Income Taxes

The provision for income tax computed by applying the U.S. statutory rate to income before taxes as reconciled to the actual provisions were:



	Years Ended
	December 31, 2016		January 2, 2016		January 3, 2015
Income before income tax expense:
Domestic	(10.2	)%	5.6	%	13.6	%
Foreign	110.2		94.4		86.4
	100.0	%	100.0	%	100.0	%

Tax expense at U.S. statutory rate	35.0	%	35.0	%	35.0	%
State income tax	(0.7	)	1.1		0.6
Tax on remittance of foreign earnings	9.9		9.1		0.8
Foreign taxes less than U.S. statutory rate	(38.5	)	(30.8	)	(24.0	)
Employee benefits	(0.7	)	0.4		0.5
Change in valuation allowance	1.2		2.6		2.1
Release of unrecognized tax benefit reserves	(0.4	)	(9.8	)	(1.7	)
State tax rate change	0.6		2.3		—
Other, net	(0.4	)	(0.4	)	(0.3	)
Taxes at effective worldwide tax rates	6.0	%	9.5	%	13.0	%

The Company has been granted income tax rates lower than statutory rates in two foreign jurisdictions through 2019. These lower rates, when compared with the countries’ statutory rates, resulted in an income tax reduction of approximately $1,300 (negligible impact per diluted share) in 2016, $2,200 ($0.01 per diluted share) in 2015 and $5,000 ($0.01 per diluted share) in 2014.

Current and deferred tax provisions (benefits) were:



	Current			Deferred			Total
Year ended December 31, 2016
Domestic	$	2,768		$	34,590		$	37,358
Foreign	38,257			(34,232		)	4,025
State	2,083			(9,194		)	(7,111		)
	$	43,108		$	(8,836	)	$	34,272

Year ended January 2, 2016
Domestic	$	(2,294	)	$	9,437		$	7,143
Foreign	32,067			(10,235		)	21,832
State	4,395			11,648			16,043
	$	34,168		$	10,850		$	45,018

Year ended January 3, 2015
Domestic	$	41,608		$	(10,517	)	$	31,067
Foreign	24,290			3,663			27,977
State	6,951			(5,546		)	1,405
	$	72,849		$	(12,400	)	$	60,449



	Years Ended
	December 31, 2016		January 2, 2016		January 3, 2015
Cash payments for income taxes	$	39,655	$	23,045	$	19,126

Cash payments above represent cash tax payments made by the Company primarily in foreign jurisdictions.

The deferred tax assets and liabilities at the respective year-ends were as follows:



	December 31, 2016			January 2, 2016
Deferred tax assets:
Nondeductible reserves	$	1,962		$	7,267
Inventories	123,507			112,286
Property and equipment	3,322			—
Bad debt allowance	6,965			7,600
Accrued expenses	20,351			17,068
Employee benefits	181,148			176,307
Tax credits	22,567			34,051
Net operating loss and other tax carryforwards	124,052			94,975
Other	20,355			13,372
Gross deferred tax assets	504,229			462,926
Less valuation allowances	(67,451		)	(61,358		)
Deferred tax assets	436,778			401,568

Deferred tax liabilities:
Property and equipment	—			439
Derivatives	5,103			3,612
Intangibles	12,226			17,751
Prepaids	5,728			5,316
Deferred tax liabilities	23,057			27,118
Net deferred tax assets	$	413,721		$	374,450

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances.

The changes in the Company’s valuation allowance for deferred tax assets are as follows:



Balance at December 28, 2013	$	32,131
Charge to expenses	9,741
Charged to other accounts (1)	1,885
Balance at January 3, 2015	$	43,757
Charge to expenses	12,224
Charged to other accounts(1)	5,377
Balance at January 2, 2016	$	61,358
Charge to expenses	6,859
Charged to other accounts(1)	(766		)
Balance at December 31, 2016	$	67,451

(1) Charges to other accounts include the effects of foreign currency translation and purchase accounting adjustments.

As of December 31, 2016, the valuation allowance for deferred tax assets was $67,451, made up of $45,350 for foreign loss carryforwards, $6,466 for other foreign deferred tax assets, $15,635 for federal and state operating loss carryforwards and other federal deferred tax assets. The net change in the total valuation allowance for 2016 was $6,093 related to an increase of $3,069 for foreign loss carryforwards and other foreign deferred tax assets and $3,024 for federal and state operating loss carryforwards and other domestic deferred tax assets.

At December 31, 2016, the Company has total net operating loss carryforwards of approximately $292,708 for foreign jurisdictions, which will expire as follows:



Fiscal Year:
2017	$	28,455
2018	16,069
2019	32,757
2020	31,012
2021	19,419
Thereafter	164,996

At December 31, 2016, the Company had tax credit carryforwards totaling $22,567, which expire beginning after 2020.

At December 31, 2016, the Company had federal and state net operating loss carryforwards of approximately $10,769 and $673,488, respectively, which expire beginning after 2018.

At December 31, 2016, applicable U.S. federal income taxes and foreign withholding taxes have not been provided on the accumulated earnings of foreign subsidiaries that are expected to be permanently reinvested. If these earnings had not been permanently reinvested, deferred taxes of approximately $929,000 would have been recognized in the Consolidated Financial Statements.

In 2016 and 2015, the Company recognized a benefit related to the realization of unrecognized tax benefits resulting from the expiration of statutes of limitations of $4,146 and $3,587, respectively. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase or decrease within the next 12 months due to uncertainties regarding the timing of examinations and the amount of settlements that may be paid, if any, to tax authorities, the Company currently expects a reduction of approximately $8,081 for unrecognized tax benefits accrued at December 31, 2016 within the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:




Balance at January 3, 2015 (gross balance of $66,207)	$	63,110
Additions based on tax positions related to the current year	2,732
Additions for tax positions of prior years	49
Reductions for tax positions of prior years	(46,111		)

Balance at January 2, 2016 (gross balance of $20,085)	$	19,780
Additions based on tax positions related to the current year	4,648
Additions for tax positions of prior years	106
Reductions for tax positions of prior years	(4,838		)

Balance at December 31, 2016 (gross balance of $20,688)	$	19,696

At December 31, 2016, the balance of the Company’s unrecognized tax benefits, which would, if recognized, affect the Company’s annual effective tax rate was $19,696. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company recognized $549 in 2016 for interest and penalties classified as income tax expense and $3,669 and $636, respectively in 2015 and 2014, for interest and penalties classified as income tax benefit in the Consolidated Statement of Income. At December 31, 2016 and January 2, 2016, the Company had a total of $3,251 and $2,702, respectively, of interest and penalties accrued related to unrecognized tax benefits.

The Company files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and foreign jurisdictions. In the United States, the Internal Revenue Service (“IRS”) began an examination of the Company’s 2011 tax year during the fourth quarter of 2013 and of the Company’s 2012 tax year during the third quarter of 2014, both of which were completed during the third quarter of 2015. As a result in 2015, the Company recorded an income tax benefit of $56,427 due to the remeasurement of certain unrecognized tax benefits. The Company is also subject to examination by various state and international tax authorities. The tax years subject to examination vary by jurisdiction. The Company regularly assesses the outcomes of both ongoing and future examinations for the current or prior years to ensure the Company’s provision for income taxes is sufficient. The Company recognizes liabilities based on estimates of whether additional taxes will be due and believes its reserves are adequate in relation to any potential assessments. The outcome of any one examination, some of which may conclude during the next 12 months, is not expected to have a material impact on the Company’s financial position or results of operations.