Income Taxes

Significant components of the provision for income taxes, including those related to non-controlling interest, are as follows (in thousands):



	2017			2016			2015
Current:
Federal	$	9,501		$	18,963		$	27,768
State	3,408			3,740			5,258
Foreign	789			1,450			1,713
Current provision	13,698			24,153			34,739
Deferred:
Federal	(35,914		)	18,167			15,348
State	2,552			2,533			2,217
Foreign	378			(1,580		)	(540		)
Deferred provision	(32,984		)	19,120			17,025
Total income tax expense	$	(19,286	)	$	43,273		$	51,764

The differences between the actual tax expense and tax expense computed at the statutory U.S. federal tax rate are explained as follows (in thousands):



	2017			2016			2015
Federal statutory tax expense	$	24,678		$	45,098		$	55,020
State taxes, net of federal tax effect	2,197			3,874			4,269
Credit for increasing research activities	(3,407		)	(3,808		)	(3,320		)
Deduction related to domestic production activities	(1,537		)	(2,243		)	(3,320		)
Valuation allowance	4,232			231			565
Federal rate adjustment to deferred taxes	(45,386		)	—			—
Equity based compensation	(1,544		)	—			—
Change in uncertain tax positions	(163		)	117			(1,344		)
Foreign income tax rate differential	2,094			845			1,074
Other – net	(450		)	(841		)	(1,180		)
Total income tax expense	$	(19,286	)	$	43,273		$	51,764

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 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. The Corporation has calculated its best estimate of the impact of the Act in its year-end income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result has recorded $44.8 million as an additional income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was a $45.4 million benefit. The one-time transition tax is based on the Corporation's total post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes. The Corporation recorded a provisional amount for the one-time transition tax liability for all of its foreign subsidiaries, resulting in an increase in income tax expense of $0.1 million. The Corporation has not yet completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based, in part, on the amount of those earnings held in cash and other specified assets. This amount may change when the Corporation finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. The provisional amount related to other tax legislation changes from the Act is an additional $0.5 million of tax expense.

Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in the reporting period that includes December 22, 2017 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 Act. In accordance with SAB 118, the Corporation has determined that the $45.4 million of the deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $0.1 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate as of December 30, 2017. Additional work is necessary to do a more detailed analysis of historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of fiscal 2018 when the analysis is complete.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Corporation’s deferred tax liabilities and assets are as follows (in thousands):



	2017			2016
Deferred Taxes
Allowance for doubtful accounts	$	2,679		$	495
Compensation	5,618			16,684
Inventory differences	2,541			3,977
Marketing accrual	1,653			1,458
Stock-based compensation	8,224			11,607
Accrued post-retirement benefit obligations	6,896			10,106
Vacation accrual	2,577			4,153
Warranty accrual	3,737			5,725
Net operating loss carryforward	6,534			5,820
Charitable contributions carryforward	2,839			—
Other – net	6,372			7,224
Total deferred tax assets	$	49,670		$	67,249
Deferred income	(4,330		)	(5,716		)
Goodwill and other intangible assets	(53,255		)	(87,146		)
Prepaids	(5,862		)	(9,271		)
Tax over book depreciation	(54,227		)	(70,946		)
Total deferred tax liabilities	$	(117,674	)	$	(173,079	)
Valuation allowance	(8,664		)	(4,159		)
Total net deferred tax liabilities	$	(76,668	)	$	(109,989	)

Long-term net deferred tax assets	193			719
Long-term net deferred tax liabilities	(76,861		)	(110,708		)
Total net deferred tax liabilities	$	(76,668	)	$	(109,989	)

The valuation allowance for deferred tax assets is as follows (in thousands):



	Balance at beginning of period		Charged to expenses		Adjustments to balance sheet			Balance at end of period
Year ended December 30, 2017	$	4,159	$	4,505	$	—		$	8,664
Year ended December 31, 2016	$	3,978	$	231	$	(50	)	$	4,159
Year ended January 2, 2016	$	3,413	$	565	$	—		$	3,978

The current year increase in the valuation allowance of $4.5 million primarily relates to a foreign tax net operating loss and a domestic deferred tax asset recorded during the period that would give rise to a capital loss.

As of December 30, 2017, the Corporation had approximately $0.2 million of U.S. state tax net operating losses and $2.3 million of U.S. state tax credits, which expire over the next twenty years.

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



	2017			2016
Balance at beginning of period	$	3,043		$	2,858
Increases in positions taken in a prior period	—			86
Decreases in positions taken in a prior period	(45		)	—
New positions taken in a current period	569			792
Decrease due to settlements	(363		)	(560		)
Decrease due to lapse of statute of limitations	(680		)	(133		)
Balance at end of period	$	2,524		$	3,043

The amount of unrecognized tax benefits, which would impact the Corporation’s effective tax rate, if recognized, was $2.5 million as of December 30, 2017 and $3.0 million as of December 31, 2016.

As of December 30, 2017, it is reasonably possible the amount of unrecognized tax benefits may increase or decrease within the twelve months following the reporting date. These increases or decreases in the unrecognized tax benefits would be due to new positions that may be taken on income tax returns, settlement of tax positions, and the closing of statutes of limitation. It is not expected any of the changes will be material individually, or in total, to the results or financial position of the Corporation.

The Corporation recognized interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses consistent with the recognition of these items in prior reporting periods. Interest, penalties, and benefits recognized in the Consolidated Statements of Comprehensive Income were as follows (in thousands):



	December 30, 2017			December 31, 2016		January 2, 2016
Interest, penalties, and (benefits)	$	(25	)	$	70	$	(66	)

The Corporation recorded a liability for interest and penalties related to unrecognized tax benefits in the Consolidated Statements of Comprehensive Income as follows (in thousands):



	December 30, 2017		December 31, 2016
Liability related to unrecognized tax benefits	$	183	$	208

Tax years 2014 through 2016 remain open for examination by the Internal Revenue Service ("IRS"). The Corporation is currently under examination in various state jurisdictions, of which years 2013 through 2016 remain open to examination.

Deferred income taxes are provided to reflect differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Under the Act, a corporation’s foreign earnings accumulated under legacy tax laws are deemed repatriated. The tax on those deemed repatriated earnings is no longer indefinitely deferred but may be paid over eight years. This is a one-time transition tax. The Corporation will continue to evaluate its ability to assert indefinite reinvestment to determine recognition of a deferred tax liability for other items such as Section 986(c) currency gain/loss, foreign withholding, and state taxes. There were approximately $33.6 million of accumulated earnings considered permanently reinvested in China, Hong Kong, Singapore, and Canada as of December 30, 2017. The Corporation believes the tax costs on accumulated unremitted foreign earnings would be approximately $0.2 million if the amounts were not considered permanently reinvested.