| INCOME TAXES | INCOME TAXES On December 22, 2017 , the United States (“U.S.”) enacted significant changes to the U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). The Tax Act included significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% , a one-time repatriation tax on deferred foreign income (“Transition Tax”), deductions, credits and business-related exclusions. On December 22, 2017 , the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance with SAB 118, the additional provisional income tax of $ 6,433 represents our best estimate based on interpretation of the U.S. legislation as we are still accumulating data to finalize the underlying calculations, or in certain cases, the U.S. Treasury is expected to issue further guidance on the application of certain provisions of the U.S. legislation. Future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized. Accordingly, the Company’s income tax provision as of December 29, 2017 reflects (i) the current year impacts of the U.S. Tax Act on the estimated annual effective tax rate and (ii) the following discrete items resulting directly from the enactment of the Tax Act based on the information available, prepared, or analyzed (including computations) in reasonable detail. (i) The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21% . The impact from the permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018 (the “Effective Date”). When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment and as a result the Company calculated a U.S. federal statutory income tax rate of 24.5% for the current fiscal year end September 28, 2018 . (ii) The tax expense impact associated with the U.S. Tax Act enacted on December 22, 2017 which resulted in additional discrete tax expense in the current period as follows: Three Months Ended (thousands) December 29, 2017 Transition tax (provisional) $ 2,000 Net impact on U.S. deferred tax assets and liabilities (provisional) 4,433 Net impacts of the enactment of the Tax Act $ 6,433 The Tax Act one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign-sourced earnings. The one-time transition tax is based on our total post-1986 foreign earnings and profits ("E&P") for which we have previously deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition tax liability for its foreign subsidiaries, resulting in an increase in income tax expense of $ 2,000 . We have not yet completed our calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets which may change when we finalize these amounts and the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference (i.e., basis difference in excess of that subject to the one-time transition tax) inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. It is not practicable to determine the amount of unrecognized withholding taxes and deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities. The Company determined that the impact of the U.S. federal corporate income tax rate change on the U.S. deferred tax assets and liabilities is a provisional amount of $ 4,433 because the final number cannot be calculated until the underlying timing differences are known rather than estimated. Within the calculation of the Company’s annual effective tax rate the Company has used assumptions and estimates that may change as a result of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, and the FASB and/or various other taxing jurisdictions. For example, the Company anticipates that the state jurisdictions will continue to determine and announce their conformity to the Tax Act which could have an impact on the annual effective tax rate. For the three months ended December 29, 2017 and December 30, 2016 , the Company’s earnings before income taxes, income tax expense and effective income tax rate were as follows: Three Months Ended (thousands, except tax rate data) December 29, 2017 December 30, 2016 Profit (loss) before income taxes $ 8,324 $ (45 ) Income tax expense 8,089 (4,101 ) Effective income tax rate 97.2 % 9,113.3 % The change in the Company’s effective tax rate for the three months ended December 29, 2017 versus the prior year period was primarily due to the impact of a $ 6,433 provisional tax expense generated by the enactment of the U.S. Tax Cuts and Jobs Act of 2017 in the current period versus the prior year period impact of a foreign tax credit net tax benefit of approximately $ 4,200 generated by the repatriation of approximately $ 22,000 from foreign jurisdictions to the U.S. Also, the Company recorded a tax benefit of $ 433 and $ 397 realized from the exercise of the share-based payment arrangements during the three month periods ended December 29, 2017 and December 30, 2016 , respectively. Adverse changes in profitability and financial outlook in both the U.S. and/or foreign jurisdictions or changes in the Company's geographic footprint may require changes in valuation allowances in order to reduce the Company’s deferred tax assets. Such changes may drive fluctuations in the effective tax rate. The impact of the Company’s operations in jurisdictions where a valuation allowance is assessed, primarily in the foreign locations, is removed from the overall effective tax rate methodology and recorded directly based on year to date results for the year for which no tax expense or benefit can be recognized. The tax jurisdictions that have a valuation allowance for the periods ended December 29, 2017 and December 30, 2016 were: December 29, 2017 December 30, 2016 Australia Australia Austria Austria France France Indonesia Indonesia Italy Japan Japan Netherlands Netherlands New Zealand New Zealand Spain Spain Switzerland The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes. As a result, the Company may adjust the reserves for unrecognized tax benefits due to the impact of changes in its assumptions or as a result of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities and lapses of statutes of limitation. The Company’s 2018 fiscal year tax expense is anticipated to include approximately $ 500 related to uncertain income tax positions. In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized benefits as a component of income tax expense. The Company is projecting accrued interest of $ 300 related to uncertain income tax positions for the fiscal year ending September 28, 2018 . The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. The Company is currently undergoing income tax examinations in Italy. As of the date of this report, the following tax years remain open to examination by the respective tax jurisdictions: Jurisdiction Fiscal Years United States 2014-2017 Canada 2013-2017 France 2014-2017 Germany 2013-2017 Italy 2012-2017 Switzerland 2007-2017 |
