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Note 15 - Taxes on Income | 12 Months Ended
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Dec. 30, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | NOTE 15 – TAXES ON INCOME On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among the significant changes resulting from the law, the Tax Act reduced the U.S. federal income tax rate from 35% to 21% effective for the year beginning January 1, 2018 and created a modified territorial tax system with a one -time mandatory “transition toll tax” on previously unrepatriated foreign earnings. It also applies restrictions on the deductibility of interest expense, allows for immediate capital expensing of certain qualified property, eliminates the domestic manufacturing deduction, applies a broader application of compensation limitations and creates a new minimum tax on earnings of foreign subsidiaries. In accordance with SEC Staff Bulletin No. 118 (“SAB 118” ), the Company recorded certain provisional estimates for the impact of the Tax Act as of December 31, 2017. Under the transitional provisions of SAB 118, the Company had a one -year measurement period to complete the accounting for the initial tax effects of the Tax Act. During the year ended December 30, 2018, the Company completed its accounting for the provisional estimates of the Tax Act and finalized its measurement period adjustments related to the one -time transition tax and remeasurement of its net deferred tax asset, as further discussed below. While the Company’s accounting for the recorded impact of the Tax Act is deemed complete, these amounts are based on prevailing regulations and currently available information, and any additional guidance issued by the IRS could impact the amounts in future periods. Impacts of Deemed Repatriation: The Tax Act imposed a one -time transition tax on unrepatriated post- 1986 accumulated earnings and profits of certain foreign subsidiaries (“E&P”). As of December 31, 2017, the Company recorded a provisional tax expense of $11.7 million related to the one -time transition tax. As of December 30, 2018, the Company has completed its assessment of the one -time transition tax which resulted in a $5.0 million decrease to the previously recorded provisional amount. The Company elected to pay its transition tax over the eight -year period provided in the Tax Act. Remeasurement of Deferred Tax Assets and Liabilities: As of December 31, 2017, the Company recorded a provisional tax expense of $3.5 million related to the remeasurement of its net deferred tax asset to reflect the change in corporate tax rate from 35% to 21%. As of December 30, 2018, the Company has completed the accounting of remeasuring its net deferred tax asset which resulted in a $1.7 million decrease to the previously recorded provisional amount. Beginning in 2018, the Tax Act includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The Company has elected to account for tax effects of GILTI in the period when incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements. Income before taxes on income consisted of the following:
|  | FISCAL YEAR |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | (in thousands) |
U.S. operations |  | $ | 35,728 |  |  | $ | 53,407 |  |  | $ | 38,357 |
Foreign operations |  |  | 19,263 |  |  |  | 47,132 |  |  |  | 40,779 |
Income before taxes |  | $ | 54,991 |  |  | $ | 100,539 |  |  | $ | 79,136 |
Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:
|  | FISCAL YEAR |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | (in thousands) |
Current expense/(benefit): |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (3,549 | ) |  | $ | 10,245 |  |  | $ | 6,886 |
Foreign |  |  | 14,548 |  |  |  | 11,923 |  |  |  | 12,934 |
State |  |  | 2,628 |  |  |  | 1,414 |  |  |  | 1,633 |
Current expense |  |  | 13,627 |  |  |  | 23,582 |  |  |  | 21,453 |
Deferred expense/(benefit): |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 2,145 |  |  |  | 20,467 |  |  |  | 6,186 |
Foreign |  |  | (11,228 | ) |  |  | 1,214 |  |  |  | (1,937 | )
State |  |  | 194 |  |  |  | 2,030 |  |  |  | (728 | )
Deferred expense |  |  | (8,889 | ) |  |  | 23,711 |  |  |  | 3,521 |
Total income tax expense |  | $ | 4,738 |  |  | $ | 47,293 |  |  | $ | 24,974 |
The Company’s effective tax rate was 8.6%, 47.0% and 31.6% for fiscal years 2018, 2017 and 2016, respectively. The following summary reconciles income taxes at the U.S. federal statutory rate of 21% applicable for 2018 and 35% applicable for 2017 and 2016 to the Company’s actual income tax expense:
|  | FISCAL YEAR |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | (in thousands) |
Income taxes at U.S. federal statutory rate |  | $ | 11,548 |  |  | $ | 35,189 |  |  | $ | 27,698 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State income taxes, net of federal tax effect |  |  | 2,304 |  |  |  | 2,677 |  |  |  | 1,861 |
Non-deductible business expenses |  |  | 1,352 |  |  |  | 695 |  |  |  | 538 |
Non-deductible employee compensation |  |  | 2,566 |  |  |  | 80 |  |  |  | 361 |
Tax effects of Company owned life insurance |  |  | 235 |  |  |  | (1,295 | ) |  |  | (199 | )
Tax effects of Tax Act: |  |  |  |  |  |  |  |  |  |  |  |
One-time transition tax on foreign earnings |  |  | (5,000 | ) |  |  | 11,707 |  |  |  | 0 |
Remeasurement of net Deferred Tax Asset |  |  | (1,739 | ) |  |  | 3,467 |  |  |  | 0 |
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested |  |  | 61 |  |  |  | 523 |  |  |  | 463 |
Foreign and U.S. tax effects attributable to foreign operations |  |  | (3,756 | ) |  |  | (4,537 | ) |  |  | (3,963 | )
Valuation allowance effect – State NOL |  |  | (79 | ) |  |  | (858 | ) |  |  | (1,272 | )
Federal tax credits |  |  | (2,439 | ) |  |  | (442 | ) |  |  | (494 | )
Other |  |  | (315 | ) |  |  | 87 |  |  |  | (19 | )
Income tax expense |  | $ | 4,738 |  |  | $ | 47,293 |  |  | $ | 24,974 |
Deferred tax assets and liabilities are included in the accompanying balance sheets as follows:
|  | FISCAL YEAR |
|  | 2018 |  |  | 2017 |
|  | (in thousands) |
Deferred tax asset (non-current asset) |  | $ | 15,601 |  |  | $ | 18,003 |
Deferred income taxes (non-current liabilities) |  |  | (26,488 | ) |  |  | (6,935 | )
Total net deferred taxes |  | $ | (10,887 | ) |  | $ | 11,068 |
Deferred income taxes for the years ended December 30, 2018 and December 31, 2017, 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. The sources of the temporary differences and their effect on the net deferred tax asset are as follows:
|  | 2018 |  |  | 2017 |
|  | ASSETS |  |  | LIABILITIES |  |  | ASSETS |  |  | LIABILITIES |
|  | (in thousands) |
Basis differences of property and equipment |  | $ | 0 |  |  | $ | 24,871 |  |  | $ | 0 |  |  | $ | 13,281 |
Basis difference of intangible assets |  |  | 0 |  |  |  | 18,699 |  |  |  | 0 |  |  |  | 1,157 |
Foreign currency |  |  | 0 |  |  |  | 2,357 |  |  |  | 0 |  |  |  | 2,597 |
Net operating loss carryforwards |  |  | 2,349 |  |  |  | 0 |  |  |  | 2,468 |  |  |  | 0 |
Valuation allowances on net operating loss carryforwards |  |  | (1,067 | ) |  |  | 0 |  |  |  | (1,186 | ) |  |  | 0 |
Federal tax credits |  |  | 0 |  |  |  | 0 |  |  |  | 3,227 |  |  |  | 0 |
Deferred compensation |  |  | 18,945 |  |  |  | 0 |  |  |  | 20,220 |  |  |  | 0 |
Basis difference of inventory |  |  | 4,712 |  |  |  | 0 |  |  |  | 634 |  |  |  | 0 |
Basis difference of prepaids, accruals and reserves |  |  | 6,473 |  |  |  | 0 |  |  |  | 1,777 |  |  |  | 0 |
Pensions |  |  | 4,290 |  |  |  | 0 |  |  |  | 2,408 |  |  |  | 0 |
Foreign withholding taxes on unremitted earnings |  |  | 0 |  |  |  | 348 |  |  |  | 0 |  |  |  | 909 |
Basis difference of other assets and liabilities |  |  | 0 |  |  |  | 314 |  |  |  | 0 |  |  |  | 536 |
|  | $ | 35,702 |  |  | $ | 46,589 |  |  | $ | 29,548 |  |  | $ | 18,480 |
During the year ended December 30, 2018, significant changes to the Company’s deferred tax balances included an $18.0 million increase in intangible deferred liability primarily related to its acquisition of nora. Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the federal deferred tax assets at December 30, 2018. The Company had approximately $96.1 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2035. The Company has provided a valuation allowance against $16.3 million of such losses, which the Company does not expect to utilize. In addition, the Company has approximately $43.0 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided. As of December 30, 2018, and December 31, 2017, non-current deferred tax assets were reduced by approximately $2.8 million and $3.3 million, respectively, of unrecognized tax benefits. Although the one -time transition tax on unrepatriated post- 1986 accumulated earnings and profits of certain non-U.S. subsidiaries and the territorial tax system created as a result of the Tax Act generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries, the Company continues to assert that all of its undistributed earnings of $376 million in its non-U.S. subsidiaries, excluding subsidiaries within Canada, is indefinitely reinvested outside of the U.S. In the event the Company determines not to continue to assert that all or part of its undistributed earnings in its non-U.S. subsidiaries are permanently reinvested, an actual repatriation from its non-U.S. subsidiaries could still be subject to additional foreign withholding and U.S. state taxes, the determination of which is not practicable. The Company’s federal income tax returns are subject to examination for the years 2003 to the present. The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years 2013 to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years 2007 to the present. As of December 30, 2018, and December 31, 2017, the Company had $28.1 million and $29.2 million, respectively, of unrecognized tax benefits. If the $28.1 million of unrecognized tax benefits as of December 30, 2018 are recognized, there would be a favorable impact on the Company’s effective tax rate in future periods. If the unrecognized tax benefits are not favorably settled, $25.4 million of the total amount of unrecognized tax benefits would require the use of cash in future periods. The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. As of December 30, 2018, the Company had accrued interest and penalties of $1.3 million, which is included in the total unrecognized tax benefit noted above. Management believes changes to our unrecognized tax benefits that are reasonably possible in the next 12 months will not have a significant impact on our financial position or results of operations. The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control. A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:
|  | FISCAL YEAR |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | (in thousands) |
Balance at beginning of year |  | $ | 29,221 |  |  | $ | 27,888 |  |  | $ | 28,271 |
Increases related to tax positions taken during the current year |  |  | 671 |  |  |  | 627 |  |  |  | 690 |
Increases related to tax positions taken during the prior years |  |  | 180 |  |  |  | 709 |  |  |  | 148 |
Decreases related to tax positions taken during the prior years |  |  | 0 |  |  |  | 0 |  |  |  | (695 | )
Decreases related to settlements with taxing authorities |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Decreases related to lapse of applicable statute of limitations |  |  | (1,861 | ) |  |  | (462 | ) |  |  | (403 | )
Changes due to foreign currency translation |  |  | (68 | ) |  |  | 459 |  |  |  | (123 | )
Balance at end of year |  | $ | 28,143 |  |  | $ | 29,221 |  |  | $ | 27,888 |

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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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