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Taxes | 9 Months Ended
--- | ---
Oct. 02, 2016
Income Tax Disclosure [Abstract] |
Taxes | Taxes A reconciliation of the United States federal statutory corporate tax rate to the Company’s income tax expense on continuing operations, or effective tax rate, was as follows:
| Three-months Ended |  | Nine-months Ended
| October 2, 2016 |  | October 4, 2015 |  | October 2, 2016 |  | October 4, 2015
Income tax provision at federal statutory corporate tax rate | 35 | % |  | 35 | % |  | 35 | % |  | 35 | %
State income taxes, net of federal benefit | 1 | % |  | 1 | % |  | 1 | % |  | 1 | %
Foreign tax rate differential | (17 | )% |  | (19 | )% |  | (17 | )% |  | (19 | )%
Tax credit | (1 | )% |  | — | % |  | (1 | )% |  | — | %
Discrete tax events | (13 | )% |  | (5 | )% |  | (7 | )% |  | (2 | )%
Income tax provision on continuing operations | 5 | % |  | 12 | % |  | 11 | % |  | 15 | %
In the first quarter of 2016, the Company adopted Accounting Standards Update (ASU) 2016-09, "Improvements to Employee Share-Based Payment Accounting," which was issued by the Financial Accounting Standards Board in March 2016. This Update requires excess tax benefits to be recognized as an income tax benefit in the income statement. Previous guidance required excess tax benefits to be recognized as additional paid-in-capital in shareholders' equity on the balance sheet. This provision is required to be applied prospectively and therefore, prior periods were not restated. Additionally, this ASU also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows. In order to improve comparability, the Company applied this provision of the amendment retrospectively. For the nine-month period ended October 4, 2015, the Company reclassified a tax benefit of $9,937,000 from cash flows provided by financing activities to cash flows provided by operating activities on the consolidated statement of cash flows. The effective tax rate for 2016 included the impact of the following discrete tax events: (1) a decrease in tax expense of $463,000 in the first quarter of 2016, $745,000 in the second quarter of 2016, and $6,038,000 in the third quarter of 2016 from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises, (2) an increase in tax expense of $104,000 recorded in the second quarter of 2016 and a decrease in tax expense of $543,000 recorded in the third quarter of 2016 from the final true-up of the prior year's tax accrual upon filing the actual tax returns, and (3) a decrease in tax expense of $893,000 recorded in the third quarter of 2016 from the expiration of the statutes of limitations for certain reserves for income tax uncertainties. These discrete events decreased the effective tax rate on continuing operations from a provision of 18% to a provision of 5% and 11% for the three-month and nine-month periods ended October 2, 2016, respectively. The effective tax rate for 2015 included the impact of the following discrete tax events: (1) a decrease in tax expense of $364,000 recorded in the first quarter of 2015 from the expiration of the statutes of limitations for certain reserves for income tax uncertainties, (2) a decrease in tax expense of $112,000 recorded in the second quarter of 2015 from the final true-up of the prior year's tax accrual upon filing the actual tax returns, (3) an increase in tax expense of $65,000 recorded in the second quarter of 2015 from the write down of a deferred tax asset, (4) a decrease in tax expense of $993,000 recorded in the third quarter of 2015 for the final true-up of the prior year's tax accrual upon filing the actual tax returns, and (5) a decrease in tax expense of $611,000 recorded in the third quarter of 2015 from the expiration of the statutes of limitations for certain reserves for income tax uncertainties. These discrete events decreased the effective tax rate on continuing operations from a provision of 17% to a provision of 12% and 15% for the three-month and nine-month periods ended October 4, 2015. In the first quarter of 2016, the Company adopted Accounting Standards Update (ASU) 2015-17, "Income Taxes - Balance Sheet Classification of Deferred Taxes." This ASU requires that deferred tax assets and liabilities be classified as non-current in a classified balance sheet. In order to improve comparability, the Company applied the amendments in this Update retrospectively to all periods presented. As of December 31, 2015, the Company reclassified current deferred income tax assets and liabilities of $7,104,000 and $319,000, respectively, to non-current on the consolidated balance sheet. During the nine-month period ended October 2, 2016, the Company recorded a $281,000 increase in reserves for income taxes, net of deferred tax benefit. Estimated interest and penalties included in these amounts totaled $47,000 for the nine-month period ended October 2, 2016. The Company’s reserve for income taxes, including gross interest and penalties, was $6,131,000 as of October 2, 2016, which included $5,104,000 classified as a non-current liability and $1,027,000 recorded as a reduction to non-current deferred tax assets. The amount of gross interest and penalties included in these balances was $610,000. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period. As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $950,000 to $1,050,000 over the next twelve months. The Company has defined its major tax jurisdictions as the United States, Ireland, China, and Japan, and within the United States, Massachusetts and California. Within the United States, the tax years 2013 through 2015 remain open to examination by the Internal Revenue Service and various state tax authorities. The tax years 2012 through 2015 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates.

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