Income (loss) before provision for income taxes was as follows:
|
| | | | | | | | | | | |
| Fiscal Year Ended |
| December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| (In thousands) |
Domestic | $ | 71,382 |
| | $ | 61,706 |
| | $ | 62,391 |
|
Foreign | 4,984 |
| | (345 | ) | | 580 |
|
Income before income taxes | $ | 76,366 |
| | $ | 61,361 |
| | $ | 62,971 |
|
The components of income tax expense were as follows:
|
| | | | | | | | | | | |
| Fiscal Year Ended |
| December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| (In thousands) |
Current | | | | | |
Federal | $ | 17,555 |
| | $ | 17,639 |
| | $ | 20,033 |
|
State | 1,691 |
| | 1,054 |
| | 972 |
|
Foreign | 7,355 |
| | 310 |
| | 121 |
|
Total current income tax provision | 26,601 |
| | 19,003 |
| | 21,126 |
|
Deferred | | | | | |
Federal | $ | 6,664 |
| | $ | 781 |
| | $ | (1,657 | ) |
State | (2,470 | ) | | (95 | ) | | (628 | ) |
Foreign | (5,393 | ) | | (267 | ) | | — |
|
Total deferred income tax provision | (1,199 | ) | | 419 |
| | (2,285 | ) |
Total income tax provision | $ | 25,402 |
| | $ | 19,422 |
| | $ | 18,841 |
|
Due to the adoption of ASU 2016-09 in 2017, all excess tax benefits and deficiencies are recognized as income tax expense in the Company’s consolidated statement of income. This will result in increased volatility in the Company’s effective tax rate.
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. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company has estimated the provision for income taxes in accordance with the Act and guidance available as of the date of this filing and as a result have recorded a one-time income tax provision of $11.9 million as additional income tax provision in the fourth quarter of 2017, the period in which the legislation was enacted. The one-time income tax provision includes $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. The one-time income tax expense also includes a provisional amount of $3.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings.
On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued 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, the Company has determined that the $3.0 million of current income tax provision recorded relating to the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate at December 30, 2017. Additional information and analysis is necessary to complete the calculation and accounting relating to the transition tax on the mandatory deemed repatriation of foreign earnings. Any subsequent adjustments to this amount will be recorded to current income tax provision during the measurement period which is not expected to extend beyond one year from the enactment date.
A reconciliation of the expected tax (benefit) expense computed by applying the federal statutory rate to income before income taxes to actual tax expense is as follows:
|
| | | | | | | | | | | |
| Fiscal Year Ended |
| December 30,
2017 | | December 31,
2016 | | January 2,
2016 |
| (In thousands) |
Expected federal income tax | $ | 26,728 |
| | $ | 21,476 |
| | $ | 22,040 |
|
Miscellaneous permanent items | 2,979 |
| | 516 |
| | 608 |
|
State taxes (net of federal benefit) | 2,089 |
| | 1,360 |
| | 982 |
|
Federal and state credits | (4,486 | ) | | (2,233 | ) | | (2,767 | ) |
Change in valuation allowance | 800 |
| | — |
| | — |
|
Domestic production activities deduction | (1,528 | ) | | (1,731 | ) | | (2,145 | ) |
Statute of limitation expirations of uncertain tax positions | (106 | ) | | (167 | ) | | (194 | ) |
Excess tax benefits relating to stock-based compensation | (11,709 | ) | | — |
| | — |
|
Tax Cuts and Jobs Act of 2017 | 11,861 |
| | — |
| | — |
|
Other | (1,226 | ) | | 201 |
| | 317 |
|
| $ | 25,402 |
| | $ | 19,422 |
| | $ | 18,841 |
|
The components of net deferred tax assets were as follows:
|
| | | | | | | |
| December 30,
2017 | | December 31,
2016 |
| (In thousands) |
Deferred tax assets | | | |
Reserves and accruals | $ | 24,315 |
| | $ | 20,737 |
|
Tax credits | 6,666 |
| | 5,999 |
|
Property and equipment | 1,382 |
| | 1,934 |
|
Stock-based compensation | 4,277 |
| | 6,150 |
|
Net operating loss carryforwards | 144 |
| | 1,010 |
|
Valuation allowance | (800 | ) | | — |
|
Gross deferred tax assets | 35,984 |
| | 35,830 |
|
Deferred tax liabilities | | | |
Intangible assets | 13,419 |
| | 4,530 |
|
Other | 573 |
| | 715 |
|
Gross deferred tax liabilities | 13,992 |
| | 5,245 |
|
Net deferred tax assets | $ | 21,992 |
| | $ | 30,585 |
|
The Act includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, the Company intends to continue to invest all of these earnings, as well as the capital in these subsidiaries, indefinitely outside of the U.S. The amount of any unrecognized deferred tax liability on these undistributed earnings would be immaterial.
The Company has fully utilized both the federal and state net operating loss carryforwards as of December 30, 2017. The Company had federal and state net operating loss carryforwards of $1.0 million and $8.9 million, respectively, as of December 31, 2016. The Company has fully utilized the federal research and development credit carryforwards as of December 30, 2017 and had $1.0 million of federal research and development credit carryforwards as of December 31, 2016. The Company has state research and development credit carryforwards of $10.1 million and $10.0 million as of December 30, 2017 and December 31, 2016, respectively, which expire from 2026 to 2032. 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 30, 2017, the Company has $1.0 million of state research and development credits related to the acquisition of Evolution Robotics that are limited by Section 382 and Section 383, respectively, of the Internal Revenue Code. However, these limitations are not expected to cause any of these state research and development credits to expire prior to being utilized.
As of December 30, 2017, the Company recorded a valuation allowance of $0.8 million for 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:
|
| | | | | | | | | | | |
| Fiscal Year Ended |
| December 30, 2017 | | December 31,
2016 | | January 2,
2016 |
| (in thousands) |
Balance at beginning of period | $ | 5,146 |
| | $ | 6,616 |
| | $ | 2,491 |
|
Increase for tax positions related to the current year | 580 |
| | 2,851 |
| | 786 |
|
Increase (decrease) for tax positions related to prior years | (523 | ) | | (4,224 | ) | | 3,533 |
|
Decreases for settlements with applicable taxing authorities | — |
| | — |
| | — |
|
Decreases for lapses of statute of limitations | (613 | ) | | (97 | ) | | (194 | ) |
Balance at end of period | $ | 4,590 |
| | $ | 5,146 |
| | $ | 6,616 |
|
The Company accrues interest and, if applicable, penalties for any uncertain tax positions as a component of income tax expense. As of December 30, 2017, December 31, 2016 and January 2, 2016 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") is closed for fiscal years prior to 2014. The statute of limitations for examinations by state tax authorities is closed for fiscal years prior to 2013. Federal and state carryforward attributes that were generated prior to fiscal 2014 and 2013, respectively, 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. 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 30, 2017 were to become recognizable in the future, it would record a $2.0 million benefit, inclusive of interest, to the income tax provision.