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Income Taxes | 12 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes |
11. | Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly known as the Tax Cuts and Jobs Act of 2017, or the Act, which significantly reforms the Internal Revenue Code of 1986, as amended. The Act contains broad and complex changes to corporate taxation, including, in part, reduction of the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously considered permanently reinvested, and creates new taxes on certain foreign sourced earnings. As our accounting and tax year is the fiscal period ending on the last Saturday in June, U.S. federal tax law requires that taxpayers with a fiscal year that spans the effective date of a rate change to 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, our U.S. federal tax rate for fiscal 2018 is a days-weighted blended tax rate of 28.17%. For fiscal 2019 and subsequent tax years, our U.S. federal tax rate will be 21%. As of June 30, 2018, we have not finalized our accounting for the tax impact of the Act; however, in certain cases, we have made a reasonable estimate of the impact of the enactment. In cases where we have not been able to make a reasonable estimate, we continue to account for those items based on our existing accounting policies. For those items in which we could determine a reasonable estimate, namely the one-time transition tax and the remeasurement of deferred tax at the new tax rate, we recognized provisional tax expense of $41.4 million, of which an expense of $44.1 million relates to one-time transition tax and a benefit of $2.7 million related to remeasurement of deferred tax at the new tax rate. The one-time transition tax is based on our post-1986 foreign earnings and profits, or E&P, which we have previously excluded from U.S. income taxes due to our position that we would permanently reinvest future earnings. The one-time transition tax is applied at a 15.5% tax rate on cash assets and an 8% tax rate for other specified assets. We recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries and investments, resulting in an increase in income tax liability of $11.6 million, net of foreign tax credits and research credits. We have not yet completed our calculation of the total post-1986 foreign E&P for these foreign subsidiaries. This amount may change when we finalize the determination of our E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. We do not have the necessary information prepared or analyzed to develop a reasonable estimate of the tax liability, if any, for our remaining outside basis difference including any deferred tax accounting that may be required due to other provisions in the Act beyond the one-time transition tax and the remeasurement of deferred tax under the new tax rate, including how that accounting may be affected by our ongoing accounting position to indefinitely reinvest unremitted foreign earnings. Income/(loss) before provision for income taxes for fiscal 2018, 2017, and 2016 consisted of the following (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
United States |  | $ | (51.1 | ) |  | $ | (10.1 | ) |  | $ | 12.3 |
Foreign |  |  | (30.7 | ) |  |  | 71.4 |  |  |  | 63.3 |
Income/(loss) before provision for income taxes |  | $ | (81.8 | ) |  | $ | 61.3 |  |  | $ | 75.6 |
The provision for income taxes for fiscal 2018, 2017, and 2016 consisted of the following (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current tax expense |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 21.5 |  |  | $ | 9.6 |  |  | $ | 12.1 |
Foreign |  |  | 14.1 |  |  |  | 25.5 |  |  |  | 12.4 |
|  |  | 35.6 |  |  |  | 35.1 |  |  |  | 24.5 |
Deferred tax expense/(benefit) |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 14.4 |  |  |  | (10.6 | ) |  |  | (7.5 | )
Foreign |  |  | (9.5 | ) |  |  | (12.3 | ) |  |  | (13.6 | )
|  |  | 4.9 |  |  |  | (22.9 | ) |  |  | (21.1 | )
Provision for income taxes |  | $ | 40.5 |  |  | $ | 12.2 |  |  | $ | 3.4 |
The provision for income taxes differs from the federal statutory rate for fiscal 2018, 2017, and 2016 as follows (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Provision at U.S. federal statutory rate |  | $ | (22.9 | ) |  | $ | 21.5 |  |  | $ | 26.6 |
Qualified stock options |  |  | 4.9 |  |  |  | 5.5 |  |  |  | 5.1 |
Shortfall related to share-based compensation |  |  | 4.1 |  |  |  | — |  |  |  | — |
Business credits |  |  | (4.9 | ) |  |  | (3.6 | ) |  |  | (10.3 | )
Foreign tax differential |  |  | 16.5 |  |  |  | (13.2 | ) |  |  | (22.4 | )
Non-deductible portion of contingent consideration |  |  | — |  |  |  | 0.9 |  |  |  | 0.9 |
Change in valuation allowance |  |  | — |  |  |  | (0.8 | ) |  |  | (1.4 | )
Nondeductible amortization |  |  | 1.2 |  |  |  | 1.6 |  |  |  | 4.4 |
Taxes associated with one-time transition tax |  |  | 44.1 |  |  |  | — |  |  |  | — |
Impact of corporate tax rate change on deferred taxes |  |  | (2.7 | ) |  |  | — |  |  |  | — |
Other differences |  |  | 0.2 |  |  |  | 0.3 |  |  |  | 0.5 |
Provision for income taxes |  | $ | 40.5 |  |  | $ | 12.2 |  |  | $ | 3.4 |
Net deferred tax assets were all non-current, which were included in other assets in the accompanying consolidated balance sheets as of the end of fiscal 2018 and 2017, and consisted of $15.9 million and $23.1 million, respectively. Significant components of our deferred tax assets (liabilities) as of the end of fiscal 2018 and 2017 consisted of the following (in millions):
|  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Investment writedowns |  | $ | 1.1 |  |  | $ | 1.8 |
Inventory writedowns |  |  | 11.6 |  |  |  | 7.4 |
Property and equipment |  |  | 1.9 |  |  |  | 3.0 |
Accrued compensation |  |  | 0.1 |  |  |  | 0.2 |
Deferred compensation |  |  | 0.6 |  |  |  | 1.9 |
Share-based compensation |  |  | 11.1 |  |  |  | 15.6 |
Business credit carryforward |  |  | 25.3 |  |  |  | 19.2 |
Net operating loss carryforward |  |  | — |  |  |  | 0.3 |
Acquisition intangibles |  |  | 0.6 |  |  |  | — |
Other accruals |  |  | 1.6 |  |  |  | 2.0 |
|  |  | 53.9 |  |  |  | 51.4 |
Valuation allowance |  |  | (23.3 | ) |  |  | (15.8 | )
|  |  | 30.6 |  |  |  | 35.6 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Acquisition intangibles |  |  | — |  |  |  | (9.2 | )
Interest |  |  | (14.7 | ) |  |  | (3.3 | )
|  |  | (14.7 | ) |  |  | (12.5 | )
Net deferred tax assets |  | $ | 15.9 |  |  | $ | 23.1 |
Realization of deferred tax assets depends on our generating sufficient U.S. and certain foreign taxable income in future years to obtain a benefit from the utilization of those deferred tax assets on our tax returns. Accordingly, the amount of deferred tax assets considered realizable may increase or decrease when we reevaluate the underlying basis for our estimates of future U.S. and foreign taxable income. As of the end of fiscal 2018, a valuation allowance of $23.3 million is maintained to reduce deferred tax assets to levels that we believe are more likely than not to be realized through future taxable income. The net change in the valuation allowance during fiscal 2018 was an increase of $7.5 million. Undistributed earnings of our foreign subsidiaries were approximately $751.9 million as of the end of fiscal 2018, which we have accounted for in the one-time transition tax calculation; accordingly, no additional U.S. income taxes have been provided for these earnings. As of the end of fiscal 2018, we had federal and California net operating loss carryforwards of approximately $0.1 million and $33.2 million, respectively. The California net operating loss will begin to expire in fiscal 2020, if not utilized. Under current tax law, net operating loss and tax credit carryforwards available to offset future income or income taxes may be limited by statute or upon the occurrence of certain events, including significant changes in ownership. We had $7.0 million and $34.1 million of federal and state research tax credit carryforwards, respectively, as of the end of fiscal 2018. The federal research tax credit carryforward will begin to expire in 2032 and the state research tax credit can be carried forward indefinitely. We also had $1.6 million of federal alternative minimum tax credit carryforward available to offset future federal tax liabilities with no expiration or potentially refundable under current tax laws. The total liability for gross unrecognized tax benefits related to uncertain tax positions, included in other liabilities in our consolidated balance sheets, increased by $9.6 million from $15.2 million in fiscal 2017 to $24.8 million in fiscal 2018. Of this amount, $17.5 million will reduce the effective tax rate on income from continuing operations, if recognized. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits for fiscal 2018, 2017, and 2016 consisted of the following (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Beginning balance |  | $ | 15.2 |  |  | $ | 13.4 |  |  | $ | 11.6 |
Increase in unrecognized tax benefits related to current year tax positions |  |  | 10.5 |  |  |  | 2.5 |  |  |  | 1.6 |
Increase in unrecognized tax benefits related to prior year tax positions |  |  | — |  |  |  | 0.1 |  |  |  | 1.1 |
Decrease due to statute expiration |  |  | (0.9 | ) |  |  | (0.8 | ) |  |  | (0.9 | )
Ending Balance |  | $ | 24.8 |  |  | $ | 15.2 |  |  | $ | 13.4 |
Accrued interest and penalties increased by $0.7 million, decreased by $0.2 million, and increased by $0.3 million representing income tax expense or benefit, in fiscal 2018, 2017, and 2016, respectively. Accrued interest and penalties were $1.9 million and $1.2 million as of June 30, 2018 and 2017, respectively. Our policy is to classify interest and penalties, if any, as components of income tax expense. It is reasonably possible that the amount of liability for unrecognized tax benefits may change within the next 12 months; an estimate of the range of possible changes could result in a decrease of $1.9 million to an increase of $3.2 million. In July 2018, the U.S. Ninth Circuit Court of Appeals reversed a 2015 decision of the U.S. Tax Court in Altera Corp. v. Commissioner that found that the Treasury regulations addressing the treatment of stock-based compensation in a cost-sharing arrangement with a related party were invalid. In August 2018, the U.S. Ninth Circuit Court of Appeals withdrew its July 2018 opinion to allow time for the reconstituted panel to confer on this appeal. As our tax filing position is consistent with the treasury regulations, we determined no adjustment to our financial statements is required, however, due to the uncertainties with respect to the ultimate resolution, we will continue to monitor developments in this case. Our major tax jurisdictions are the United States, Hong Kong SAR, and Japan. From fiscal 2013 onward, we remain subject to examination by one or more of these jurisdictions. We are currently under an income tax examination by the IRS for fiscal years 2014 and 2015. The audit is ongoing and as of June 30, 2018, we have not received any proposed adjustments. During the three months ended September 30, 2017, we early adopted the new ASU on Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence of an intra-entity asset transfer was deferred and recognized either upon the disposition of the asset or over the economic life of the asset. We applied this amendment on a modified retrospective basis through a cumulative-effect adjustment of $8.3 million directly to retained earnings as of the beginning of fiscal 2018.

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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