NOTE 9—INCOME TAXES
The provision for income taxes consists of:
| Fiscal Year
Ended December 30, 2017 (52 weeks) |
Fiscal Year
Ended December 31, 2016 (53 weeks) |
Thirty-Five Weeks Ended December 26, 2015 |
Fiscal Year Ended April 25, 2015 |
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Current income tax expense/(benefit): |
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Federal |
$ | 31 | $ | (87 | ) | $ | 428 | $ | — | |||||||
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State |
506 | 235 | 190 | 252 | ||||||||||||
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Foreign |
(85 | ) | — | 97 | 365 | |||||||||||
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Total |
452 | 148 | 715 | 617 | ||||||||||||
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Deferred income tax expense/(benefit): |
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Federal |
(1,626 | ) | — | — | — | |||||||||||
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State |
(258 | ) | — | — | — | |||||||||||
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Foreign |
23 | (184 | ) | 1 | — | |||||||||||
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Total |
(1,861 | ) | (184 | ) | 1 | — | ||||||||||
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Total provision for/(benefit from) income taxes |
$ | (1,409 | ) | $ | (36 | ) | $ | 716 | $ | 617 | ||||||
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Deferred taxes are comprised of the following:
| Fiscal Year Ended December 30, 2017 (52 weeks) |
Fiscal Year Ended December 31, 2016 (53 weeks) |
Thirty-Five Weeks Ended December 26, 2015 |
April 25, 2015 |
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Inventory |
$ | 3,072 | $ | 4,762 | $ | 4,284 | $ | 3,823 | ||||||||
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Allowance for doubtful accounts |
265 | 461 | 411 | 303 | ||||||||||||
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Accrued liabilities |
264 | 1,830 | 1,207 | (748 | ) | |||||||||||
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Debt issuance costs |
(21 | ) | (1,249 | ) | (1,282 | ) | (868 | ) | ||||||||
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Foreign tax and AMT credit carryforward |
6,852 | 11,576 | 11,506 | 11,075 | ||||||||||||
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Net operating loss carryforward |
1,367 | 3,016 | 1,670 | 10,208 | ||||||||||||
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Property and equipment |
(4,200 | ) | (5,738 | ) | (5,319 | ) | (6,534 | ) | ||||||||
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Accrued liabilities |
1,383 | 705 | 1,510 | 635 | ||||||||||||
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Intangible assets |
(585 | ) | 3,493 | 8,107 | 19,145 | |||||||||||
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Investment in noncontrolling interest |
— | — | 5,553 | 5,879 | ||||||||||||
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Development costs and other |
— | — | (1,279 | ) | (1,211 | ) | ||||||||||
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Capital loss carryforward |
912 | — | — | — | ||||||||||||
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Valuation allowance |
(7,263 | ) | (18,671 | ) | (26,363 | ) | (41,705 | ) | ||||||||
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Net non-current deferred tax assets |
$ | 2,046 | $ | 185 | $ | 5 | $ | 2 | ||||||||
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In December 2017, the Tax Act was enacted into law, significantly changing income tax law that affects U.S. corporations. Key changes included a corporate tax rate reduction from 35 percent to 21 percent effective January 1, 2018, expensing of certain qualified property, significant changes to the U.S international tax system such as a one-timetransition tax on accumulated foreign earnings, and how foreign earnings are subject to U.S. tax. Due to the timing of the Tax Act and additional guidance and interpretations that may be issued in the future, the Company has not completed its analysis of the effects of the Tax Act as it relates to the one-time transition tax on accumulated foreign earnings. The Company has estimated the impact of the one-time transition tax to be between zero and $1,000. For the period ended December 30, 2017, the Company recorded a tax expense of $704 associated with the re-measurement of deferred taxes for the corporate rate reduction and a provisional tax provision of zero for the one-time transition tax. The provisional estimates will be adjusted during the measurement period defined under SAB 118, based upon the Company’s ongoing analysis of its data and tax positions along with new guidance from regulators and interpretations of the law.
The Company has determined that an ownership change occurred in fiscal 2013 that is subject to IRC Section 382. Due to the limitations imposed under Section 382, certain federal and state deferred tax attributes, such as foreign tax credits, may be significantly reduced over the next five years.
In the fourth quarter of fiscal 2017, the Company decreased its valuation allowance by $1.7 million. Based on the Company’s trend of positive earnings before tax plus projections of the future earnings before tax we believe it is more likely than not that we will realize the tax benefit associated with $1.7 million of net deferred tax assets. As of December 30, 2017, the Company continued to maintain a valuation allowance of $7.3 million against its foreign tax credits and capital loss carryovers based on projections that reflect minimal to zero foreign source income and capital gains. In fiscal 2016, the Company decreased its tax valuation allowance to $18,671 from $26,363 at the end of short year 2015. This decrease related primarily to the utilization of deferred tax assets to offset the Company’s pre-tax income generated during fiscal 2016. In short year 2015, the Company decreased its tax valuation allowance to $26,363 from $41,705 at the end of fiscal 2015. This decrease related primarily to the utilization of tax net operating losses and adjustments to the deferred tax asset associated with the company’s goodwill balances. In fiscal 2015, the Company increased its tax valuation allowance from $30,573 to $41,705 related primarily to the tax net operating loss generated in fiscal 2015. As of December 30, 2017, the Company had an immaterial amount of unremitted earnings from foreign investments.
The Company’s effective income tax rate varied from the U.S. federal statutory tax rate as follows:
| Fiscal Year Ended December 30, 2017 (52 weeks) |
Fiscal Year Ended December 31, 2016 (53 weeks) |
Thirty-Five Weeks Ended December 26, 2015 |
Fiscal Year Ended April 25, 2015 |
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U.S. federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
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State income taxes, net of federal income tax benefit |
2.7 | % | 1.6 | % | 3.8 | % | 3.1 | % | ||||||||
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Foreign income tax |
-1.1 | % | -1.3 | % | 0.6 | % | -1.1 | % | ||||||||
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Alternative Minimum Tax |
— | — | 3.4 | % | — | |||||||||||
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Deemed dividend, meals and entertainment and other |
1.4 | % | 0.0 | % | 0.3 | % | — | |||||||||
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Impact of tax reform on deferred |
13.1 | % | — | — | — | |||||||||||
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Realizable built-in loss adjustment |
20.9 | % | 11.3 | % | 9.9 | % | -8.2 | % | ||||||||
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Valuation allowance |
-98.3 | % | -46.9 | % | -48.5 | % | -30.7 | % | ||||||||
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Effective income tax rate |
-26.3 | % | -0.3 | % | 4.5 | % | -1.9 | % | ||||||||
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The Company files income tax returns with the U.S., various U.S. states, and foreign jurisdictions. The most significant tax return the Company files is with the U.S. The Company’s tax returns are no longer subject to examination by the U.S. for fiscal years before 2014. The Company has various tax audits and appeals in process at any given time. It is not anticipated that any adjustments resulting from tax examinations or appeals would result in a material change to the Company’s financial position or results of operations.
As of December 30, 2017, December 31, 2016, December 26, 2015, and April 25, 2015, the Company’s liability for uncertain tax positions, net of federal tax benefits, was $172, $84, $482, and $503, respectively, all of which would impact the effective tax rate if recognized. The Company does not expect any material changes in the amount of uncertain tax positions within the next twelve months. The Company classifies accrued interest and penalties related to unrecognized tax benefits as income tax expense in the consolidated statements of operations. The amounts of accrued interest and penalties included in the liability for uncertain tax positions are not material.
The following table summarizes the activity related to the Company’s gross liability for uncertain tax positions:
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Balance at April 26, 2014 (Successor Company) |
$ | 398 | ||
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Increase related to current year tax provision |
598 | |||
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Adjustments to provision related to assessments |
(493 | ) | ||
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Balance at April 25, 2015 (Successor Company) |
$ | 503 | ||
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Increase related to current year tax provision |
29 | |||
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Adjustments to provision related to assessments |
(50 | ) | ||
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Balance at December 26, 2015 (Successor Company) |
$ | 482 | ||
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Increase related to current year tax provision |
227 | |||
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Adjustments to provision related to assessments |
(625 | ) | ||
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Balance at December 31, 2016 (Successor Company) |
$ | 84 | ||
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Increase related to current year tax provision |
89 | |||
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Adjustments to provision related to assessments |
(1 | ) | ||
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Balance at December 30, 2017 (Successor Company) |
$ | 172 | ||
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