Income Taxes

12 Months Ended

Dec. 29, 2019

Income Taxes

Income Taxes

20. Income Taxes

The following table presents the domestic and foreign components of income (loss) before income taxes for 2019, 2018 and 2017 (in thousands):

	2019		2018		2017
Domestic (loss) income	$	(16,065)	$	(9,665)	$	122,828
Foreign income		21,111		16,362		17,514
Total income	$	5,046	$	6,697	$	140,342

Included within the foreign income before income taxes above is $15.6 million, $12.1 million, and $3.0 million of foreign sourced income subject to foreign withholding taxes for the years ended December 29, 2019, December 30, 2018, and December 31, 2017, respectively.

A summary of the (benefit) provision for income tax follows (in thousands):

	2019		2018		2017
Current:
Federal	$	(2,734)	$	(5,262)	$	28,951
Foreign		5,077		4,736		4,602
State and local		810		1,530		(234)
Deferred		(3,764)		1,620		498
Total income taxes	$	(611)	$	2,624	$	33,817

Significant deferred tax assets (liabilities) follow (in thousands):

	December 29,		December 30,
	2019		2018
Accrued liabilities	$	16,686	$	16,828
Accrued bonuses		2,308		724
Other assets and liabilities		16,244		10,705
Equity awards		7,196		5,862
Lease liability		30,756		—
Other		2,418		2,482
Net operating losses		8,205		1,555
Foreign tax credit carryforwards		10,049		7,230
Total deferred tax assets		93,862		45,386
Valuation allowances		(17,303)		(8,183)
Total deferred tax assets, net of valuation allowances		76,559		37,203
Deferred expenses		(9,521)		(5,970)
Accelerated depreciation		(27,299)		(24,239)
Goodwill		(9,510)		(12,645)
Right-of-use asset		(30,257)		—
Other		(782)		(1,064)
Total deferred tax liabilities		(77,369)		(43,918)
Net deferred liability	$	(810)	$	(6,715)

The Company had approximately $6.6 million of state deferred tax assets primarily related to state net operating loss carryforwards as of December 29, 2019.  Our ability to utilize these state deferred tax assets is dependent on our ability to generate earnings in future years in the respective state jurisdictions.  The Company provided a full valuation allowance of $6.6 million for these state deferred tax assets as we believe realization based on the more-likely-than-not criteria has not been met as of December 29, 2019.

The Company had approximately $6.2 million and $5.3 million of foreign net operating loss and capital loss carryovers as of December 29, 2019 and December 30, 2018, respectively.  The Company had approximately $0.5 million and $0.6 million of valuation allowances primarily related to the foreign capital losses as of December 29, 2019 and December 30, 2018, respectively. A substantial majority of our foreign net operating losses do not have an expiration date.  

In addition, the Company had approximately $10.0 million in foreign tax credit carryforwards as of December 29, 2019 that expire ten years from inception in years 2025 through 2028.  Our ability to utilize these foreign tax credit carryforwards is dependent on our ability to generate foreign earnings in future years sufficient to claim foreign tax credits in excess of foreign taxes paid in those years.  The Company provided a full valuation allowance of $10.0 million for these foreign tax credit carryforwards as we believe realization based on the more-likely-than-not criteria has not been met as of December 29, 2019.

The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense for the years ended December 29, 2019, December 30, 2018 and December 31, 2017 is as follows in both dollars and as a percentage of income before income taxes ($ in thousands):

	2019				2018				2017
	Income Tax		Income		Income Tax		Income		Income Tax		Income
	Expense		Tax Rate		Expense		Tax Rate		Expense		Tax Rate
Tax at U.S. federal statutory rate	$	1,060	21.0	%	$	1,406	21.0	%	$	49,120	35.0	%
State and local income taxes		79	1.6	%		150	2.2	%		2,432	1.7	%
Foreign income taxes		5,058	100.2	%		4,879	72.9	%		5,306	3.8	%
Income of consolidated partnerships
attributable to noncontrolling interests		(177)	(3.5)	%		(371)	(5.6)	%		(1,554)	(1.1)	%
Non-qualified deferred compensation plan
(income) loss		(1,260)	(25.0)	%		483	7.2	%		(1,236)	(0.9)	%
Excess tax (benefits) expense on equity awards		(212)	(4.2)	%		447	6.7	%		(1,879)	(1.4)	%
Preferred stock option mark-to-market adjustment		1,338	26.5	%		—	—	%		—	—	%
Remeasurement of deferred taxes		—	—	%		—	—	%		(7,020)	(5.0)	%
Tax credits		(6,128)	(121.4)	%		(6,945)	(103.7)	%		(6,909)	(4.9)	%
Disposition of China		—	—	%		4,118	61.5	%		—	—	%
Other		(369)	(7.3)	%		(1,543)	(23.0)	%		(4,443)	(3.1)	%
Total	$	(611)	(12.1)	%	$	2,624	39.2	%	$	33,817	24.1	%

Cash for income taxes (received) paid were ($6.2) million in 2019, $14.0 million in 2018 and $37.2 million in 2017.

On December 22, 2017, the Tax Cuts and Jobs Act, (the “Tax Act”) was signed into law.  The Tax Act contained substantial changes to the Internal Revenue Code, including a reduction of the corporate tax rate from 35% to 21% effective January 1, 2018.  Upon enactment, 2017 deferred tax assets and liabilities were remeasured. This remeasurement yielded a benefit of approximately $7.0 million in the fourth quarter of 2017.  At December 30, 2018, the Company had completed its analysis of the Tax Act.  See Note 2 for additional information.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company, with few exceptions, is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2015. The Company is currently undergoing examinations by various tax authorities. The Company anticipates that the finalization of these current examinations and other issues could result in a decrease in the liability for unrecognized tax benefits (and a decrease of income tax expense) of approximately $86,000 during the next 12 months.

The Company had $1.6 million of unrecognized tax benefits at December 29, 2019 which, if recognized, would affect the effective tax rate. A reconciliation of the beginning and ending liability for unrecognized tax benefits excluding interest and penalties is as follows, which is recorded as an other long-term liability (in thousands):

Balance at December 31, 2017	$	2,028
Additions for tax positions of prior years		510
Reductions for tax positions of prior years		(515)
Reductions for lapse of statute of limitations		—
Balance at December 30, 2018		2,023
Additions for tax positions of prior years		179
Reductions for tax positions of prior years		(623)
Reductions for lapse of statute of limitations		—
Balance at December 29, 2019	$	1,579

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of income tax expense. The Company’s 2019 and 2018 income tax (benefit) expense includes interest (benefit) expense of ($11,000) and $39,000, respectively. The Company has accrued approximately $154,000 and $165,000 for the payment of interest and penalties as of December 29, 2019 and December 30, 2018, respectively.