax credit carryforwards
will begin to expire in 2019 and the state tax credits carry
forward indefinitely.
The Tax Cuts and Jobs Act (“the Act”) was enacted on
December 22, 2017. The Act reduces the U.S. federal
corporate tax rate from 35% to 21%, requires companies to pay
a one-time one-time
Deferred tax assets and liabilities re-measured re-measurement
Foreign tax effects one-time one-time one-time
The difference between the tax provision (benefit) at the statutory
federal income tax rate and the tax provision (benefit) for
fiscal 2017, 2016 and 2015 was as follows (in thousands):
2017 2016 2015
Income tax (benefit) at the federal statutory rate $ 1,827 $ (2,517 ) $ (3,014 )
State income taxes, net of federal benefit 13 5 6
Change in valuation allowance:
U.S (6,873 ) 3,333 1,625
Foreign (603 ) (136 ) 631
Effect of foreign operations taxed at various rates (1,036 ) (232 ) (140 )
Research tax credits (2,267 ) (1,058 ) (931 )
Change in federal tax rate 9,201
—
—
Effect of tax rate changes, permanent differences and adjustments
of prior deferrals 639 1,137 2,114
Unrecognized tax benefits 202 (281 ) 264
Total $ 1,103 $ 251 $ 555
Intevac has not provided for foreign withholding taxes on
approximately $1.2 million of undistributed earnings
from non-U.S. non-indefinitely non-U.S.
The total amount of gross unrecognized tax benefits was
$5.7 million as of December 30, 2017, of which $73,000
would affect Intevac’s effective tax rate if realized. The
aggregate changes in the balance of gross unrecognized tax benefits
were as follows for fiscal 2017, 2016 and 2015:
2017 2016 2015
(in thousands)
Beginning balance $ 7,544 $ 7,173 $ 6,578
Additions based on tax positions related to the current year 898 652 574
Additions for tax positions of prior years
—
— 21
Settlements
— (281 )
—
Change in federal tax rate (2,764 )
—
—
Lapse of statute of limitations
—
—
—
Ending balance $ 5,678 $ 7,544 $ 7,173
The Company does not anticipate any changes in the amount of
unrecognized tax benefits in the next twelve months. It is
Intevac’s policy to include interest and penalties related to
unrecognized tax benefits in the provision for income taxes on the
consolidated statements of operations. During fiscal 2017,
2016 and 2015, Intevac recognized a net tax expense (benefit) for
interest of $2,000, ($1,000) and $2,000, respectively. As of
December 30, 2017 Intevac had $11,000 of accrued interest
related to unrecognized tax benefits, which was classified as a
long-term liability in the consolidated balance sheets. Intevac did
not accrue any penalties related to these unrecognized tax benefits
because Intevac has other tax attributes which would offset any
potential taxes due.
Intevac is subject to income taxes in the U.S. federal
jurisdiction, and various state and foreign jurisdictions. Tax
regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require
significant judgment to apply. The material jurisdictions where
Intevac is subject to potential examination by tax authorities for
tax years after 2009 include the U.S. (Federal and California) and
Singapore.
The Inland Revenue Authority of Singapore (“IRAS”) is
currently conducting a review of the fiscal 2009 through 2012 tax
returns of the Company’s wholly-owned subsidiary, Intevac
Asia Pte. Ltd. IRAS has challenged the Company’s tax position
with respect to certain aspects of the Company’s transfer
pricing. Under Singapore tax law, the Company must pay all
contested taxes and the related interest to have the right to
defend its position. As a result, the Company made deposits of
$318,000 for the 2009 tax year in fiscal 2014 and $1.1 million
for the 2010 tax year in fiscal 2015, respectively. In fiscal
2016, IRAS allowed the deduction of a portion of the challenged
deductions and the Company received a partial refund of $517,000 of
the contested taxes. Accordingly, the Company derecognized a
portion of the tax accrual of approximately $281,000 by reducing
the income tax provision by $281,000. The contested tax deposits of
$743,000 and $871,000 are included in other long-term assets at
December 30, 2017 and December 31, 2016,
respectively, on the consolidated balance sheets. The ultimate
outcome of this examination is subject to uncertainty. The
Company’s management and its advisors continue to believe
that the Company is “more likely than not” to
successfully defend that the tax treatment was proper and in
accordance with Singapore tax regulations. Based on the information
currently available, the Company does not anticipate a significant
increase or decrease to its unrecognized tax benefits for this
matter within the next twelve months. We believe that adequate
amounts have been reserved for any adjustments that may ultimately
result from this or other examinations. Presently, there are no
other active income tax examinations in the jurisdictions where
Intevac operates. |
