INCOME TAXES

Provision for Income Taxes

The provision for income taxes consisted of the following:



	For the fiscal year ended
(dollars in thousands)	December 29, 2018			December 30, 2017			December 31, 2016
Current tax provision:
Federal	$	48,129		$	117,676		$	113,326
State	9,437			11,368			11,407
Foreign	17,359			14,116			11,937
Total current provision	$	74,925		$	143,160		$	136,670

Deferred tax provision (benefit):
Federal	$	(760	)	$	(55,191	)	$	1,215
State	140			337			332
Foreign	(398		)	(82		)	(486		)
Total deferred provision	(1,018		)	(54,936		)	1,061
Total provision	$	73,907		$	88,224		$	137,731

The foreign portion of the tax position substantially relates to the Company's international operations in Canada, Hong Kong and Mexico in addition to foreign tax withholdings related to the Company's foreign royalty income.

The Company plans to repatriate undistributed earnings from Hong Kong and a portion of its previously taxed earnings from Canada, and has provided for deferred income taxes related to these earnings. Due to the impact of the one-time toll tax enacted under the U.S. Tax Cuts and Jobs Act of 2017 ( the “2017 Act”) which taxed cumulative earnings in our foreign subsidiaries and the current US tax regime which taxes foreign earnings in the year earned, taxes associated with repatriation are not material. Deferred income taxes have not been provided for the portion of undistributed foreign earnings from Canada or Mexico that we do not plan to repatriate, or any additional outside basis difference inherent in all foreign entities, as these amounts continue to be indefinitely reinvested in foreign operations. Total undistributed earnings from the Company’s subsidiaries in Canada and Mexico amounted to approximately $82 million. Unrecognized deferred tax liability related to undistributed earnings from the Company's subsidiaries in Canada and Mexico are estimated to be less than $2 million, based on applicable withholding taxes, levels of foreign income previously taxed in the U.S. and applicable foreign tax credit limitations. The company accounts for the additional U.S. income tax on its foreign earnings under Global Intangible Low-Taxed Income ("GILTI") as a period expense in the period in which additional tax is due.

Provisional estimate

The provision for income taxes recognized by the Company during 2017 reflected certain provisional estimates for the accounting of the December 22, 2017 enactment of tax law changes known as the 2017 Act. During the fourth quarter of fiscal 2017, the Company recognized an income tax provisional tax expense of $10.4 million related to the Company's total post-1986 foreign earnings and profits ("E&P") that the Company previously deferred from United States income taxes. During fiscal 2018, the Company completed its calculation of the one-time transition tax for all of its foreign subsidiaries. The adjustment made to this provisional tax expense estimate was not material.

The components of income before income taxes were as follows:



	For the fiscal year ended
(dollars in thousands)	December 29, 2018		December 30, 2017		December 31, 2016
Domestic	$	260,722	$	325,620	$	344,674
Foreign	95,253		65,452		50,766
Total	$	355,975	$	391,072	$	395,440

Effective Rate Reconciliation

The difference between the Company's effective income tax rate and the federal statutory tax rate is reconciled below:



	For the fiscal year ended
	December 29, 2018		December 30, 2017		December 31, 2016
Statutory federal income tax rate	21.0	%	35.0	%	35.0	%
State income taxes, net of federal income tax benefit	2.8	%	2.1	%	2.3	%
Impact of foreign operations	(1.5	)%	(2.7	)%	(2.1	)%
Settlement of uncertain tax positions	(0.4	)%	(0.3	)%	(0.4	)%
Benefit from stock-based compensation	(1.1	)%	(1.3	)%	—	%
Imposition of transition tax on foreign subsidiaries	—	%	2.7	%	—	%
Revaluation of deferred taxes	—	%	(12.9	)%	—	%
Total	20.8	%	22.6	%	34.8	%

The Company and its subsidiaries file a consolidated United States federal income tax return, as well as separate and combined income tax returns in numerous state and foreign jurisdictions. In most cases, the Company is no longer subject to US tax authority examinations for years prior to fiscal 2014.

Deferred Taxes

The following table reflects the Company’s calculation of the components of deferred assets and liabilities as of December 29, 2018 and December 30, 2017. Certain previously reported amounts as of December 30, 2017 were revised in the table below. The revisions were not material to the previously issued financial statements.



(dollars in thousands)	December 29, 2018			December 30, 2017
Deferred tax assets:	Assets (Liabilities)
Accounts receivable allowance	$	3,674		$	3,632
Inventory	7,785			6,759
Accrued liabilities	10,672			13,174
Equity-based compensation	5,278			6,796
Deferred employee benefits	6,425			8,112
Deferred rent	33,761			34,422
Other	3,007			2,335
Total deferred tax assets	70,602			75,230
Deferred tax liabilities:
Depreciation	(62,898		)	(63,763		)
Tradename and licensing agreements	(89,194		)	(89,142		)
Other	(3,774		)	(5,328		)
Total deferred tax liabilities	(155,866		)	(158,233		)

Net deferred tax asset (liability)	$	(85,264	)	$	(83,003	)

Amounts recognized in the consolidated balance sheets:



(dollars in thousands)	December 29, 2018			December 30, 2017
	Assets (Liabilities)
Deferred tax assets^(*)	$	2,083		$	1,941
Deferred tax liabilities	(87,347		)	(84,944		)
Net deferred tax asset (liability)	$	(85,264	)	$	(83,003	)


(*)	At December 30, 2017, deferred tax assets are a component of non-current Other assets on the Company's consolidated balance sheet.

During the fourth quarter of fiscal 2017, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally a 21% federal rate. The remeasurement resulted in an income tax benefit of $50.4 million.

Uncertain Tax Positions

The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:



(dollars in thousands)
Balance at January 2, 2016	$	9,415
Additions based on tax positions related to fiscal 2016	2,849
Reductions for prior year tax positions	(39		)
Reductions for lapse of statute of limitations	(995		)
Reductions for prior year tax settlements	(693		)
Balance at December 31, 2016	$	10,537
Additions based on tax positions related to fiscal 2017	3,380
Reductions for prior year tax positions	(120		)
Reductions for lapse of statute of limitations	(1,604		)
Balance at December 30, 2017	$	12,193
Additions based on tax positions related to fiscal 2018	3,350
Additions for prior year tax positions	241
Reductions for lapse of statute of limitations	(1,867		)
Balance at December 29, 2018	$	13,917

As of December 29, 2018, the Company had gross unrecognized tax benefits of approximately $13.9 million, of which $11.9 million, if ultimately recognized, will affect the Company's effective tax rate in the period settled. The Company has recorded tax positions for which the ultimate deductibility is more likely than not, but for which there is uncertainty about the timing of such deductions. Because of deferred tax accounting, changes in the timing of these deductions would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authorities.

Included in the reserves for unrecognized tax benefits are approximately $2.9 million of reserves for which the statute of limitations is expected to expire within the next fiscal year. If these tax benefits are ultimately recognized, such recognition, net of federal income taxes, may affect the annual effective tax rate for fiscal 2019 and the effective tax rate in the quarter in which the benefits are recognized.

The Company recognizes interest related to unrecognized tax benefits as a component of interest expense and penalties related to unrecognized tax benefits as a component of income tax expense. During fiscal 2018, expense recorded on uncertain tax positions was approximately $0.8 million. During fiscal 2017 and 2016, interest expense recorded on uncertain tax positions was not significant. The Company had accrued interest on uncertain tax positions of approximately $1.8 million and $1.0 million as of December 29, 2018 and December 30, 2017, respectively.