Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
12 Months Ended
Nov. 01, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Loss before income taxes is derived from (in thousands):
  Year Ended
  November 1, 2020 November 3, 2019
U.S. Domestic $ (34,889) $ (17,529)
International 2,347  3,321 
Loss before income tax $ (32,542) $ (14,208)

Income tax provision (benefit) by taxing jurisdiction consists of (in thousands):
  Year Ended
  November 1, 2020 November 3, 2019
Current:
U.S. Federal $ —  $ — 
U.S. State and local 118 
International 938  1,060 
Total current $ 1,056  $ 1,066 
Deferred:
U.S. State and local $ —  $
International (11) (92)
Total deferred (11) (88)
Income tax provision $ 1,045  $ 978 
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):
   Year Ended
  November 1, 2020 November 3, 2019
U.S. Federal statutory rate $ (6,834) $ (2,984)
U.S. State income tax, net of U.S. Federal tax benefits (1,235) 142 
International permanent differences 91  95 
International tax rate differentials 232  145 
U.S. tax on international income (705) 471 
General business credits (999) (1,718)
Non-deductible expenses 66  358 
Capital Loss 3,357  — 
Change in valuation allowance for deferred tax assets 7,072  4,469 
Income tax provision $ 1,045  $ 978 

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):
November 1, 2020 November 3, 2019
Deferred tax assets:
Net operating loss carryforwards $ 61,723  $ 60,706 
Interest carryforward 1,345  — 
Capital loss carryforwards —  3,357 
U.S. federal tax credit carryforwards 54,727  53,462 
Deferred income —  6,045 
Operating lease liabilities 11,477  — 
Deferred withholding tax 5,385  — 
Compensation accruals 1,639  3,199 
Other, net 5,366  5,744 
Total deferred tax assets 141,662  132,513 
Less valuation allowance (125,396) (123,266)
Deferred tax assets, net 16,266  9,247 
Deferred tax liabilities:
Unremitted earnings from foreign subsidiaries 1,725  2,017 
Software development costs 7,914  6,767 
Right of use assets - operating leases 6,178  — 
Other, net 452  466 
Total deferred tax liabilities 16,269  9,250 
Net deferred tax liability $ (3) $ (3)
Balance sheet classification
Non-current assets $ —  $ 14 
Non-current liabilities (3) (17)
Net deferred tax asset (liability) $ (3) $ (3)
At November 1, 2020, the Company has available unused U.S. federal net operating loss (“NOL”) carryforwards of $212.0 million, U.S. state NOL carryforwards of $230.0 million, international NOL carryforwards of $10.3 million and federal tax credits of $54.7 million. As of November 1, 2020, the U.S. federal NOL carryforwards expire at various dates between 2031 and 2038 (with some indefinite), the U.S. state NOL carryforwards expire at various dates beginning in 2021 (with some indefinite), the international NOL carryforwards expire at various dates beginning in 2021 (with some indefinite) and federal tax credits expire between 2021 and 2040. At November 1, 2020, 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 2020 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 $125.4 million and $123.3 million for fiscal 2020 and 2019, 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):
November 1, 2020 November 3, 2019
Balance, beginning of year $ 283  $ 491 
Decreases relating to tax positions taken in a prior period (3) (21)
Settlements (195) (146)
Lapse of statute of limitations —  (41)
Total $ 85  $ 283 
Of the total unrecognized tax benefits at November 1, 2020 and November 3, 2019, approximately $0.1 million and $0.3 million, respectively, would affect the Company’s effective income tax rate, if and when recognized in future years. There was no amount accrued for related potential interest and penalties at November 1, 2020. The income tax provision for the fiscal years ended November 1, 2020 and November 3, 2019 included a reversal of reserves on uncertain tax provisions of $0.2 million and $0.2 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.

Other provisions under the Tax Act which are effective for the Company in fiscal 2019, includes limitations on deductibility of executive compensation and interest, as well as a new minimum tax on Global Intangible Low-Taxed Income (“GILTI”), both of which did not have a material impact on the Company's financial statements.