| INCOME TAXES | 13. INCOME TAXES Deferred income tax assets and liabilities are provided to reflect the future tax consequences of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. For financial reporting purposes, income before income taxes includes the following components:
For the year ended
December 28, 2019
December 29, 2018
December 30, 2017
United States
$
51,007
$
44,693
$
37,005
Foreign
24,300
11,702
10,539
Total
$
75,307
$
56,395
$
47,544
The Company derives its pretax income based on the consolidated results of its legal entities. Products manufactured in the U.S. are sold worldwide and are the primary reason that pretax income in the U.S. is higher than foreign pretax income. The U.S. legal entities had third party export sales of $105,976, $98,876, and $85,479 for the 2019, 2018 and 2017 years, respectively. Foreign pretax income is impacted by the level of foreign manufacturing, sales at varying market levels, as well as direct sales to large OEM customers. 69 The components of the income tax provision (benefit) are as follows:
For the year ended
December 28, 2019
December 29, 2018
December 30, 2017
Current tax expense (benefit):
United States
$
7,380
$
4,229
$
17,165
State and local
(388
)
2,522
3,095
Foreign
9,107
3,707
2,496
Total current
16,099
10,458
22,756
Deferred tax expense (benefit):
United States
665
380
(4,922
)
State and local
58
110
(986
)
Foreign
(1,783
)
(1,283
)
(862
)
Total deferred
(1,060
)
(793
)
(6,770
)
Total income tax provision
$
15,039
$
9,665
$
15,986
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 corporate tax rate decrease from 35% to 21% effective 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 cumulative foreign earnings as of December 31, 2017. As a result of the Act, the Company recorded in the 2017 year-end income tax provision $459 of additional income tax expense, including a benefit of $1,541 related to remeasurement of deferred tax assets and liabilities and $2,000 of expense related to one-time transition tax on mandatory deemed repatriation of foreign earnings. Refinements to these items were made during 2018 for the purpose of 2017 tax return reporting, and provision-to-return adjustments have been recorded in the 2018 year-end provision to adjust the transition tax to $630. The Company elected to pay the transition tax in full. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company determined the $1,541 of deferred tax benefit recorded related to remeasurement of deferred tax assets and liabilities and $2,000 of current tax expense recorded related to transition tax on mandatory deemed repatriation of foreign earnings were provisional amounts and reasonable estimates at December 30, 2017. For 2018 year-end provision purposes, additional work was performed to complete a more detailed analysis of deferred tax assets and liabilities, historical attributes giving rise to the transition tax calculation inputs, and potential correlative adjustments of each of these items. Adjustments to these amounts were recorded to current tax expense in 2018. Further, in accordance with SAB 118, the Company continued evaluating the permanent reinvestment assertion as further consideration is given to how the Act impacts the future cash flow position of the Company. Helios’s foreign subsidiaries generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in the Company’s operations outside of the U.S. Pursuant to ASC Topic No. 740-30 (formerly APB 23), undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes under U.S. tax law. In determining if the undistributed earnings of Helios’s foreign subsidiaries are permanently reinvested, management considers the following: (i) the forecasts, budgets, debt commitments, and cash requirements of the U.S business and the foreign subsidiaries, both for the short and long term; (ii) the tax consequences of any decision to reinvest foreign earnings, including any changes in U.S. income tax law relating to the treatment of these undistributed foreign earnings; and (iii) any U.S. and foreign government programs or regulations relating to the repatriation of these unremitted earnings. Management asserts that approximately $17,900 of undistributed earnings are permanently reinvested in the Company’s foreign operations and have no current plans to repatriate those earnings. 70 In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as a period cost are acceptable methods subject to an accounting policy election. The Company ha s elected to treat any taxes on GILTI inclusions as period costs . The Company also recorded estimates in the 2017 year-end provision in accordance with SAB 118 for certain directly- and indirectly-correlated effects in the year end income tax provision including, but not limited to, state and local income taxes, domestic production activities deduction, and fixed asset depreciation. These effects have been further evaluated and final determinations recorded of the appropriate accounting for the Act. The reconciliation between the effective income tax rate and the U.S. federal statutory rate is as follows:
For the year ended
December 28, 2019
December 29, 2018
December 30, 2017
U.S. federal taxes at statutory rate
$
15,815
$
11,843
$
16,640
Increase (decrease)
986(c) FX gain/(loss)
(281
)
—
—
Domestic production activity deduction
—
—
(1,909
)
Foreign income taxed at different rate
1,446
1,292
(1,177
)
FDII deduction
(1,790
)
(2,195
)
—
Change in estimates related to prior years
—
(2,049
)
—
US income tax reform
—
—
459
State and local taxes, net
(73
)
1,462
1,208
Current year tax credits
(663
)
(633
)
—
Foreign deferred other true up
—
(810
)
—
Change in reserve
957
578
829
Foreign patent box benefit
(1,213
)
(937
)
—
Increase in valuation allowance
116
526
—
Other
725
588
(64
)
Income tax provision
$
15,039
$
9,665
$
15,986
71 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income taxes. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 28, 2019 , and December 29, 2018 , are presented below:
December 28, 2019
December 29, 2018
Deferred tax assets:
Foreign tax benefit of U.S. reserves
$
3,691
$
3,853
Net operating losses
510
443
Inventory
1,824
1,155
Intangible assets and goodwill
2,518
1,924
Accrued expenses and other
2,883
4,743
Other comprehensive income
3,887
519
Total deferred tax assets
15,313
12,637
Less: Valuation allowance
(428
)
(291
)
Net deferred tax assets
14,885
12,346
Deferred tax liabilities:
Depreciation
(6,495
)
(7,097
)
Intangible assets and goodwill
(51,834
)
(52,543
)
Other
(43
)
(1,026
)
Total deferred tax liabilities
(58,372
)
(60,666
)
Net deferred tax liabilities
$
(43,487
)
$
(48,320
) A valuation allowance to reduce the deferred tax assets reported is required if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. For the fiscal years ended 2019 and 2018 management has determined that no material valuation allowances were required. The Company prescribes a recognition threshold and measurement attribute for an uncertain tax position taken or expected to be taken in a tax return. The following is a roll-forward of the Company’s unrecognized tax benefits:
Unrecognized tax benefits - December 31, 2016
$
3,501
Increases from positions taken during prior periods
1,525
Increases from positions taken during current period
558
Settled positions
—
Lapse of statute of limitations
(1,042
)
Unrecognized tax benefits - December 30, 2017
$
4,542
Increases from positions taken during prior periods
372
Increases from positions taken during current period
2,036
Settled positions
—
Lapse of statute of limitations
(837
)
Unrecognized tax benefits - December 29, 2018
$
6,113
Increases from positions taken during prior periods
1,121
Increases from positions taken during current period
817
Settled positions
—
Lapse of statute of limitations
—
Unrecognized tax benefits - December 28, 2019
$
8,051
72 At December 28, 2019, the Company had an unrecognized tax benefit of $8,051 including accrued interest. If recognized, the unrecognized tax benefit would have a favorable effect on the effective tax rate in future periods. The Company recognizes interest and penalties related to income tax matters in income tax expense. Interest related to the unrecognized tax benefit has been recognized and included in income tax expense. Interest accrued as of December 28, 2019, is not considered material to the Company’s Consolidated Financial Statements. The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company is no longer subject to income tax examinations by tax authorities for years prior to 2009 for the majority of tax jurisdictions. The Company’s U.S. federal returns are not currently under examination by the Internal Revenue Service (IRS); Florida returns are under examination for tax years 2015 and 2016. Faster’s pre-acquisition 2016 Italian return is also under examination. To date, there have not been any significant proposed adjustments that have not been accounted for in the Company’s Consolidated Financial Statements. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. It is reasonably possible that within the next twelve months the Company will resolve some or all of the matters presently under consideration by the Florida Department of Revenue and that there could be significant increases or decreases to unrecognized tax benefits. |
