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Taxes | 12 Months Ended
--- | ---
Dec. 29, 2018
Income Tax Disclosure [Abstract] |
Taxes | 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 | 2018 |  | 2017
Deferred income tax assets (liabilities): |  |  |
Bad debt allowance | $ | 1,974 |  |  | $ | 2,920 |
Returns allowance | 4,935 |  |  | 3,662 |
Inventory | 4,519 |  |  | 13,409 |
Warranty liabilities | 3,317 |  |  | 2,656 |
Markdown allowance | 2,800 |  |  | — |
Compensation | 18,772 |  |  | 19,005 |
Accrued liabilities | 5,903 |  |  | 9,881 |
Deferred rent | 7,996 |  |  | 12,403 |
Deferred income | 5,706 |  |  | — |
Unrealized exchange gains (losses) | 637 |  |  | 5,553 |
State income tax and interest on tax contingencies | 1,189 |  |  | 1,410 |
Fixed assets | (8,009 | ) |  | (13,442 | )
Trade names and customer lists | 1,703 |  |  | (2,607 | )
Goodwill | 17,957 |  |  | 19,982 |
Other intangibles | (4,562 | ) |  | (5,985 | )
Undistributed earnings of certain foreign subsidiaries | (541 | ) |  | (1,018 | )
Foreign accruals | 8,528 |  |  | 8,501 |
Loss carryforwards | 31,582 |  |  | 27,868 |
Tax credit carryforwards | 512 |  |  | — |
Valuation allowance | (95,818 | ) |  | (78,314 | )
Capitalized R&D | 2,546 |  |  | — |
Interest disallowance | 9,642 |  |  | — |
Other | (32 | ) |  | 132 |
Net deferred income tax assets | $ | 21,256 |  |  | $ | 26,016 |
Total deferred income tax assets | $ | 23,695 |  |  | $ | 27,112 |
Total deferred income tax liabilities | (2,439 | ) |  | (1,096 | )
Net deferred income tax assets | $ | 21,256 |  |  | $ | 26,016 |
Operating Loss Carryforwards. The balance sheet includes $31.6 million of deferred tax assets for 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 2019 through 2023 | $ | 31,763 |
Expires 2024 through 2028 | 27,816 |
Expires 2029 through 2033 | 136 |
Expires 2034 through 2038 | 58,975 |
Indefinite | 16,402 |
Total loss carryforwards | $ | 135,092 |
The following table identifies income (loss) before income taxes for the Company's U.S. and non-U.S. based operations for the fiscal years indicated (in thousands):
Fiscal Year | 2018 |  | 2017 |  | 2016
U.S | $ | (102,810 | ) |  | $ | (517,227 | ) |  | $ | (72,249 | )
Non-U.S | 122,980 |  |  | 63,473 |  |  | 186,557 |
Total | $ | 20,170 |  |  | $ | (453,754 | ) |  | $ | 114,308 |
The Company's provision for income taxes consisted of the following for the fiscal years indicated (in thousands):
Fiscal Year | 2018 |  | 2017 |  | 2016
Current provision: |  |  |  |  |
U.S. federal | $ | (14,386 | ) |  | $ | 30,817 |  |  | $ | 2,111 |
Non-U.S | 35,854 |  |  | 40,423 |  |  | 53,880 |
State and local | (2,056 | ) |  | (2,055 | ) |  | (1,482 | )
Total current | 19,412 |  |  | 69,185 |  |  | 54,509 |
Deferred provision (benefit): |  |  |  |  |
U.S. federal | — |  |  | (45,990 | ) |  | (20,216 | )
Non-U.S | 1,696 |  |  | (3,770 | ) |  | (5,584 | )
State and local | — |  |  | 380 |  |  | (4 | )
Total deferred | 1,696 |  |  | (49,380 | ) |  | (25,804 | )
Provision for income taxes | $ | 21,108 |  |  | $ | 19,805 |  |  | $ | 28,705 |
The expected cash payments for current U.S. income tax expense for fiscal years 2018, 2017 and 2016 were reduced by approximately $2.8 million, $1.6 million and $3.3 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 2018, 2017 and 2016 were reduced by $0.2 million, $0.1 million and $0.2 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. Total deferred income tax expense of $(1.7) million, $49.4 million and $25.8 million for fiscal years 2018, 2017 and 2016, respectively, are included in deferred income taxes on the Company's consolidated statements of cash flows. A reconciliation of the U.S. federal statutory income tax rates to the Company's effective tax rate is as follows:
Fiscal Year | 2018 |  | 2017 |  | 2016
Tax at statutory rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
Non-deductible expenses and other permanent differences | 5.1 |  |  | (0.6 | ) |  | 5.3 |
State, net of federal tax benefit | (3.8 | ) |  | 1.0 |  |  | 0.6 |
Foreign rate differential | (12.3 | ) |  | 3.7 |  |  | (30.9 | )
Withholding taxes | 16.3 |  |  | — |  |  | — |
GILTI Tax-net of foreign tax credits | 11.8 |  |  | — |  |  | — |
U.S. tax on foreign income-net of foreign tax credits | 6.4 |  |  | (1.7 | ) |  | 5.0 |
Income tax contingencies | (5.0 | ) |  | (0.1 | ) |  | 0.3 |
Valuation allowances | 65.0 |  |  | (12.5 | ) |  | 8.1 |
Repatriation tax - net impact | 5.9 |  |  | (7.4 | ) |  | — |
Deficiencies on employee stock awards | 10.1 |  |  | (0.9 | ) |  | — |
Non-deductible goodwill impairment | — |  |  | (15.2 | ) |  | — |
Tax Reform rate reduction impact on deferred tax assets | (15.8 | ) |  | (6.2 | ) |  | — |
Return to provision true-up | — |  |  | — |  |  | 1.7 |
Other | — |  |  | 0.5 |  |  | — |
Provision for income taxes | 104.7 | % |  | (4.4 | )% |  | 25.1 | %
On December 22, 2017, the U.S. government enacted comprehensive tax legislation that significantly revised the Internal Revenue Code of 1986, including a corporate income tax rate reduction from 35% to 21%, under the Tax Cuts and Jobs Act (the “Tax Act”). The newly enacted federal income tax law contains significant changes in the taxation of foreign income earned by U.S. shareholders, specifically adding new rules related to low-taxed foreign earnings and allowing an exemption on foreign dividends paid after 2017. In anticipation of the tax exemption on foreign dividends, the law imposed a one-time repatriation tax on historical earnings generated offshore that have not been previously taxed in the U.S. Foreign earnings held in cash or liquid assets were taxed at 15.5%, and the remaining earnings were taxed at 8%. Accounting for the income tax effects of the Tax Act requires significant judgments and estimates in the interpretation and calculations of the provisions of the Tax Act. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements for fiscal year 2017 as permitted under SAB 118. The Company collected the necessary data, and interpreted additional guidance issued by the U.S. Treasury Department and the Internal Revenue Service and completed its accounting for the tax effects of the Tax Act. In addition, the Company's valuation allowance analysis is affected by various aspects of the Tax Act, including the new limitation on the deductibility of interest expense and the impact of the GILTI. Those adjustments may materially impact the provision for income taxes and the effective tax rate in the period in which the adjustments are made. The Company also accrued valuation allowances of $11.7 million on net U.S deferred tax assets and $5.8 million on net foreign deferred tax assets, including $4.3 million recorded directly to equity. The effective tax rate was also impacted by the U.S taxation of foreign earnings and non-deductible equity compensation costs. The Company will not indefinitely reinvest $465.3 million of previously taxed but undistributed earnings of its foreign subsidiaries as of December 29, 2018. Since under the Tax Act there will be no additional federal income tax when these amounts are repatriated, and the foreign jurisdiction does not impose a withholding tax on dividends, the Company has only accrued U.S. state income taxes on these earnings. Deferred U.S. federal and state income taxes and foreign taxes are not recorded on the remaining $408.2 million of undistributed earnings of foreign subsidiaries where management plans to continue reinvesting these earnings outside the U.S. As the majority of these earnings have previously been taxed in the U.S., the distribution of the earnings considered indefinitely reinvested would generally be subject only to local country withholding and U.S. state income taxes when distributed, the amount of which is not material. 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 $33.5 million, $33.0 million and $20.6 million for fiscal years 2018, 2017 and 2016, respectively. The U.S. Internal Revenue Service has completed examinations of the Company's federal income tax returns through 2013. Fiscal years 2015-2017 remain open for federal income tax examination. The Company is also subject to examinations in various state and foreign jurisdictions for its 2011-2017 tax years, none of which the Company believes are significant, individually or in the aggregate. Tax audit outcomes and timing of tax 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 December 29, 2018. As of December 29, 2018, the Company had recorded $17.9 million of unrecognized tax benefits, excluding interest and penalties, for positions that could be settled or not assessed 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 $3.7 million and $2.8 million at December 29, 2018 and December 30, 2017, respectively. The total amount of accrued income tax-related penalties in the Company's consolidated balance sheets was $1.0 million and $1.3 million at December 29, 2018 and December 30, 2017, respectively. The Company accrued income tax-related interest expense of $0.8 million, $0.5 million and $0.1 million in fiscal years 2018, 2017 and 2016, respectively. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the fiscal years indicated (in thousands):
Fiscal Year | 2018 |  | 2017 |  | 2016
Balance at beginning of year | $ | 35,355 |  |  | $ | 23,399 |  |  | $ | 23,022 |
Gross increases—tax positions in prior years | 7,183 |  |  | 2,104 |  |  | 918 |
Gross decreases—tax positions in prior years | (124 | ) |  | (845 | ) |  | (183 | )
Gross increases—tax positions in current year | 576 |  |  | 13,444 |  |  | 974 |
Settlements | — |  |  | (81 | ) |  | (181 | )
Lapse in statute of limitations | (2,980 | ) |  | (2,706 | ) |  | (1,106 | )
Change due to currency revaluation | (101 | ) |  | 40 |  |  | (45 | )
Balance at end of year | $ | 39,909 |  |  | $ | 35,355 |  |  | $ | 23,399 |

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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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