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Income Taxes

12 Months Ended

Dec. 30, 2018

(6)	Income Taxes

Income before provision for income taxes in 2018, 2017 and 2016 consists of the following (in thousands):

	2018		2017		2016
U.S.	$	414,804	$	386,989	$	334,892
Foreign		13,874		13,164		9,766
	$	428,678	$	400,153	$	344,658

The differences between the U.S. Federal statutory income tax provision (using the statutory rate of 21% in 2018 and the statutory rate of 35% in 2017 and 2016) and the Company’s consolidated provision for income taxes for 2018, 2017 and 2016 are summarized as follows (in thousands):


	2018			2017			2016
Federal income tax provision based on the statutory rate	$	90,022		$	140,054		$	120,630
State and local income taxes, net of related Federal income taxes		14,233			11,520			9,787
Non-resident withholding and foreign income taxes		21,369			20,210			17,275
Foreign tax and other tax credits		(25,301	)		(23,324	)		(20,049	)
Foreign derived intangible income		(11,760	)		—			—
Excess tax benefits from equity-based compensation		(23,786	)		(27,227	)		—
Non-deductible expenses, net		1,999			1,794			1,579
Unrecognized tax provision (benefit), net of related Federal income taxes		301			(173	)		(98	)
Other		(371	)		(606	)		856
	$	66,706		$	122,248		$	129,980

The Company adopted ASU

2016-09,

Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

(“ASU

2016-09”)

during 2017, which is intended to simplify several areas of accounting for share-based compensation arrangements. As a result, excess tax benefits or deficiencies from equity-based compensation activity are now reflected in the Company’s consolidated statements of income as a component of the provision for income taxes, whereas they previously were recognized in the consolidated statement of stockholders’ deficit. The adoption of ASU

2016-09

resulted in a decrease in the Company’s provision for income taxes of $23.8 million in 2018 and $27.2 million in 2017, primarily due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

The components of the 2018, 2017 and 2016 consolidated provision for income taxes are as follows (in thousands):

	2018			2017			2016
Provision for Federal income taxes
Current provision	$	33,558		$	81,747		$	100,673
Deferred provision (benefit)		(1,543	)		6,732			(3,096	)
Total provision for Federal income taxes		32,015			88,479			97,577
Provision for state and local income taxes
Current provision		12,651			14,131			15,091
Deferred provision (benefit)		671			(572	)		37
Total provision for state and local income taxes		13,322			13,559			15,128
Provision for non-resident withholding and foreign income taxes		21,369			20,210			17,275
	$	66,706		$	122,248		$	129,980

As of December 30, 2018 and December 31, 2017, the significant components of net deferred income taxes are as follows (in thousands):

	2018		2017
Deferred income tax assets
Insurance reserves	$	10,253	$	9,957
Equity compensation		9,705		9,277
Other accruals and reserves		10,636		8,532
Foreign tax credit		4,600		—
Other		6,029		4,801
Total deferred income tax assets		41,223		32,567
Deferred income tax liabilities
Depreciation, amortization and asset basis differences		10,505		4,655
Capitalized software		25,192		22,248
Gain on debt extinguishments		—		2,914
Total deferred income tax liabilities		35,697		29,817
Net deferred income taxes	$	5,526	$	2,750

As of December 30, 2018, the Company had unused foreign tax credits of $4.6 million which can be carried back for one year to be fully utilized against its U.S. federal income tax liability.

Realization of the Company’s deferred tax assets is dependent upon many factors, including, but not limited to, the Company’s ability to generate sufficient taxable income. Although realization of the Company’s net deferred tax assets is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. On an ongoing basis, management will assess whether it remains more likely than not that the net deferred tax assets will be realized.

For financial reporting purposes, the Company’s investment in foreign subsidiaries does not exceed its tax basis. Therefore, no deferred income taxes have been provided.

The Company recognizes the financial statement benefit of a tax position if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents. For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and penalties in income tax expense.

At December 30, 2018, the amount of unrecognized tax benefits was $2.0 million of which, if ultimately recognized, $1.8 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. At December 30, 2018, the Company had less than $0.1 million of accrued interest and no accrued penalties.

At December 31, 2017, the amount of unrecognized tax benefits was $1.8 million of which, if ultimately recognized, $1.5 million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. At December 31, 2017, the Company had less than $0.1 million of accrued interest and no accrued penalties.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


Balance as of January 3, 2016	$	2,115
Additions for tax positions of current year		209
Reductions in tax positions from prior years for:
Changes in prior year tax positions		(33	)
Lapses of applicable statute of limitations		(337	)
Balance as of January 1, 2017		1,954
Additions for tax positions of current year		224
Additions for tax positions of prior years		42
Reductions in tax positions from prior years for:
Changes in prior year tax positions		(10	)
Lapses of applicable statute of limitations		(373	)
Balance as of December 31, 2017		1,837
Additions for tax positions of current year		425
Additions for tax positions of prior years		115
Reductions in tax positions from prior years for:
Changes in prior year tax positions		(64	)
Lapses of applicable statute of limitations		(349	)
Balance as of December 30, 2018	$	1,964

The Company is currently under examination by the IRS for the 2015 tax year. The Company continues to be under examination by certain states. The Company’s Federal statute of limitation has expired for years prior to 2015 and the relevant state and foreign statutes vary. The Company expects the current ongoing examinations to be concluded in the next twelve months and does not expect the assessment of any significant additional amounts in excess of amounts reserved.

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (the “2017 Tax Act”), which was enacted on December 22, 2017, had a significant impact on the Company’s consolidated provision for income taxes for the year ended December 30, 2018. The most significant impacts include but are not limited to reducing the U.S. corporate income tax rate from 35 percent to 21 percent, establishing a deduction for foreign derived intangible income and imposing new limitations on certain executive compensation and foreign tax credits.

The Company recognized the enactment-date income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740,

Income Taxes

, in the reporting period in which the 2017 Tax Act was signed into law.

As of December 30, 2018, the

Company

has completed its accounting

for

all enactment-date

tax

effects of the 2017 Tax Act

and current period adjustments related to these items were immaterial.