| Income Taxes | Income Taxes The Tax Cuts and Jobs Act of 2017 (Tax Legislation), enacted on December 22, 2017, contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21%, implementing a territorial tax system, and imposing a one-time tax on deemed repatriated earnings of foreign subsidiaries. In December 2017, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Legislation. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Legislation enactment date for companies to complete the accounting under ASC Topic 740 - Income Taxes. The Company has included preliminary estimates for the impact of the Tax Legislation, consistent with SAB 118, in our audited financial statements within this Annual Report. These preliminary estimates may be impacted by a number of additional considerations, including, but not limited to, the issuance of authoritative guidance and final regulations and the Company's ongoing analysis of the new law. The Company will complete its accounting for the Tax Legislation consistent with the measurement period provided in SAB 118. The Tax Legislation reduces the U.S. statutory tax rate from 35% to 21%, effective January 1, 2018. U.S. tax law requires that taxpayers with a fiscal year that begins before and ends after the effective date of a rate change calculate a blended tax rate based on the pro rata number of days in the fiscal year before and after the effective date. As a result, for the fiscal year ending June 24, 2018, the Company’s statutory income tax rate will be 28.3%. For the fiscal year ending June 30, 2019, the Company’s statutory income tax rate will be 21%. The Tax Legislation also implements a territorial tax system. Under the territorial tax system, in general, the Company’s foreign earnings will no longer be subject to tax in the U.S. As part of transitioning to the territorial tax system, the Tax Legislation includes a mandatory deemed repatriation of all undistributed foreign earnings that are subject to a U.S. income tax. As of June 24, 2018, the Company estimates the deemed repatriation will result in $13.3 million of additional U.S. income tax, a decrease of $0.8 million from the estimate as of March 25, 2018. There is no impact to the Company's effective income tax rate as a result of the change in estimated deemed repatriation tax as the Company continues to expect it will fully offset the additional tax through the utilization of tax credits. This preliminary estimate was impacted by the Company's actual earnings for the fiscal year ended June 24, 2018. The following were the components of loss before income taxes (in thousands): Fiscal Years Ended June 24, June 25, June 26, Domestic ($348,117 ) ($43,195 ) ($45,278 ) Foreign 30,672 38,531 21,772 Total loss before income taxes ($317,445 ) ($4,664 ) ($23,506 ) The following were the components of income tax (benefit) expense (in thousands): Fiscal Years Ended June 24, June 25, June 26, Current: Federal ($2,263 ) $10,304 $5,347 Foreign 5,670 7,332 7,278 State 576 900 1,244 Total current 3,983 18,536 13,869 Deferred: Federal (44,070 ) 68,199 (26,086 ) Foreign 5,536 190 12,340 State (2,971 ) 6,529 (2,093 ) Total deferred (41,505 ) 74,918 (15,839 ) Income tax (benefit) expense ($37,522 ) $93,454 ($1,970 ) Actual income tax (benefit) expense differed from the amount computed by applying the U.S. federal tax rate of 28.3% to pre-tax earnings as a result of the following (in thousands, except percentages): Fiscal Years Ended June 24, % of Loss June 25, % of Loss June 26, % of Income Federal income tax provision at statutory rate ($89,863 ) 28.3% ($1,632 ) 35% ($8,227 ) 35% (Decrease) increase in income tax expense resulting from: State tax provision, net of federal benefit (7,148 ) 2% (727 ) 16% (748 ) 3% State tax credits (82 ) —% (69 ) 1% (269 ) 1% Tax exempt interest (1,182 ) —% (1,243 ) 27% (2,019 ) 9% 48C investment tax credit (1,732 ) 1% (4,383 ) 94% (4,334 ) 18% Increase (decrease) in tax reserve 116 —% (3,587 ) 77% (80 ) —% Research and development credits (2,168 ) 1% (1,728 ) 37% (2,138 ) 9% Foreign tax credit (39,951 ) 13% (1,114 ) 24% (954 ) 4% Increase in valuation allowance 17,334 (5)% 108,077 (2,318)% 9,286 (39)% Stock-based compensation 9,238 (3)% 1,389 (30)% 1,346 (6)% Statutory rate differences (2,255 ) 1% (5,162 ) 111% 2,748 (12)% Foreign earnings taxed in U.S. 52,699 (17)% 1,313 (28)% 1,165 (5)% Foreign currency fluctuations (1,288 ) —% 841 (18)% 748 (3)% Other foreign adjustments (554 ) —% 715 (15)% 13 —% Net operating loss carryback (138 ) —% 494 (11)% 238 (1)% Provision to return adjustments (41 ) —% 165 (4)% (10 ) —% Tax on distributable foreign earnings 5,408 (2)% — —% — —% Impact of rate changes 11,183 (4)% — —% — —% Expiration of state credits 1,350 —% — —% — —% Goodwill impairment 11,060 (3)% — —% — —% Other 492 —% 105 (2)% 1,265 (5)% Income tax (benefit) expense ($37,522 ) 12% $93,454 (2,004)% ($1,970 ) 8% The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows (in thousands): June 24, June 25, Deferred tax assets: Compensation $3,259 $3,029 Inventories 16,868 21,042 Sales return reserve and allowance for bad debts 6,927 8,480 Warranty reserve 8,406 10,340 Federal and state net operating loss carryforwards 1 10,124 19,122 Federal credits 49,054 13,425 State credits 3,521 3,507 48C investment tax credits 28,007 23,525 Investments 695 796 Stock-based compensation 21,341 46,922 Deferred revenue 2,613 3,262 Other 1,552 2,522 Total gross deferred assets 152,367 155,972 Less valuation allowance (127,443 ) (107,544 ) Deferred tax assets, net 24,924 48,428 Deferred tax liabilities: Property and equipment (15,052 ) (7,443 ) Intangible assets (2,279 ) (73,692 ) Investments 1 — (1,448 ) Prepaid taxes and other (902 ) (1,461 ) Foreign earnings recapture (1,888 ) (2,481 ) Taxes on unremitted foreign earnings (1,408 ) — Total gross deferred liability (21,529 ) (86,525 ) Deferred tax asset (liability), net $3,395 ($38,097 ) (1) The deferred tax asset related to federal and state net operating loss carryforwards as of June 25, 2017 includes a $2.7 million deferred tax reclassified from the deferred tax liability related to Investments as of June 25, 2017. The components giving rise to the net deferred tax assets (liabilities) have been included in the Consolidated Balance Sheets as follows (in thousands): Balance at June 24, 2018 Assets Liabilities Current Noncurrent Current Noncurrent U.S. federal income taxes $— $— $— ($2,061 ) Foreign income taxes — 6,451 — (995 ) Total net deferred tax assets (liabilities) $— $6,451 $— ($3,056 ) Balance at June 25, 2017 Assets Liabilities Current Noncurrent Current Noncurrent U.S. federal income taxes $— $— $— ($49,103 ) Foreign income taxes — 11,763 — (757 ) Total net deferred tax assets (liabilities) $— $11,763 $— ($49,860 ) The Company assesses all available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets by jurisdiction. The Company has concluded that it is necessary to recognize a full valuation allowance against its U.S. and Luxembourg deferred tax assets. The Company reassessed the need for a full valuation allowance against its U.S. deferred tax assets due to the Tax Legislation and the acquisition of the RF Power assets and concluded that a full valuation allowance is still necessary. As of June 25, 2017, the U.S. valuation allowance was $101.8 million . For the fiscal year ended June 24, 2018, the Company increased the U.S. valuation allowance by $20.4 million due to the impact of the Tax Legislation offset by the creation of U.S. deferred tax assets upon the impairment of goodwill. As of June 25, 2017, the Luxembourg valuation allowance was $5.8 million . For the fiscal year ended June 24, 2018, the Company reduced this valuation allowance by $0.6 million due to year-to-date income in Luxembourg. As of June 24, 2018, the Company had approximately $25.2 million of foreign net operating loss carryovers, of which $20.3 million are offset by a valuation allowance. $24.8 million of the Company’s foreign net operating loss carryovers have no carry forward limitation. The remaining $0.4 million of the foreign net operating loss carryovers will begin to expire in fiscal 2023. As of June 24, 2018, the Company had approximately $96 million of state net operating loss carryovers which are fully offset by a valuation allowance. Additionally, the Company had $78.7 million of federal and $4.7 million of state income tax credit carryforwards which are fully offset by a valuation allowance. The state net operating loss carryovers will begin to expire in fiscal 2019. The federal and state income tax credit carryforwards will begin to expire in fiscal 2023 and fiscal 2019, respectively. U.S. GAAP requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is cumulatively more than 50% likely to be realized upon ultimate settlement. As of June 25, 2017 the Company’s liability for unrecognized tax benefits was $13.3 million . During the fiscal year ended June 24, 2018, the Company recognized a $4.7 million decrease to the liability for unrecognized tax benefits due to the U.S. statutory rate reduction. In addition, there was a $0.6 million increase in the unrecognized tax benefits due to uncertainty regarding state depreciation deductions and a $0.4 million decrease following statute expirations. As a result, the total liability for unrecognized tax benefits as of June 24, 2018 was $8.7 million . If any portion of this $8.7 million is recognized, the Company will then include that portion in the computation of its effective tax rate. Although the ultimate timing of the resolution and/or closure of audits is highly uncertain, the Company believes it is reasonably possible that approximately $0.8 million of gross unrecognized tax benefits will change in the next 12 months as a result of statute requirements. The following is a tabular reconciliation of the Company’s change in uncertain tax positions (in thousands): Fiscal Years Ended June 24, June 25, June 26, Balance at beginning of period $13,338 $17,727 $17,795 Decrease related to current year change in law (4,731 ) — — Increases related to prior year tax positions 634 — 617 Decreases related to prior year tax positions (73 ) (100 ) (530 ) Settlements with tax authorities (54 ) (608 ) — Expiration of statute of limitations for assessment of taxes (369 ) (3,681 ) (155 ) Balance at end of period $8,745 $13,338 $17,727 The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the Income tax (benefit) expense line item in the Consolidated Statements of Loss. Total interest and penalties accrued were as follows (in thousands): June 24, June 25, Accrued interest and penalties $25 $2 Total interest and penalties recognized were as follows (in thousands): Fiscal Years Ended June 24, June 25, June 26, Recognized interest and penalties (benefit) $23 $7 ($15 ) The Company files U.S. federal, U.S. state and foreign tax returns. For U.S. federal purposes, the Company is generally no longer subject to tax examinations for fiscal years prior to 2015. For U.S. state tax returns, the Company is generally no longer subject to tax examinations for fiscal years prior to 2014. For foreign purposes, the Company is generally no longer subject to examination for tax periods 2008 and prior. Certain carryforward tax attributes generated in prior years remain subject to examination, adjustment and recapture. The Company provides for income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside the United States. As of June 24, 2018, the Company has approximately $262.5 million of undistributed earnings for certain non-U.S. subsidiaries. During the fiscal year ended June 24, 2018, the Company reevaluated its assertion to reinvest a portion of its undistributed foreign earnings in foreign operations indefinitely considering the Tax Legislation and acquisition of the RF Power assets. For the fiscal year ended June 24, 2018, the Company has determined that $244.4 million of the $262.5 million of undistributed foreign earnings are expected to be repatriated in the foreseeable future. For the fiscal year ended June 24, 2018, the Company accrued a deferred tax liability of $1.4 million for foreign income taxes expected to be withheld upon repatriation of the foreign earnings. As of June 24, 2018, the Company has not provided income taxes on the remaining undistributed foreign earnings of $18.1 million as the Company continues to maintain its intention to reinvest these earnings in foreign operations indefinitely. If, at a later date, these earnings were repatriated to the U.S., the Company would be required to pay approximately $0.9 million in taxes on these amounts. During the fiscal year ended June 26, 2011, the Company was awarded a tax holiday in Malaysia with respect to its manufacturing and distribution operations. This arrangement allows for 0% tax for 10 years starting in the fiscal year ended June 26, 2011. For the fiscal years 2016, 2017 and 2018, the Company did not meet the requirements for the tax holiday, and as such, no benefit has been recognized. |
