|12 Months Ended|
Oct. 28, 2018
|Income Tax Disclosure [Abstract]|
Income (loss) from continuing operations before income taxes is derived from (in thousands):
Income tax provision (benefit) by taxing jurisdiction consists of (in thousands):
The difference between the income tax provision on income (loss) and the amount computed at the U.S. federal statutory rate is due to (in thousands):
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 used for income tax purposes, and also include operating loss carryforwards. The significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
At October 28, 2018, the Company has available unused U.S. federal net operating loss (“NOL”) carryforwards of $187.5 million, U.S. state NOL carryforwards of $224.1 million, international NOL carryforwards of $9.1 million, capital loss carryforwards of $12.9 million and federal tax credits of $51.3 million. As of October 28, 2018, the U.S. federal NOL carryforwards will expire at various dates between 2031 and 2038 (with some indefinite), the U.S. state NOL carryforwards expire at various dates between 2020 and 2038, the international NOL carryforwards expire at various dates beginning in 2019 (with some indefinite), capital loss carryforwards expire between 2019 and 2022 and federal tax credits expire between 2020 and 2037. At October 28, 2018, the undistributed earnings of the Company’s non-U.S. subsidiaries are not intended to be permanently invested outside of the U.S. and therefore U.S. deferred taxes have been provided.
A valuation allowance has been recognized due to the uncertainty of realization of the loss carryforwards and other deferred tax assets. Beginning in fiscal 2010, the Company’s cumulative U.S. domestic and certain non-U.S. results for each three-year period were a loss. Accordingly, the Company recorded a full valuation allowance against its net U.S. domestic and certain net non-U.S. deferred tax assets as a non-cash charge to income tax expense. The three-year cumulative loss continued in fiscal 2018, 2017, and 2016 so the Company maintained a full valuation allowance against its net U.S. domestic and certain net non-U.S. deferred tax assets resulting in a total valuation allowance of $118.6 million and $134.2 million for fiscal 2018 and fiscal 2017, respectively. In reaching this conclusion, the Company considered the U.S. domestic demand and recent operating losses causing the Company to be in a three-year cumulative loss position. Management believes that the remaining deferred tax assets are more likely than not to be realized based upon consideration of all positive and negative evidence, including scheduled reversal of deferred tax liabilities and tax planning strategies determined on a jurisdiction-by-jurisdiction basis.
The Company recognizes income tax benefits for tax positions determined more likely than not to be sustained upon examination based on the technical merits of the positions. The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties (in thousands):
(a) - As a result of the sale of the quality assurance business, the parent-subsidiary relationship between the Company and Volt Canada, Inc. no longer exists and, as such, the indemnity granted at the time of sale of approximately $3.7 million is subject to recognition under ASC 460 by the Company. This amount had previously been recognized as part of the Company’s uncertain tax positions and has been reclassified to Accrued insurance and other under ASC 460. As of October 28, 2018, the liability provision was $1.6 million.
Of the total unrecognized tax benefits at October 28, 2018 and October 29, 2017, approximately $0.5 million and $1.5 million, respectively, would affect the Company’s effective income tax rate, if and when recognized in future years. The amount accrued for related potential interest and penalties at October 28, 2018 and October 29, 2017 was $0.1 million and $0.2 million, respectively. The income tax provision for the fiscal years ended October 28, 2018 and October 29, 2017 included a reversal of reserves on uncertain tax provisions of $1.1 million and $1.3 million, respectively.
The Company is subject to taxation at the federal, state and local levels in the U.S. and in various international jurisdictions. With few exceptions, the Company is generally no longer subject to examination by the U.S. federal, state, local or non-U.S. income tax authorities for years before fiscal 2008.
On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (“Tax Act”) into law. The Tax Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35.0% to 21.0%, and the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations.
The Tax Act reduces the U.S. statutory tax rate from 35.0% to 21.0% effective January 1, 2018. U.S. tax law required 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 October 28, 2018, the Company’s statutory income tax rate is 23.4%. Our statutory rate will be approximately 21.0% for the fiscal year ended November 3, 2019. Other provisions under the Tax Act are not effective for us until fiscal 2019, including limitations on deductibility of executive compensation and interest, as well as a new minimum tax on Global Intangible Low-Taxed Income (“GILTI”).
The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The measurement period ended on December 22, 2018. There is no significant impact.
The Company did not record any change to its U.S. net deferred tax balances as of the enactment date since our U.S. net deferred tax assets are fully offset by a full valuation allowance. We have reduced our net deferred tax assets and corresponding valuation allowance by approximately $26.8 million for the fiscal year ended October 28, 2018.
Under the Tax Act, the Company may be subject to a Transition Tax on the untaxed foreign earnings of its foreign subsidiaries by deeming those earnings to be repatriated. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate and the remaining earnings are taxed at an 8.0% rate. In calculating the Transition Tax, the Company must calculate the cumulative earnings and profits of each of the non-U.S. subsidiaries back to 1987. The Company has completed this computation and due to the Company’s cumulative historic foreign losses, the Company did not have an impact related to the Transition Tax. The Company also adjusted its deferred tax liability related to its unremitted earnings taking into consideration the impact of the reduced statutory rate and the Transition Tax computation. This adjustment did not have an impact on the Company’s financials as the decrease in deferred tax liability was offset by a corresponding adjustment to the Company’s valuation allowance.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef