Entity information:
Income Taxes
The provision for income tax computed by applying the U.S. statutory rate to income before taxes as reconciled to the actual provisions were:
 
 
Years Ended
 
December 30,
2017
 
December 31,
2016
 
January 2,
2016
Income before income tax expense:
 
 
 
 
 
Domestic
(6.6
)%
 
(10.2
)%
 
5.6
 %
Foreign
106.6

 
110.2

 
94.4

 
100.0
 %
 
100.0
 %
 
100.0
 %
 
 
 
 
 
 
Tax expense at U.S. statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income tax
0.2

 
(0.7
)
 
1.1

Tax on remittance of foreign earnings
0.5

 
9.9

 
9.1

Tax on remittance of foreign earnings due to U.S. tax reform
67.0

 
N/A

 
N/A

Revaluation of net deferred tax assets due to U.S. tax reform
14.3

 
N/A

 
N/A

Foreign taxes less than U.S. statutory rate
(27.4
)
 
(38.5
)
 
(30.8
)
Employee benefits
(0.2
)
 
(0.7
)
 
0.4

Change in valuation allowance
0.1

 
1.2

 
2.6

Increase in unrecognized tax benefits
1.8

 
0.6

 
0.1

Release of unrecognized tax benefit reserves
(0.9
)
 
(0.4
)
 
(9.8
)
State tax rate change
0.1

 
0.6

 
2.3

Federal and state provision to return
(2.6
)
 
(0.7
)
 
(0.4
)
Other, net
0.2

 
(0.3
)
 
(0.1
)
Taxes at effective worldwide tax rates
88.1
 %
 
6.0
 %
 
9.5
 %

The recently enacted Tax Cuts and Jobs Act (the “Tax Act”) significantly revised U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21% and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. In response to the Tax Act, the SEC issued SAB 118 which allows issuers to recognize provisional estimates of the impact of the Tax Act in their financial statements and adjust in the period in which the estimate becomes finalized, or in circumstances where estimates cannot be made, to disclose and recognize within a one year measurement period.
Implementation of the Tax Act resulted in an approximate $72,333 charge for the revaluation of the Company’s net domestic deferred tax assets and a one-time provisional transition tax charge of approximately $359,938. Other less material provisions of the Tax Act resulted in an additional provisional charge of $2,971, which include changes regarding the deductibility of employee compensation and other items. In reaching these estimates, the Company utilized all available guidance and notices issued by the U.S. Department of the Treasury. These amounts are to be considered provisional and are not currently able to be finalized given the complexity of the underlying calculations. The Company relied upon prior year legal entity financials and return filings in the estimates of the one-time transition tax. The Company will update and conclude its accounting as additional information is obtained, which in many cases is contingent on the timing of issuance of regulatory guidance.
As of December 30, 2017, the Company is in the process of evaluating the impact of the Tax Act on its permanent reinvestment assertion. With respect to accumulated earnings of foreign subsidiaries, no additional U.S. federal income taxes or foreign withholding taxes have been provided as all accumulated earnings of foreign subsidiaries are deemed to have been remitted as part of the one-time transition tax. The Company continues to evaluate its permanent reinvestment assertion in light of the Tax Act. The accounting is expected to be completed within the one-year measurement period as allowed by SAB 118.
Finally, the Company continues to analyze the impact of provisions which will be effective in future years. Relevant to the current consolidated financial statements is the Company's selection of an accounting policy with respect to the new GILTI tax rules, and whether to account for GILTI as a periodic charge in the period it arises, or to record deferred taxes associated with the basis in the Company’s foreign subsidiaries. Due to the intricacy of this topic, the Company is still in the process of investigating the implications of accounting for the GILTI tax and intends to make an accounting policy decision once additional guidance is available for assessment.
The Company has been granted income tax rates lower than statutory rates in two foreign jurisdictions through 2019. These lower rates, when compared with the countries’ statutory rates, resulted in an income tax reduction of approximately $2,800 ($0.01 per diluted share) in 2017, $1,300 (negligible impact per diluted share) in 2016 and $2,200 ($0.01 per diluted share) in 2015.
Current and deferred tax provisions (benefits) were:
 
 
Current
 
Deferred
 
Total
Year ended December 30, 2017
 
 
 
 
 
Domestic
$
154,751

 
$
260,393

 
$
415,144

Foreign
10,603

 
(15,098
)
 
(4,495
)
State
68,857

 
(6,227
)
 
62,630

 
$
234,211

 
$
239,068

 
$
473,279

 
 
 
 
 
 
Year ended December 31, 2016
 
 
 
 
 
Domestic
$
2,768

 
$
34,590

 
$
37,358

Foreign
38,257

 
(34,232
)
 
4,025

State
2,083

 
(9,194
)
 
(7,111
)
 
$
43,108

 
$
(8,836
)
 
$
34,272

 
 
 
 
 
 
Year ended January 2, 2016
 
 
 
 
 
Domestic
$
(2,294
)
 
$
9,437

 
$
7,143

Foreign
32,067

 
(10,235
)
 
21,832

State
4,395

 
11,648

 
16,043

 
$
34,168

 
$
10,850

 
$
45,018


 
 
Years Ended
 
December 30,
2017
 
December 31,
2016
 
January 2,
2016
Cash payments for income taxes
$
57,882

 
$
39,655

 
$
23,045


Cash payments above represent cash tax payments made by the Company primarily in foreign jurisdictions.
The deferred tax assets and liabilities at the respective year-ends were as follows:
 
December 30,
2017
 
December 31,
2016
Deferred tax assets:
 
 
 
Nondeductible reserves
$
1,859

 
$
1,962

Inventories
57,857

 
123,507

Property and equipment
—

 
3,322

Bad debt allowance
7,363

 
6,965

Accrued expenses
14,399

 
20,351

Employee benefits
143,970

 
181,148

Tax credits
10,140

 
45,783

Net operating loss and other tax carryforwards
142,064

 
210,284

Derivatives
3,305

 
—

Other
17,305

 
20,355

Gross deferred tax assets
398,262

 
613,677

Less valuation allowances
(72,602
)
 
(67,451
)
Deferred tax assets
325,660

 
546,226

 
 
 
 
Deferred tax liabilities:
 
 
 
Property and equipment
4,455

 
—

Derivatives
—

 
5,103

Intangibles
120,033

 
121,674

Prepaids
3,932

 
5,728

Deferred tax liabilities
128,420

 
132,505

Net deferred tax assets
$
197,240

 
$
413,721


The prior year deferred balances for intangibles and net operating loss and other tax carryforwards have been revised to reflect cumulative tax amortization that should have been recorded in previous periods on certain intangibles for approximately $109,447.  The impact of not amortizing the intangibles for income tax purposes was not material to previously issued consolidated financial statements.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances.
The changes in the Company’s valuation allowance for deferred tax assets are as follows:
January 3, 2015
$
43,757

Charge to expenses
12,224

Charged to other accounts(1)
5,377

January 2, 2016
$
61,358

Charge to expenses
6,859

Charged to other accounts(1)
(766
)
December 31, 2016
$
67,451

Charge to expenses
729

Charged to other accounts(1)
4,422

December 30, 2017
$
72,602

 
 
(1)
Charges to other accounts include the effects of foreign currency translation and purchase accounting adjustments.
As of December 30, 2017, the valuation allowance for deferred tax assets was $72,602, made up of $48,862 for foreign loss carryforwards, $14,679 for other foreign deferred tax assets, $9,061 for federal and state operating loss carryforwards and other federal deferred tax assets. The net change in the total valuation allowance for 2017 was $5,151 related to an increase of $11,725 for foreign loss carryforwards and other foreign deferred tax assets and a decrease of $6,574 for federal and state operating loss carryforwards and other domestic deferred tax assets.
At December 30, 2017, the Company has total net operating loss carryforwards of approximately $324,833 for foreign jurisdictions, which will expire as follows:
Fiscal Year:
 
2018
$
8,671

2019
23,809

2020
4,435

2021
6,326

2022
2,676

Thereafter
278,916


At December 30, 2017, the Company had tax credit carryforwards totaling $10,140, which expire beginning after 2020.
At December 30, 2017, the Company had federal and state net operating loss carryforwards of approximately $12,810 and $916,529, respectively, which expire beginning after 2018.
In 2017 and 2016, the Company recognized a benefit related to the realization of unrecognized tax benefits resulting from the expiration of statutes of limitations of $4,227 and $4,146, respectively. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase or decrease within the next 12 months due to uncertainties regarding the timing of examinations and the amount of settlements that may be paid, if any, to tax authorities, the Company currently expects a reduction of approximately $4,963 for unrecognized tax benefits accrued at December 30, 2017 within the next 12 months.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 2, 2016 (gross balance of $20,085)
$
19,780

Additions based on tax positions related to the current year
4,648

Additions for tax positions of prior years
106

Reductions for tax positions of prior years
(4,838
)
 
 
Balance at December 31, 2016 (gross balance of $20,688)
$
19,696

Additions based on tax positions related to the current year
7,902

Additions for tax positions of prior years
36

Reductions for tax positions of prior years
(3,602
)
 
 
Balance at December 30, 2017 (gross balance of $26,175)
$
24,032


At December 30, 2017, the balance of the Company’s unrecognized tax benefits, which would, if recognized, affect the Company’s annual effective tax rate was $24,032. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company recognized $760 in 2017 for interest and penalties classified as income tax expense and $549 and $3,669, respectively in 2016 and 2015, for interest and penalties classified as income tax benefit in the Consolidated Statement of Income. At December 30, 2017 and December 31, 2016, the Company had a total of $4,011 and $3,251, respectively, of interest and penalties accrued related to unrecognized tax benefits.
The Company files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and foreign jurisdictions. In the United States, the Internal Revenue Service (“IRS”) began an examination of the Company’s 2011 tax year during the fourth quarter of 2013 and of the Company’s 2012 tax year during the third quarter of 2014, both of which were completed during the third quarter of 2015. As a result in 2015, the Company recorded an income tax benefit of $56,427 due to the remeasurement of certain unrecognized tax benefits. During the fourth quarter of 2017, the Company was notified by the IRS that they would begin examining the 2015 tax year. The Company is also subject to examination by various state and international tax authorities. The tax years subject to examination vary by jurisdiction. The Company regularly assesses the outcomes of both ongoing and future examinations for the current or prior years to ensure the Company’s provision for income taxes is sufficient. The Company recognizes liabilities based on estimates of whether additional taxes will be due and believes its reserves are adequate in relation to any potential assessments. The outcome of any one examination, some of which may conclude during the next 12 months, is not expected to have a material impact on the Company’s financial position or results of operations.