Note 12. Income Taxes
|12 Months Ended|
Jun. 30, 2011
|Income Tax Disclosure [Abstract]|
The components of income (loss) before income taxes are as follows:
The provision for (benefit from) income taxes is comprised of the following:
For the fiscal years ended June 30, 2011 and 2010, the Company did not recognize any benefits from employee stock activity deductions, and therefore the Company did not reduce actual current tax liabilities, or record any increases to capital in excess of par value, for those years in connection with such benefits.
The significant components of deferred income tax assets and liabilities are as follows:
As of June 30, 2011, the Company had U.S. federal, state and foreign net operating loss (“NOL”) carry-forwards of approximately $45.5 million, $117.6 million and $43.9 million, respectively. The U.S. net operating loss and tax credit 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 impair the realization of these NOLs. The state NOLs will begin to expire in 2013. State credits of $42.7 million will be carried over indefinitely. The foreign net operating loss carry-forwards will begin to expire in 2013.
The net deferred tax asset valuation allowance was $30.7 million as of June 30, 2011 and $44.2 million as of June 30, 2010. 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, 2011, $26.8 million relates to state credit carry-forwards. The remainder of the valuation allowance relates primarily to foreign net operating loss carry-forwards.
As of June 30, 2011, U.S. income taxes were not provided for on a cumulative total of approximately $599.0 million 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 a full utilization of the foreign tax credits, the potential deferred tax liability associated with undistributed earnings would be approximately $198.0 million.
KLA-Tencor benefits from several 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 within the next three to ten years. The Company was in compliance with all the terms and conditions of the tax holidays as of June 30, 2011. The net impact of these tax holidays was to decrease the Company’s tax expense by approximately $30.4 million, $12.7 million and $8.9 million in the fiscal years ended June 30, 2011, 2010 and 2009, respectively. The benefits of the tax holidays on diluted net income per share were $0.18, $0.07 and $0.05 for the fiscal years ended June 30, 2011, 2010, 2009, respectively.
The reconciliation of the United States federal statutory income tax rate to KLA-Tencor’s effective income tax rate is as follows:
Windfall tax benefits arise when a company's tax deduction for employee stock activity exceeds book compensation for the same activity. A shortfall arises when the tax deduction is less than book compensation. Windfalls are recorded as increases to capital in excess of par value. Shortfalls are recorded as decreases to capital in excess of par value to the extent that cumulative windfalls exceed cumulative shortfalls. Shortfalls in excess of cumulative windfalls are recorded as provision for income taxes. The Company incurred $15.2 million of additional tax expense during the fiscal year ended June 30, 2011 due to shortfalls from employee stock activities. The Company's cumulative windfall balance reset to zero on July 1, 2011, since there was a cumulative shortfall in the fiscal year ended June 30, 2011.
A reconciliation of the gross unrecognized tax benefit is as follows:
The amount of unrecognized tax benefits that would impact the effective tax rate was $78.3 million as of June 30, 2011. KLA-Tencor’s policy is to include interest and penalties related to unrecognized tax benefits within interest income and other, net. The amount of interest and penalties accrued as of June 30, 2011 and 2010 was approximately $7.2 million and $5.5 million, respectively.
During the fiscal year ended June 30, 2011, the Company settled an Israel income tax examination for the fiscal years ended June 30, 2007 through June 30, 2009. As a result of the settlement, the Company reduced its unrecognized tax benefits by $10.1 million, of which $8.0 million was a decrease in tax expense.
During the fiscal year ended June 30, 2011, the Company completed a United States federal income tax examination for the fiscal years ended June 30, 2007 through June 30, 2009 (which remains subject to review by the Joint Committee of Taxation). The Company also received a proposed adjustment from the tax authorities in Japan related to their examination of the fiscal years ended June 30, 2006 through June 30, 2010. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations.
The Company is subject to federal income tax examinations for all years beginning from the fiscal year ended June 30, 2010. The Company is subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2007. 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, 2007. 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 $39.2 million of its existing unrecognized tax benefits within the next twelve 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