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Income Taxes
9 Months Ended
Oct. 02, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

13.Income Taxes

 

The Company’s effective tax rate, as calculated by dividing income tax expense by income before income taxes, for the first three quarters of 2016 and the first three quarters of 2015 was 35.6% and 34.4%, respectively. The increase in the effective tax rate was driven primarily by an increase in the state tax rate applied to the deferred tax assets and liabilities driven by the Expansion Territories, a decrease to the favorable manufacturing deduction, as a percentage of pre-tax income, caused by the Expansion Territories which do not qualify for the deduction, and lower pre‑tax book income.

 

The Company’s effective tax rate, as calculated by dividing income tax expense by income before income taxes minus net income attributable to noncontrolling interest, for the first three quarters of 2016 and the first three quarters of 2015 was 39.4% and 36.3%, respectively.

 

As of October 2, 2016, January 3, 2016 and September 27, 2015, the Company had $2.6 million, $2.9 million and $2.7 million, respectively, of uncertain tax positions, including accrued interest, all of which would affect the Company’s effective tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does not expect any change to have a material impact on the consolidated financial statements.

 

Prior tax years beginning in year 2013 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1999 remain open to examination by certain state tax jurisdictions due to loss carryforwards.

 

During the first quarter of 2016, the Company revalued its existing net deferred tax liabilities for the effects on the state rate applied to deferred taxes which resulted from the YTD 2016 Expansion Transactions. The net impact of this revaluation was an increase to the recorded income tax expense of $0.8 million.

 

During the third quarter of 2016, a state tax legislation target was met that caused a reduction to the corporate tax rate in that state from 4.0% to 3.0%, effective January 1, 2017. This reduction in the state corporate tax rate resulted in a decrease to the Company’s recorded income tax expense of $0.6 million due to a revaluation of the Company’s net deferred tax liabilities.

 

The impact of these two revaluations was a net increase to the recorded income tax expense of $0.2 million during the first three quarters of 2016.

 

During the third quarter of 2016, the Company also reduced its liability for uncertain tax positions by $0.7 million, which resulted in a decrease to income tax expense. This reduction was primarily due to the expiration of the applicable statute of limitations.