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Income Taxes | 12 Months Ended
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Dec. 28, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | (12.) INCOME TAXES On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. Under GAAP, the effect of a change in tax laws or rates is to be recognized in income from continuing operations in the period that includes the enactment date. As such, the Company recognized an estimate of the impact of the Tax Reform Act in the year ended December 29, 2017. The Company had an estimated $147.5 million of undistributed foreign earnings and profit subject to the deemed mandatory repatriation as of December 29, 2017 and recognized a provisional $14.7 million in 2017 for the one-time transition tax. The Company has sufficient U.S. net operating losses to offset cash tax liabilities associated with the repatriation tax. In addition, as a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 29, 2017 and recognized a $56.5 million tax benefit in the Company’s Consolidated Statement of Operations for the year ended December 29, 2017. On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB”) No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company recognized the tax impact of the revaluation of deferred tax assets and liabilities and the provisional tax impact related to deemed repatriated earnings and included these amounts in its consolidated financial statements for the year ended December 29, 2017. Based on additional analysis conducted, the Company updated the provisional amount of the one-time transition tax to $18.9 million, representing an increase of $4.2 million over the $14.7 million amount recorded as of December 29, 2017. As stated above, the Company has sufficient U.S. net operating losses to offset cash tax liabilities associated with the repatriation tax. In part, due to the utilization of additional net operating losses to offset the additional transition tax, the Company adjusted its revaluation of the adjusted ending net deferred tax liabilities as of December 29, 2017, resulting in a recognized tax benefit of $60.7 million, representing an increase of $4.2 million to the originally recorded $56.5 million tax benefit recorded in the Company’s Consolidated Statement of Operations for the year ended December 29, 2017. In 2018, the Company completed its determination of the accounting implications of the Tax Reform Act. The impact of these adjustments has been reflected in the Company’s financial results for the year ended December 28, 2018 and its timely filed 2017 U.S. corporate income tax return. Further, the Company has adopted the approach of recording the consequences of the new Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Reform Act as a period cost when incurred. (12.) INCOME TAXES (Continued) Income from continuing operations before provision (benefit) for income taxes for fiscal years 2018, 2017 and 2016 consisted of the following (in thousands):
| 2018 |  | 2017 |  | 2016
U.S. | $ | (4,273 | ) |  | $ | 306 |  |  | $ | (12,547 | )
International | 65,389 |  |  | 48,953 |  |  | 40,712 |
Total income before income taxes from continuing operations | $ | 61,116 |  |  | $ | 49,259 |  |  | $ | 28,165 |
The provision (benefit) for income taxes from continuing operations for fiscal years 2018, 2017 and 2016 was comprised of the following from continuing operations (in thousands):
| 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | 80 |  |  | $ | (1,558 | ) |  | $ | (8,327 | )
State | 166 |  |  | (29 | ) |  | 149 |
International | 9,490 |  |  | 8,539 |  |  | 7,230 |
| 9,736 |  |  | 6,952 |  |  | (948 | )
Deferred: |  |  |  |  |
Federal | 6,610 |  |  | (45,114 | ) |  | 5,457 |
State | 103 |  |  | (295 | ) |  | 527 |
International | (2,366 | ) |  | 629 |  |  | (1,749 | )
| 4,347 |  |  | (44,780 | ) |  | 4,235 |
Total provision (benefit) for income taxes | $ | 14,083 |  |  | $ | (37,828 | ) |  | $ | 3,287 |
The provision (benefit) for income taxes from continuing operations differs from the U.S. statutory rate for fiscal years 2018, 2017 and 2016 due to the following:
| 2018 |  | 2017 |  | 2016
Statutory rate | $ | 12,834 |  | 21.0 | % |  | $ | 17,240 |  | 35.0 | % |  | $ | 9,858 |  | 35.0 | %
Federal tax credits | (1,700 | ) | (2.8 | ) |  | (1,674 | ) | (3.4 | ) |  | (1,570 | ) | (5.6 | )
Foreign rate differential | (6,040 | ) | (9.9 | ) |  | (12,934 | ) | (26.3 | ) |  | (9,665 | ) | (34.3 | )
Uncertain tax positions | 147 |  | 0.2 |  |  | 34 |  | 0.1 |  |  | 219 |  | 0.8 |
State taxes, net of federal benefit | 975 |  | 1.6 |  |  | (543 | ) | (1.1 | ) |  | (311 | ) | (1.1 | )
U.S. tax on foreign earnings | 10,473 |  | 17.1 |  |  | 1,471 |  | 3.0 |  |  | 1,508 |  | 5.4 |
Valuation allowance | (567 | ) | (0.9 | ) |  | 1,030 |  | 2.1 |  |  | 1,273 |  | 4.5 |
Tax Reform Act | 11 |  | — |  |  | (39,394 | ) | (80.0 | ) |  | — |  | — |
Change in tax rates | — |  | — |  |  | — |  | — |  |  | (270 | ) | (1.0 | )
Non-deductible transaction costs | — |  | — |  |  | — |  | — |  |  | 1,012 |  | 3.6 |
Change in tax law (Internal Revenue Code §987) | — |  | — |  |  | — |  | — |  |  | 2,630 |  | 9.3 |
Other | (2,050 | ) | (3.3 | ) |  | (3,058 | ) | (6.2 | ) |  | (1,397 | ) | (5.0 | )
Effective tax rate | $ | 14,083 |  | 23.0 | % |  | $ | (37,828 | ) | (76.8 | )% |  | $ | 3,287 |  | 11.7 | %
The difference between the Company’s effective tax rate and the U.S. federal statutory income tax rate in the current year is primarily attributable to the components of Tax Reform Act as well as the impact of the Company’s earnings realized in foreign jurisdictions with statutory rates that are different than the federal statutory rate. The Company’s foreign earnings are primarily derived from Switzerland, Mexico, Uruguay, and Ireland. In addition, the Company currently has a tax holiday in Malaysia through April 2023 provided certain conditions are met. Beginning in 2018, certain earnings realized in foreign jurisdictions are subject to U.S. tax in accordance with the Tax Reform Act. (12.) INCOME TAXES (Continued) Difference Attributable to Foreign Investment: Certain foreign subsidiary earnings are subject to U.S. taxation under the Tax Reform Act. The Company intends to permanently reinvest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, with the exception of distributions made out of current year earnings and profits (E&P) and E&P previously taxed as of and for the year ended December 29, 2017, including E&P subject to the toll charge under the Tax Reform Act. The Company accrues for withholding taxes on distributions in the year that distributions are made. The net deferred tax liability, including discontinued operations at December 29, 2017, consists of the following (in thousands):
| December 28, 2018 |  | December 29, 2017
Net operating loss carryforwards | $ | 18,088 |  |  | $ | 107,005 |
Tax credit carryforwards | 24,593 |  |  | 28,215 |
Inventories | 3,408 |  |  | 4,956 |
Accrued expenses | 39 |  |  | 3,815 |
Stock-based compensation | 2,340 |  |  | 5,531 |
Gross deferred tax assets | 48,468 |  |  | 149,522 |
Less valuation allowance | (34,339 | ) |  | (36,480 | )
Net deferred tax assets | 14,129 |  |  | 113,042 |
Property, plant and equipment | (9,445 | ) |  | (27,547 | )
Intangible assets | (198,648 | ) |  | (219,576 | )
Convertible subordinated notes | — |  |  | (806 | )
Other | (6,009 | ) |  | (6,325 | )
Gross deferred tax liabilities | (214,102 | ) |  | (254,254 | )
Net deferred tax liability | $ | (199,973 | ) |  | $ | (141,212 | )
Presented as follows: |  |  |
Noncurrent deferred tax asset | $ | 3,937 |  |  | $ | 4,152 |
Noncurrent deferred tax liability | (203,910 | ) |  | (145,364 | )
Net deferred tax liability | $ | (199,973 | ) |  | $ | (141,212 | )
The components of the net deferred tax liability, by balance sheet account, were as follows:
| December 28, 2018 |  | December 29, 2017
Deferred income tax asset | $ | 3,937 |  |  | $ | 3,451 |
Noncurrent assets of discontinued operations held for sale | — |  |  | 701 |
Deferred income tax liabilities | (203,910 | ) |  | (140,964 | )
Noncurrent liabilities of discontinued operations held for sale | — |  |  | (4,400 | )
Net deferred tax liability | $ | (199,973 | ) |  | $ | (141,212 | )
As of December 28, 2018, the Company has the following carryforwards available:
Jurisdiction |  | Tax Attribute |  | Amount (in millions) |  | Begin to Expire
U.S. Federal |  | Net operating loss |  | $ | 39.1 |  |  | 2034
U.S. State |  | Net operating loss |  | 130.6 |  |  | 2019
International |  | Net operating loss |  | 31.1 |  |  | 2019
U.S. Federal |  | Foreign tax credit |  | 17.0 |  |  | 2019
U.S. Federal and State |  | R&D tax credit |  | 3.6 |  |  | 2019
U.S. State |  | Investment tax credit |  | 6.8 |  |  | 2019
Net operating losses are presented as pre-tax amounts. (12.) INCOME TAXES (Continued) Certain U.S. tax attributes are subject to limitations of Internal Revenue Code §382, which in general provides that utilization is subject to an annual limitation if an ownership change results from transactions increasing the ownership of certain shareholders or public groups in stock of a corporation by more than 50 percentage points over a three-year period. Such an ownership change occurred upon the consummation of the acquisition of LRM in 2015. The Company does not anticipate that these limitations will affect utilization of these carryforwards prior to their expiration. The Company’s federal net operating loss carryforward and certain other federal tax credits reported on its income tax returns included uncertain tax positions taken in prior years. Due to the application of the accounting for uncertain tax positions, the actual tax attributes are larger than the tax amounts for which a deferred tax asset is recognized for financial statement purposes. In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the consideration of the weight of both positive and negative evidence, management has determined that a portion of the deferred tax assets as of December 28, 2018 and December 29, 2017 related to certain foreign tax credits, state investment tax credits, and foreign and state net operating losses will not be realized. The Company files annual income tax returns in the U.S., various state and local jurisdictions, and in various foreign jurisdictions. A number of years may elapse before an uncertain tax position, for which the Company has unrecognized tax benefits, is examined and finally settled. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its unrecognized tax benefits reflect the most probable outcome. The Company adjusts these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. The resolution of an uncertain tax position, if recognized, would be recorded as an adjustment to the Provision (Benefit) for Income Taxes and the effective tax rate in the period of resolution. Below is a summary of changes to the unrecognized tax benefit for fiscal years 2018, 2017 and 2016. The amounts for 2016 and 2017 include discontinued operations. The amounts for 2018 reflect discontinued operations through the date of divestiture of the AS&O product line, which is reflected in the table below as a reduction during 2018 (in thousands):
| 2018 |  | 2017 |  | 2016
Balance, beginning of year | $ | 12,088 |  |  | $ | 10,561 |  |  | $ | 9,271 |
Additions based upon tax positions related to the current year | 300 |  |  | 3,833 |  |  | 1,450 |
Additions (reductions) related to prior period tax returns | (75 | ) |  | (14 | ) |  | 240 |
Reductions relating to settlements with tax authorities | (98 | ) |  | — |  |  | — |
Reductions relating to divestiture | (6,846 | ) |  | — |  |  | — |
Reductions as a result of a lapse of applicable statute of limitations | — |  |  | (510 | ) |  | — |
Revaluation due to change in tax rate (Tax Reform Act) | — |  |  | (1,782 | ) |  | — |
Reductions relating to business combinations | — |  |  | — |  |  | (400 | )
Balance, end of year | $ | 5,369 |  |  | $ | 12,088 |  |  | $ | 10,561 |
Integer and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years that remain open and subject to tax audits varies depending on the tax jurisdiction. The Internal Revenue Service finalized an audit of the 2012 and 2013 U.S. Federal income tax returns of the Company in the first quarter of 2015. The impact to the income tax expense was not material. The IRS is currently examining the U.S. subsidiaries of the Company for the taxable years 2014 - 2016 and the 2017 - 2018 taxable years remain subject to examination by the IRS. The U.S. subsidiaries of the former LRM are still subject to U.S. federal, state, and local examinations for the taxable years 2006 to 2014. It is reasonably possible that a reduction of approximately $0.9 million of the balance of unrecognized tax benefits may occur within the next twelve months as a result of the lapse of the statute of limitations and/or audit settlements. As of December 28, 2018, approximately $5.3 million of unrecognized tax benefits would favorably impact the effective tax rate (net of federal impact on state issues), if recognized. The Company recognizes interest related to unrecognized tax benefits as a component of Provision (Benefit) for Income Taxes on the Consolidated Statements of Operations. During 2018, 2017 and 2016, the recorded amounts for interest and penalties, respectively, were not significant.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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