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Income Taxes

12 Months Ended

Dec. 29, 2019

(7)	Income Taxes

Income before provision for income taxes in 2019, 2018 and 2017 consists of the following (in thousands):


	2019		2018		2017
U.S.	$	468,467	$	414,804	$	386,989
Foreign		14,170		13,874		13,164

Income before provision for income taxes	$	482,637	$	428,678	$	400,153

The differences between the U.S. Federal statutory income tax provision (using the statutory rate of 21% in 2019 and 2018 and the statutory rate of

% in 2017) and the Company’s consolidated provision for income taxes for 2019, 2018 and 2017 are summarized as follows (in thousands):


	2019			2018			2017
Federal income tax provision based on the statutory rate	$	101,354		$	90,022		$	140,054
State and local income taxes, net of related Federal income taxes		15,141			14,233			11,520
Non-resident withholding and foreign income taxes		20,351			21,369			20,210
Foreign tax and other tax credits		(20,090	)		(25,301	)		(23,324	)
Foreign derived intangible income		(12,810	)		(11,760	)		—
Excess tax benefits from equity-based compensation		(25,735	)		(23,786	)		(27,227	)
Non-deductible expenses, net		3,090			1,999			1,794
Unrecognized tax provision (benefit), net of related Federal income taxes		694			301			(173	)
Other		(67	)		(371	)		(606	)

Provision for income taxes	$	81,928		$	66,706		$	122,248

Excess tax benefits

or deficiencies from equity-based compensation activity resulted in a decrease in the Company’s provision for income taxes of $

25.7

million in 2019, $

23.8

million in 2018 and $

27.2

million in 2017, primarily due to the recognition of excess tax benefits for options exercised and the vesting of equity awards.

The components of the 2019, 2018 and 2017 consolidated provision for income taxes are as follows (in thousands):


	2019			2018			2017
Provision for Federal income taxes
Current provision	$	49,539		$	33,558		$	81,747
Deferred (benefit) provision		(2,862	)		(1,543	)		6,732

Total provision for Federal income taxes		46,677			32,015			88,479
Provision for state and local income taxes
Current provision		15,335			12,651			14,131
Deferred (benefit) provision		(435	)		671			(572	)

Total provision for state and local income taxes		14,900			13,322			13,559
Provision for non-resident withholding and foreign income taxes		20,351			21,369			20,210

Provision for income taxes	$	81,928		$	66,706		$	122,248

As of December 29, 2019 and December 30, 2018, the significant components of net deferred income taxes are as follows (in thousands):


	2019			2018
Deferred income tax assets
Other accruals and reserves	$	11,874		$	10,636
Insurance reserves		11,256			10,253
Equity compensation		10,357			9,705
Foreign tax credit		9,333			4,600
Other		6,980			6,029

Deferred income tax assets before valuation allowance		49,800			41,223

Less: Valuation allowance		(4,280	)		—

Total deferred income tax assets		45,520			41,223

Deferred income tax liabilities
Depreciation, amortization and asset basis differences		8,117			10,505
Capitalized software		27,330			25,192

Total deferred income tax liabilities		35,447			35,697

Net deferred income tax assets	$	10,073		$	5,526

Realization of the Company’s deferred tax assets is dependent upon many factors, including, but not limited to, the Company’s ability to generate sufficient taxable income. Although realization of the Company’s net deferred tax assets is not assured, on an ongoing basis, management assesses whether it remains more likely than not the net deferred tax assets will be realized. As

December 29, 2019, the Company had total foreign tax credits of $

9.3

million, of which $

5.6

million can be carried back one year to be fully utilized. As of December 29, 2019, the Company had a total valuation allowance of $

4.3

million, related to expected limitations on foreign tax credits and interest deductibility in separately filed states. Management believes the remaining net deferred tax assets will be realized.

For financial reporting purposes, the Company’s investment in foreign subsidiaries does not exceed its tax basis. Therefore, no deferred income taxes have been provided.

The Company recognizes the financial statement benefit of a tax position if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authorities widely understood administrative practices and precedents. For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and recognizes penalties in income tax expense.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


	2019			2018			2017
Unrecognized tax benefits at beginning of period	$	1,964		$	1,837		$	1,954
Additions for tax positions of current year		468			425			224
Additions for tax positions of prior years		789			115			42
Reductions for changes in prior year tax positions		(284	)		(64	)		(10	)
Reductions for lapses of applicable statute of limitations		(135	)		(349	)		(373	)

Unrecognized tax benefits at end of period	$	2,802		$	1,964		$	1,837

As of December 29, 2019, the amount of unrecognized tax benefits was $

2.8

million of which, if ultimately recognized, $

2.2

million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. As of December 29, 2019, the Company had $

0.1

million of accrued interest and $

0.2

million of accrued penalties.

As of December 30, 2018, the amount of unrecognized tax benefits was $

2.0

million of which, if ultimately recognized, $

1.8

million would be recognized as an income tax benefit and reduce the Company’s effective tax rate. As of December 30, 2018, the Company had less than $

0.1

million of accrued interest and no accrued penalties.

During 2019, the Company completed an Internal Revenue Service (“IRS”) income tax audit for the 2015 tax year that did not result in any tax adjustments. There are no further IRS income tax audits scheduled. The Company continues to be under examination by certain states. The Company’s Federal statute of limitation has expired for years prior to 2016 (with the conclusion of the audit), but it varies for state and foreign locations. The Company believes appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (the “2017 Tax Act”), which was enacted on December 22, 2017, had a significant impact on the Company’s consolidated provision for income taxes for the years ended December 29, 2019 and December 30, 2018. The most significant impacts include but are not limited to reducing the U.S. corporate income tax rate from

percent to

percent, establishing a deduction for foreign derived intangible income and imposing new limitations on certain executive compensation and foreign tax credits.