Temporary differences comprising the net deferred income tax asset (liability) shown in the Company
’s consolidated balance sheets were as follows:
Total income tax expense (benefit) was different than the amount computed by applying the Federal statutory rate as follows:
As of
December 30, 2017
and
December 31, 2016,
the Company had net non-current deferred tax liabilities of
$10,905
and
$6,197,
respectively.
No
valuation allowance against the Company’s deferred income tax assets is needed as of
December 30, 2017
and
December 31, 2016
as it is more-likely-than-
not
that the positions will be realized upon settlement. Deferred income tax liabilities primarily relate to intangible assets and accounting basis adjustments where the Company has a future obligation for tax purposes. During fiscal year
2017,
the Company recorded a deferred tax liability of
$15,951
in conjunction with the purchase price allocation of B&C, RDK and H&K as a result of the intangibles acquired in the acquisitions.
The Company
’s consolidated effective income tax rate was
2.5%,
36.0%
and
37.0%
for fiscal years
2017,
2016
and
2015,
respectively. The difference between the effective income tax rate and the combined statutory federal and state income tax rate is principally due to the federal domestic production activities deduction, research and development credit, and other permanent items. Furthermore, in fiscal year
2017,
the Company recorded a reduction in income tax expense of
$1,016
relating to the income tax benefit received in conjunction with the vesting of restricted stock during the period. Also contributing to the decrease in the effective tax rate for fiscal year
2017
is the lower effective tax rate applicable to the Asia operations purchased in the JBA acquisition at the end of
2016
and the re-measurement of the Company’s deferred tax assets and liabilities as a result of the change in the U.S. corporate tax rate discussed in “Impact of
2017
Tax Reform” below.
The difference between the effective income tax rate and the combined statutory federal and state income tax rate of approximately
for
2016
and
2015
is principally due to the federal domestic production activities deduction and research and development credits.
The Company evaluates tax positions for recognition using a more-likely-than-
not
recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than
50%
likely of being realized up
on the effective settlement with a taxing authority that has full knowledge of all relevant information. The California Franchise Tax Board (“CFTB”) challenged research and development tax credits generated for the years
2005
to
2014
. During the
fourth
quarter of
2017,
the Company settled with the CFTB and paid
$839
for research and development tax credits for the years
2005
through
2011.
Fiscal years
2012
through
2016
are considered open tax years in the State of California and
2014
through
2016
in the U.S. federal jurisdiction and other state jurisdictions. During
2016,
the Internal Revenue Service informed the Company of its interest to examine the income tax return for the tax year
2014.
At
December 30, 2017
and
December 31, 2016,
the Company had
$437
and
$770,
respectively, of unrecognized tax benefits. Included in the balance of unrecognized tax benefits at
December 30, 2017
and
December 31, 2016
was
$437
and
$770,
respectively, of tax benefits that, if recognized, would affect our effective tax rate. It is
not
expected that there will be a significant change in the unrecognized tax benefits in the next
12
months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
On
December 22, 2017
the Tax Cuts and Jobs Act (
“2017
Tax Reform”) was enacted in the United States. Among its many provisions, the
2017
Tax Reform reduced the U.S. corporate income tax rate from
35%
to
21%,
effective
January 1, 2018.
Additionally, the
2017
Tax Reform requires a
one
-time transition tax on undistributed foreign earnings.
As of
December 30, 2017,
the Company had deferred tax
assets and liabilities primarily related to amortization, depreciation and adjustments associated with accounting method changes pursuant to Code Sec.
481
(a) of the Internal Revenue Code.
Prior to the
2017
Tax Reform, the value of this net deferred tax liability was recorded at the previous Federal income tax rate of
35%,
which represented the expected future obligation to the Company. As a result of the
2017
Tax Reform, the Company recorded a decrease of
$6,249
to its deferred tax assets and liabilities, with a corresponding adjustment to deferred income tax expense for fiscal year
2017
. The Company also recorded a provisional liability of
$357
with a corresponding adjustment to income tax expense related to the
one
-time transition tax on undistributed foreign earnings. The provisional adjustment related to the
2017
Tax Reform were determined using reasonable estimates. As the Company analyzes additional information that becomes available and further assesses the impact of the provisions in the
2017
Tax Reform there
may
be subsequent adjustments which will be recorded in the quarters in which such adjustments are determined. The SEC has issued guidance in Staff Accounting Bulletin
No.
118
that allows for a measurement period of up to
one
year after the enactment date of the
2017
Tax Reform to finalize the recording of the related tax impacts. The Company currently anticipates finalizing and recording any resulting adjustments by the end of fiscal year
2018.