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Taxes | 12 Months Ended
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Jan. 03, 2015
Taxes |
Taxes | 12. Taxes Income Taxes. 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 consolidated deferred tax assets and liabilities were (in thousands):
Fiscal Year |  | 2014 |  | 2013 |
Current deferred income tax assets (liabilities): |  |  |  |  |  |  |
Bad debt allowance |  | $ | 4,387 |  | $ | 4,467 |
Returns allowance |  |  | 8,724 |  |  | 8,641 |
Inventory |  |  | 11,882 |  |  | 12,169 |
Warranty reserve |  |  | 2,590 |  |  | 3,040 |
Compensation |  |  | 6,459 |  |  | 9,189 |
Accrued liabilities |  |  | 6,658 |  |  | 0 |
Deferred rent |  |  | 1,128 |  |  | 1,810 |
Loss carryforwards |  |  | 1,910 |  |  | 3,392 |
Other |  |  | (5,007 | ) |  | 12,070 |
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Total current deferred tax assets |  |  | 38,731 |  |  | 54,778 |
Valuation allowance |  |  | (5,168 | ) |  | (7,946 | )
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Net current deferred income tax assets |  | $ | 33,563 |  | $ | 46,832 |
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Total short-term deferred income tax assets |  | $ | 34,084 |  | $ | 46,986 |
Total short-term deferred income tax liabilities |  |  | (521 | ) |  | (154 | )
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Net short-term deferred income tax assets |  | $ | 33,563 |  | $ | 46,832 |
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Long-term deferred income tax (liabilities) assets: |  |  |  |  |  |  |
Unrealized exchange losses |  | $ | 8,325 |  | $ | (1,939 | )
State income tax and interest on tax contingencies |  |  | 2,880 |  |  | 160 |
Fixed assets |  |  | (51,719 | ) |  | (50,194 | )
Trade names and customer lists |  |  | (6,782 | ) |  | (6,803 | )
Compensation |  |  | 3,481 |  |  | 4,803 |
Deferred rent |  |  | 9,425 |  |  | 7,456 |
Loss carryforwards |  |  | 1,409 |  |  | 2,429 |
Undistributed earnings of certain foreign subsidiaries |  |  | (52,122 | ) |  | (52,546 | )
Tax deductible foreign reserves |  |  | 3,248 |  |  | 0 |
Other |  |  | 4,231 |  |  | 11,111 |
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Total deferred income tax liabilities |  |  | (77,624 | ) |  | (85,523 | )
Valuation allowance |  |  | (1,653 | ) |  | (2,601 | )
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Net long-term deferred income tax liabilities |  | $ | (79,277 | ) | $ | (88,124 | )
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Total long-term deferred income tax assets |  | $ | 8,583 |  | $ | 10,044 |
Total long-term deferred income tax liabilities |  |  | (87,860 | ) |  | (98,168 | )
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Net long-term deferred income tax liabilities |  | $ | (79,277 | ) | $ | (88,124 | )
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Operating Loss Carryforwards. The deferred income tax asset for loss carryforwards includes $3.3 million of net operating losses of foreign subsidiaries. Valuation allowances have been recorded to reflect the estimated amount of deferred tax assets that may not be realized on these losses. The amounts and the fiscal year of expiration of the loss carryforwards are (in thousands):
Expires 2015 through 2019 |  | $ | 6,100 |
Expires 2020 through 2024 |  |  | 2,855 |
Expires 2025 through 2028 |  |  | 2,696 |
Indefinite |  |  | 3,263 |
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Total loss carryforwards |  | $ | 14,914 |
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The following table identifies income before income taxes for the Company's U.S. and non-U.S. based operations for the fiscal years indicated (in thousands):
Fiscal Year |  | 2014 |  | 2013 |  | 2012 |
U.S |  | $ | 169,079 |  | $ | 194,956 |  | $ | 193,985 |
Non-U.S |  |  | 388,999 |  |  | 366,511 |  |  | 298,237 |
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Total |  | $ | 558,078 |  | $ | 561,467 |  | $ | 492,222 |
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The Company's provision for income taxes consisted of the following for the fiscal years indicated (in thousands):
Fiscal Year |  | 2014 |  | 2013 |  | 2012 |
Current provision: |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 84,669 |  | $ | 97,860 |  | $ | 64,552 |
Non-U.S |  |  | 74,190 |  |  | 69,901 |  |  | 60,239 |
State and local |  |  | 10,582 |  |  | 8,297 |  |  | 6,314 |
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Total current |  |  | 169,441 |  |  | 176,058 |  |  | 131,105 |
Deferred provision (benefit) |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | 5,124 |  |  | (2,346 | ) |  | 9,485 |
Non-U.S |  |  | (3,622 | ) |  | (166 | ) |  | (2,426 | )
State and local |  |  | 524 |  |  | (127 | ) |  | (201 | )
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Total deferred |  |  | 2,026 |  |  | (2,639 | ) |  | 6,858 |
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Provision for income taxes |  | $ | 171,467 |  | $ | 173,419 |  | $ | 137,963 |
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The expected cash payments for current U.S. income tax expense for fiscal years 2014, 2013 and 2012 were reduced by approximately $4.7 million, $12.0 million and $15.1 million, respectively, as a result of tax deductions related to the exercise of non-qualified stock options and stock appreciation rights and the vesting of restricted stock and restricted stock units. The expected cash payments for current foreign tax expense for fiscal years 2014, 2013 and 2012 were reduced by $0.4 million, $0.8 million and $0.5 million, respectively, as a result of tax deductions related to the exercise of stock options and the vesting of restricted stock granted to foreign employees. The income tax benefits resulting from these stock-based compensation plans have been recorded to additional paid-in capital in the Company's consolidated balance sheets. Total deferred income tax expense (benefit) of $2.0 million, ($2.6) million and $6.9 million for fiscal years 2014, 2013 and 2012, respectively, are included in deferred income taxes on the Company's consolidated statements of cash flows. The Company was granted a 60% tax holiday for its watch assembly activities in Switzerland for tax years 2008 through 2012. In 2013 and 2014, the Company paid the full Swiss tax rate on its watch assembly activities. This tax holiday reduced current foreign income taxes by approximately $1.2 million in fiscal year 2012. A reconciliation of the U.S. federal statutory income tax rate of 35% to the Company's effective tax rate is as follows:
Fiscal Year |  | 2014 |  | 2013 |  | 2012 |
Tax at statutory rate |  |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State, net of federal tax benefit |  |  | 0.9 |  |  | 0.9 |  |  | 1.0 |
Foreign rate differential |  |  | (12.3 | ) |  | (12.5 | ) |  | (10.0 | )
U.S. tax on foreign income |  |  | 6.3 |  |  | 5.9 |  |  | 3.1 |
Income tax contingencies |  |  | 0.7 |  |  | 0.0 |  |  | (1.7 | )
Valuation allowances |  |  | (0.3 | ) |  | 0.9 |  |  | 0.0 |
Other |  |  | 0.4 |  |  | 0.7 |  |  | 0.6 |
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Provision for income taxes |  |  | 30.7 | % |  | 30.9 | % |  | 28.0 | %
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Deferred U.S. federal income taxes and foreign withholding taxes are not recorded on undistributed earnings of certain foreign subsidiaries where management plans to continue reinvesting these earnings outside the U.S. The amount of undistributed earnings that would be subject to tax if distributed was approximately $800.6 million at January 3, 2015. Determining tax amounts that would be payable if these earnings were distributed to the U.S. parent company is not practicable. The total amount of unrecognized tax benefits, excluding interest and penalties that would favorably impact the effective tax rate in future periods if recognized, was $12.8 million, $9.6 million and $10.7 million for fiscal years 2014, 2013 and 2012, respectively. The IRS began its examination of the Company's 2010-2012 federal income tax returns in the first quarter of fiscal 2014. The Company is also subject to tax examinations in various state and foreign jurisdictions for the Company's 2007-2013 tax years, none of which the Company believes are individually significant. Audit outcomes and timing of audit settlements are subject to significant uncertainty. The Company has classified uncertain tax positions as long-term income taxes payable unless such amounts are expected to be paid within twelve months from January 3, 2015. As of January 3, 2015, the Company had recorded $5.3 million of unrecognized tax benefits, excluding interest and penalties, for positions that could be settled within the next twelve months. Consistent with its past practice, the Company recognizes interest and/or penalties related to income tax overpayments and income tax underpayments in income tax expense and income taxes receivable/payable, respectively. The total amount of accrued income tax-related interest in the Company's consolidated balance sheets was $1.8 million and $1.2 million at January 3, 2015 and December 28, 2013, respectively. The total amount of accrued income tax-related penalties in the Company's consolidated balance sheets was $0.4 million and $0.4 million at January 3, 2015 and December 28, 2013, respectively. The Company accrued income tax-related interest expense (benefit) of $0.7 million, ($1.0) million and ($1.0) million in fiscal years 2014, 2013 and 2012, respectively. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the fiscal years indicated (in thousands):
Fiscal Year |  | 2014 |  | 2013 |  | 2012 |
Balance at beginning of year |  | $ | 14,314 |  | $ | 15,549 |  | $ | 17,974 |
Gross increases tax positions in prior years |  |  | 4,234 |  |  | 3,310 |  |  | 1,245 |
Gross decreases tax positions in prior years |  |  | (1,018 | ) |  | (4,384 | ) |  | (2,580 | )
Gross increases—current year tax positions |  |  | 3,508 |  |  | 3,575 |  |  | 2,486 |
Settlements |  |  | (194 | ) |  | (3,456 | ) |  | (3,582 | )
Lapse in statute of limitations |  |  | (617 | ) |  | (297 | ) |  | 0 |
Change due to currency revaluation |  |  | (141 | ) |  | 17 |  |  | 6 |
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Balance at end of year |  | $ | 20,086 |  | $ | 14,314 |  | $ | 15,549 |
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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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