Income Taxes

12 Months Ended

Dec. 28, 2019



17.	Income Taxes

Income (loss) before provision for income taxes was as follows (in thousands):



	Fiscal Year Ended
	December 28, 2019		December 29, 2018			December 30, 2017
Domestic	$	84,225	$	113,078		$	71,382
Foreign	14,608		(4,456		)	4,984
Income before income taxes	$	98,833	$	108,622		$	76,366

The components of income tax expense were as follows (in thousands):



	Fiscal Year Ended
	December 28, 2019			December 29, 2018			December 30, 2017
Current
Federal	$	13,366		$	17,627		$	17,555
State	5,004			3,676			1,691
Foreign	6,941			10,732			7,355
Total current income tax provision	$	25,311		$	32,035		$	26,601
Deferred
Federal	$	(9,345	)	$	(2,475	)	$	6,664
State	(1,783		)	(1,149		)	(2,470		)
Foreign	(650		)	(7,781		)	(5,393		)
Total deferred income tax provision	(11,778		)	(11,405		)	(1,199		)
Total income tax provision	$	13,533		$	20,630		$	25,402

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law making significant changes to the Internal Revenue Code. Effective for the Company's 2018 tax year, the Act reduces the statutory federal corporate tax rate from 35% to 21% and implements certain additional provisions including the Global Intangible Low-Taxed Income inclusion and the Foreign Derived Intangible Income deduction. Upon the enactment of the Act in December 2017, the Company recorded a one-time provisional income tax provision of $11.9 million in the fourth quarter of 2017 which included a provisional amount of $8.9 million related to the remeasurement of certain deferred tax assets and liabilities based on the tax rates at which they are expected to reverse in the future and $3.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, during the fourth quarter of 2018, the Company finalized its analysis of the income tax effects of the Act and determined no material adjustments to the provisional amounts recorded were required.

The reconciliation of statutory federal income tax to actual tax expense is as follows (in thousands):



	Fiscal Year Ended
	December 28, 2019			December 29, 2018			December 30, 2017
Statutory federal income tax	$	20,755		$	22,812		$	26,728
State taxes (net of federal benefit)	3,999			4,312			2,089
Federal and state credits	(8,152		)	(5,638		)	(4,486		)
Domestic production activities deduction	—			—			(1,528		)
Excess tax benefits relating to stock-based compensation	(6,468		)	(6,529		)	(11,709		)
Tax Cuts and Jobs Act of 2017	—			2,127			11,861
Foreign-derived intangible income deduction	(4,180		)	(2,678		)	—
EMEA business restructuring	—			2,292			—
Executive compensation	2,081			745			1,354
Tax impact of foreign earnings	1,986			1,336			(636		)
Change in valuation allowance	2,678			348			800
Other	834			1,503			929
	$	13,533		$	20,630		$	25,402

The components of net deferred tax assets were as follows (in thousands):



	December 28, 2019			December 29, 2018
Deferred tax assets
Revenue reserves	$	21,355		$	17,420
Accruals and other liabilities	8,225			7,844
Operating lease liabilities	14,117			—
Tax credits and net operating loss carryforwards	8,814			7,781
Stock-based compensation	4,981			4,975
Other	5,068			4,087
Gross deferred tax assets	62,560			42,107
Valuation allowance	(3,826		)	(1,148		)
Total deferred tax assets	58,734			40,959
Deferred tax liabilities
Intangible assets	3,838			7,317
Operating lease right-of-use assets	13,249			—
Other	768			668
Total deferred tax liabilities	17,855			7,985
Net deferred tax assets	$	40,879		$	32,974

The Company intends to continue to invest all of its unremitted foreign earnings, as well as the capital in its foreign subsidiaries, indefinitely outside of the U.S. At December 28, 2019, the Company has unremitted foreign earnings and any unrecognized deferred tax liability on these unremitted earnings would be immaterial.

The Company has federal net operating loss carryforwards of $1.8 million as of December 28, 2019. The Company had foreign net operating loss carryforwards of $3.4 million as of December 29, 2018 that were fully utilized during tax year ended December 28, 2019. The Company has state research and development credit carryforwards of $13.1 million and $10.7 million as of December 28, 2019 and December 29, 2018, respectively, which expire from 2028 to 2034. Under the Internal Revenue Code and state law, certain substantial changes in the Company’s ownership could result in an annual limitation on the amount of these tax carryforwards which can be utilized in future years. As of December 28, 2019, December 29, 2018 and December 30, 2017, the Company had a valuation allowance of $3.8 million, $1.1 million and $0.8 million, respectively, for state research

and development credit carryforwards and certain foreign deferred tax assets for which the Company believes do not meet the "more likely than not" criteria for recognition.

A summary of the Company’s adjustments to its gross unrecognized tax benefits in the current year is as follows (in thousands):



	Fiscal Year Ended
	December 28, 2019			December 29, 2018			December 30, 2017
Balance at beginning of period	$	7,119		$	4,590		$	5,146
Increase for tax positions related to the current year	770			2,891			580
Increase for tax positions related to acquisition	—			1,493			—
Increase (decrease) for tax positions related to prior years	(768		)	407			(523		)
Decrease for settlements with applicable taxing authorities	—			(2,262		)	—
Decrease for lapses of statute of limitations	—			—			(613		)
Balance at end of period	$	7,121		$	7,119		$	4,590

During the fourth quarter of 2018, the Company finalized the purchase accounting related to its acquisition of Robopolis and recorded a $1.5 million adjustment for uncertain pre-acquisition income tax positions in various taxing jurisdictions against goodwill. In addition, the Company recorded a charge of $2.3 million for estimated taxes associated with a restructuring of the EMEA business during fiscal 2018. The Company accrues interest and, if applicable, penalties for any uncertain tax positions as a component of income tax expense. As of December 28, 2019, December 29, 2018 and December 30, 2017 there were no material accrued interest or penalties.

The Company is subject to taxation in the United States (federal and state) and foreign jurisdictions. The statute of limitations for examinations by the Internal Revenue Service (the "IRS") and state tax authorities is closed for fiscal years prior to 2014. Federal and state carryforward attributes that were generated prior to fiscal 2014 may still be adjusted upon examination by the federal or state tax authorities if they either have been or will be used in a period for which the statute of limitations is still open. The Company is currently under examination by the IRS for the years 2014 and 2015. There are other ongoing audits in various other jurisdictions that are not material to the Company's financial statements. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. The Company continues to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner not consistent with management's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although the timing of resolution, settlement, and closure of audits is not certain, it is reasonably possible that certain U.S. federal and non-U.S. tax audits may be concluded within the next 12 months, which could increase or decrease the balance of the Company's gross unrecognized tax benefits. The Company does not expect a significant change in the amount of unrecognized tax benefits within the next 12 months. If all of the Company's unrecognized tax benefits as of December 28, 2019 were to become recognizable in the future, it would record a $7.4 million benefit, inclusive of interest, to the income tax provision.