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Taxes | 12 Months Ended
--- | ---
Dec. 28, 2019
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 | 2019 |  | 2018
Deferred income tax assets: |  |  |
Bad debt allowance | $ | 2,048 |  |  | $ | 1,974 |
Returns allowance | 3,990 |  |  | 4,935 |
Inventory | 6,856 |  |  | 4,519 |
Warranty liabilities | 3,465 |  |  | 3,317 |
Markdown allowance | 3,480 |  |  | 2,800 |
Compensation | 11,998 |  |  | 18,772 |
Accrued liabilities | 6,672 |  |  | 5,903 |
Deferred rent | — |  |  | 7,996 |
Deferred income | 3,582 |  |  | 5,706 |
Unrealized exchange gains (losses) | 3,816 |  |  | 637 |
State income tax and interest on tax contingencies | 887 |  |  | 1,189 |
Fixed assets | 220 |  |  | (8,009 | )
Trade names and customer lists | 4,345 |  |  | 1,703 |
Goodwill | 14,947 |  |  | 17,957 |
Foreign accruals | 10,446 |  |  | 8,528 |
Loss carryforwards | 32,158 |  |  | 31,582 |
Tax credit carryforwards | 4,281 |  |  | 512 |
Capitalized R&D | 8,362 |  |  | 2,546 |
Interest disallowance | 16,683 |  |  | 9,642 |
Lease liabilities | 82,511 |  |  | — |
Deferred income tax assets total | $ | 220,747 |  |  | $ | 122,209 |
Deferred income tax liabilities: |  |  |
Tenant allowance | $ | (801 | ) |  | $ | — |
Other intangibles | (235 | ) |  | (4,562 | )
Undistributed earnings of certain foreign subsidiaries | (329 | ) |  | (541 | )
Right-of-use assets | (65,070 | ) |  | — |
Other | (45 | ) |  | (32 | )
Deferred income tax liabilities total | $ | (66,480 | ) |  | $ | (5,135 | )
Valuation allowance | (118,089 | ) |  | (95,818 | )
Net deferred income tax assets | $ | 36,178 |  |  | $ | 21,256 |
Net deferred income tax assets | $ | 38,275 |  |  | $ | 23,695 |
Net deferred income tax liabilities | (2,097 | ) |  | (2,439 | )
Net deferred income tax assets | $ | 36,178 |  |  | $ | 21,256 |
Operating Loss Carryforwards. The balance sheet includes $27.8 million of deferred tax assets for net operating losses of foreign subsidiaries. The amounts and the fiscal year of expiration of the loss carryforwards are (in thousands):
Expires 2020 through 2024 | $ | 18,923 |
Expires 2025 through 2029 | 14,931 |
Expires 2030 through 2034 | — |
Expires 2035 through 2039 | 74,315 |
Indefinite | 10,428 |
Total loss carryforwards | $ | 118,597 |
The balance sheet includes $4.3 million of deferred tax assets for state income tax net operating losses. The state apportioned amounts and the fiscal year of expiration of the loss carryforwards are (in thousands):
Expires 2020 through 2024 | $ | 632 |
Expires 2025 through 2029 | 9,199 |
Expires 2030 through 2034 | 3,096 |
Expires 2035 through 2039 | 46,749 |
Indefinite | 26,270 |
Total loss carryforwards | $ | 85,946 |
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 | 2019 |  | 2018 |  | 2017
U.S | $ | (142,141 | ) |  | $ | (102,810 | ) |  | $ | (517,227 | )
Non-U.S | 110,810 |  |  | 122,980 |  |  | 63,473 |
Total | $ | (31,331 | ) |  | $ | 20,170 |  |  | $ | (453,754 | )
The Company's provision for income taxes consisted of the following for the fiscal years indicated (in thousands):
Fiscal Year | 2019 |  | 2018 |  | 2017
Current provision: |  |  |  |  |
U.S. federal | $ | 2,338 |  |  | $ | (14,386 | ) |  | $ | 30,817 |
Non-U.S | 28,109 |  |  | 35,854 |  |  | 40,423 |
State and local | (2,330 | ) |  | (2,056 | ) |  | (2,055 | )
Total current | 28,117 |  |  | 19,412 |  |  | 69,185 |
Deferred provision (benefit): |  |  |  |  |
U.S. federal | — |  |  | — |  |  | (45,990 | )
Non-U.S | (9,436 | ) |  | 1,696 |  |  | (3,770 | )
State and local | — |  |  | — |  |  | 380 |
Total deferred | (9,436 | ) |  | 1,696 |  |  | (49,380 | )
Provision for income taxes | $ | 18,681 |  |  | $ | 21,108 |  |  | $ | 19,805 |
A reconciliation of the U.S. federal statutory income tax rates to the Company's effective tax rate is as follows:
Fiscal Year | 2019 |  | 2018 |  | 2017
Tax at statutory rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
Permanent differences | (2.0 | ) |  | (0.2 | ) |  | (0.1 | )
State, net of federal tax benefit | 17.6 |  |  | (3.8 | ) |  | 1.0 |
Foreign rate differential | 12.8 |  |  | (12.3 | ) |  | 3.7 |
Withholding taxes | (11.1 | ) |  | 16.3 |  |  | — |
GILTI Tax-net of foreign tax credits | (24.2 | ) |  | 11.8 |  |  | — |
U.S. tax on foreign income-net of foreign tax credits | 0.3 |  |  | 6.4 |  |  | (1.7 | )
Income tax contingencies | 3.2 |  |  | (5.0 | ) |  | (0.1 | )
Valuation allowances | (53.2 | ) |  | 65.0 |  |  | (12.5 | )
Repatriation tax - net impact | — |  |  | 5.9 |  |  | (7.4 | )
Deficiencies on employee stock awards | (10.9 | ) |  | 10.1 |  |  | (0.9 | )
Non-deductible goodwill impairment | — |  |  | — |  |  | (15.2 | )
Tax reform rate reduction impact on deferred tax assets | — |  |  | (15.8 | ) |  | (6.2 | )
Foreign deferred tax rate change | (4.5 | ) |  | — |  |  | — |
Non deductible foreign equity awards | (3.2 | ) |  | 5.3 |  |  | (0.5 | )
Non deductible officer compensation | (3.7 | ) |  | — |  |  | — |
Tax exempt foreign capital gain income | 6.3 |  |  | — |  |  | — |
Deferred adjustment | (8.0 | ) |  | — |  |  | — |
Other | — |  |  | — |  |  | 0.5 |
Provision for income taxes | (59.6 | )% |  | 104.7 | % |  | (4.4 | )%
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 Act. The Tax Act contained significant changes in the taxation of foreign income earned by U.S. shareholders, specifically the new GILTI provisions requiring the taxation of certain foreign earnings in U.S. taxable income. The intent behind the legislation was to increase a corporation’s U.S. taxable income by any low-taxed foreign income earned by its subsidiaries. Instead, the statute was written such that corporate shareholders of foreign corporations must include all foreign income in their taxable income. If the corporate shareholder has a domestic source loss, the benefits of carrying that loss forward to future tax returns are lost if the included foreign income exceeds the domestic loss. The Company records a valuation allowance against its deferred tax assets when recovery of those amounts on a jurisdictional basis is not more likely than not. In addition, the Company's valuation allowance analysis is affected by various aspects of the Tax Act, including the limitation on the deductibility of interest expense and planning initiatives to defer deductions to mitigate the impact of the GILTI. During fiscal year 2019, the Company accrued valuation allowances of $28.5 million on net U.S. deferred tax assets and $(6.2) million on net foreign deferred tax assets, including $6.6 million recorded directly to equity. The total valuation allowance of $118.1 million at December 28, 2019 is comprised of $85.0 million and $33.1 million attributable to the U.S. and foreign operations, respectively. The Company will not indefinitely reinvest $279.1 million of previously taxed but undistributed earnings of its foreign subsidiaries as of December 28, 2019. Since under the Tax Act there will be no additional federal income tax when these amounts are repatriated, and the foreign jurisdictions within which these earnings are held do 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 $481.6 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 $35.7 million, $33.5 million and $33.0 million for fiscal years 2019, 2018 and 2017, respectively. The U.S. Internal Revenue Service has completed examinations of the Company's federal income tax returns through 2013. Fiscal years 2016-2018 remain open for federal income tax examination. The Company is also subject to examinations in various state and foreign jurisdictions for its 2011-2018 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 28, 2019. As of December 28, 2019, the Company had recorded $11.4 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 $4.8 million and $3.7 million at December 28, 2019 and December 29, 2018, respectively. The total amount of accrued income tax-related penalties in the Company's consolidated balance sheets was $1.0 million and $1.0 million at December 28, 2019 and December 29, 2018, respectively. The Company accrued income tax-related interest expense of $1.2 million, $0.8 million and $0.5 million in fiscal years 2019, 2018 and 2017, respectively. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the fiscal years indicated (in thousands):
Fiscal Year | 2019 |  | 2018 |  | 2017
Balance at beginning of year | $ | 39,909 |  |  | $ | 35,355 |  |  | $ | 23,399 |
Gross increases—tax positions in prior years | 6,639 |  |  | 7,183 |  |  | 2,104 |
Gross decreases—tax positions in prior years | (4 | ) |  | (124 | ) |  | (845 | )
Gross increases—tax positions in current year | 184 |  |  | 576 |  |  | 13,444 |
Settlements | (1,901 | ) |  | — |  |  | (81 | )
Lapse in statute of limitations | (8,912 | ) |  | (2,980 | ) |  | (2,706 | )
Change due to currency revaluation | (239 | ) |  | (101 | ) |  | 40 |
Balance at end of year | $ | 35,676 |  |  | $ | 39,909 |  |  | $ | 35,355 |

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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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