|12 Months Ended|
Jun. 30, 2017
|Income Tax Disclosure [Abstract]|
NOTE 12 — INCOME TAXES
The components of income before income taxes are as follows:
The provision for income taxes is comprised of the following:
The significant components of deferred income tax assets and liabilities are as follows:
As of June 30, 2017, the Company had U.S. federal, state and foreign net operating loss (“NOL”) carry-forwards of approximately $29.4 million, $49.4 million and $41.9 million, respectively. The U.S. federal NOL carry-forwards will expire at various dates beginning in 2023 through 2029. The utilization of NOLs created by acquired companies is subject to annual limitations under Section 382 of the Internal Revenue Code. However, it is not expected that such annual limitation will significantly impair the realization of these NOLs. The state NOLs will begin to expire in 2018. State credits of $167.6 million will be carried over indefinitely. The foreign NOL carry-forwards will begin to expire in 2018.
The net deferred tax asset valuation allowance was $120.7 million and $105.0 million as of June 30, 2017 and June 30, 2016, respectively. The change was primarily due to an increase in the valuation allowance related to state credit carry-forwards generated in the fiscal year ended June 30, 2017. The valuation allowance is based on the Company’s assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. Of the valuation allowance as of June 30, 2017, $103.8 million relates to state credit carry-forwards. The remainder of the valuation allowance relates primarily to state and foreign NOL carry-forwards.
As of June 30, 2017, U.S. income taxes were not provided for on a cumulative total of approximately $2.60 billion of undistributed earnings for certain non-U.S. subsidiaries. If these undistributed earnings were repatriated to the United States, they would generate foreign tax credits to reduce the federal tax liability associated with the foreign dividend. Assuming full utilization of the foreign tax credits, the potential deferred tax liability associated with undistributed earnings would be approximately $866.0 million.
KLA-Tencor benefits from tax holidays in Israel and Singapore where it manufactures certain of its products. These tax holidays are on approved investments and are scheduled to expire at varying times in the next one to four years. The Company was in compliance with all the terms and conditions of the tax holidays as of June 30, 2017. The net impact of these tax holidays was to decrease the Company’s tax expense by approximately $32.6 million, $19.5 million and $20.4 million in the fiscal years ended June 30, 2017, 2016 and 2015, respectively. The benefits of the tax holidays on diluted net income per share were $0.21, $0.12 and $0.13 for the fiscal years ended June 30, 2017, 2016 and 2015, respectively.
One of the Company’s Singapore holidays is scheduled to expire in August 2018. The Company is unsure if the holiday will be extended. The Company’s tax rate on income earned under this holiday would increase from 5% to 17% if the holiday is not extended.
The reconciliation of the United States federal statutory income tax rate to KLA-Tencor’s effective income tax rate is as follows:
A reconciliation of gross unrecognized tax benefits is as follows:
The amount of unrecognized tax benefits that would impact the effective tax rate was $68.4 million, $50.4 million and $69.0 million as of June 30, 2017, 2016 and 2015 respectively. The amount of interest and penalties recognized during the years ended June 30, 2017, 2016, and 2015 was expense of $2.2 million, income of $4.3 million as a result of a release of unrecognized tax benefits, and expense of $1.2 million, respectively. KLA-Tencor’s policy is to include interest and penalties related to unrecognized tax benefits within other expense (income), net. The amount of interest and penalties accrued as of June 30, 2017 and 2016 was approximately $5.9 million and $3.7 million, respectively.
The Company is subject to federal income tax examinations for all years beginning from the fiscal year ended June 30, 2014. The Company is subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2013. The Company is also subject to examinations in other major foreign jurisdictions, including Singapore, for all years beginning from the fiscal year ended June 30, 2013. The Company is under income tax examination in Israel for the fiscal years ended June 30, 2013 through June 30, 2015. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.
It is possible that certain examinations may be concluded in the next twelve months. The Company believes it is possible that it may recognize up to $15.3 million of its existing unrecognized tax benefits within the next 12 months as a result of the lapse of statutes of limitations and the resolution of examinations with various tax authorities.
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