Note 3—Income Taxes
Because of the way it is structured, Straight Path and its subsidiaries file various types of income tax returns. The (benefit from) provision for income taxes consists of the following:
Year ended July 31
(in thousands) |
|
2014 |
|
|
2013 |
|
| Current: |
|
|
|
|
|
|
| Federal |
|
$ |
(21 |
) |
|
$ |
(560 |
) |
| State and local |
|
|
(6 |
) |
|
|
(113 |
) |
| |
|
|
(27 |
) |
|
|
(673 |
) |
| Deferred: |
|
|
|
|
|
|
|
|
| Federal |
|
|
(1,925 |
) |
|
|
560 |
|
| State and local |
|
|
(401 |
) |
|
|
121 |
|
| |
|
|
(2,326 |
) |
|
|
681 |
|
| (BENEFIT FROM) PROVISION FOR INCOME TAXES |
|
$ |
(2,353 |
) |
|
$ |
8 |
|
Significant components of the Company’s deferred income tax assets consist of the following:
July 31
(in thousands) |
|
2014 |
|
|
2013 |
|
| Deferred income tax assets: |
|
|
|
|
|
|
| Current: |
|
|
|
|
|
|
| Accrued expenses |
|
$ |
333 |
|
|
$ |
177 |
|
| Stock based compensation |
|
|
51 |
|
|
|
— |
|
| Deferred revenue on litigation settlements |
|
|
2,079 |
|
|
|
— |
|
| Valuation allowance |
|
|
(71 |
) |
|
|
(177 |
) |
| TOTAL CURRENT DEFERRED INCOME TAX ASSETS |
|
$ |
2,392 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
| Non-Current: |
|
|
|
|
|
|
|
|
| Deferred revenue on litigation settlements |
|
$ |
313 |
|
|
$ |
— |
|
| Stock based compensation |
|
|
104 |
|
|
|
— |
|
| Net operating loss carryforward |
|
|
50,120 |
|
|
|
50,620 |
|
| Valuation allowance |
|
|
(50,120 |
) |
|
|
(50,620 |
) |
| TOTAL NON-CURRENT DEFERRED INCOME TAX ASSETS |
|
$ |
417 |
|
|
$ |
— |
|
Because of its losses in the current and previous years, the Company concluded that it does not meet the criteria of more likely than not in order to utilize its deferred income tax assets in the foreseeable future for the Spectrum line of business. Accordingly, the Company recorded a 100% valuation allowance against its deferred income tax assets.
Prior to this fiscal year, the Patent line of business was included in the IDT consolidated return. For fiscal 2013, IDT determined that a 100% valuation allowance should be recorded against the deferred tax assets of the Patent line of business. Commencing in fiscal 2014, the Patent line of business will file its own returns. The Company determined that a valuation allowance is no longer needed as the deferred revenue related to the litigation settlements will result in income being recorded in future periods. In fiscal 2014, the Company realized a benefit of $1 million.
Winstar Holdings, LLC (“Winstar”) is a wholly-owned affiliate treated as a partnership for Federal income tax purposes. Winstar has generated material losses that are “suspended” in accordance with section 704(d) of the Internal Revenue Code, and accordingly, are not available to the Company unless the Company causes all or part of the suspension to be reversed. As a consequence of the “suspension,” no deferred tax asset is reflected herein with respect of such net operating losses. If any part of such net operating losses does become available, it is recorded as a tax benefit in the period used. In fiscal 2014, approximately $3.0 million of suspended losses became available to offset taxable income and the Company realized a benefit of $1.1 million.
The differences between income taxes expected at the federal statutory income tax rate and income taxes provided are as follows:
Year ended July 31
(in thousands) |
|
2014 |
|
|
2013 |
|
| Federal income tax at statutory rate |
|
$ |
(99 |
) |
|
$ |
1,445 |
|
| Valuation allowance |
|
|
(2,250 |
) |
|
|
(1,445 |
) |
| State and local income tax, net of federal benefit |
|
|
(4 |
) |
|
|
8 |
|
| (BENEFIT FROM) PROVISION FOR INCOME TAXES |
|
$ |
(2,353 |
) |
|
$ |
8 |
|
At July 31, 2014, the Company had net operating loss carryforwards of approximately $125 million. These net operating losses are solely from the Spectrum line of business. These carry-forward losses are available to offset future taxable income. The net operating loss carryforwards will start to expire in fiscal 2022, with fiscal 2013’s loss expiring in fiscal 2034.
The change in the valuation allowance for deferred income taxes was as follows:
Year ended July 31
(in thousands) |
|
Balance
at beginning
of year |
|
|
Additions charged to costs and expenses |
|
|
Deductions |
|
|
Balance at
end of year |
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| Reserves deducted from deferred income taxes, net: |
|
|
|
|
|
|
|
|
|
|
|
|
| Valuation allowance |
|
$ |
50,797 |
|
|
$ |
— |
|
|
$ |
(606 |
) |
|
$ |
50,191 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reserves deducted from deferred income taxes, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Valuation allowance |
|
$ |
49,982 |
|
|
$ |
815 |
|
|
$ |
|
|
|
$ |
50,797 |
|
The Company had no unrecognized income tax benefits at July 31, 2014 or 2013.
The Company was a member of IDT’s consolidated group, therefore its income or loss were included in IDT’s tax return and did not remain with the Company following the Spin-Off. IDT currently remains subject to examinations of its consolidated federal tax returns for fiscal years 2011 through fiscal 2013, and state and local tax returns generally for fiscal 2010 through fiscal 2013. The Company’s various federal, state and local tax returns for fiscal 2014 remain subject to examination. |
