Income Taxes

12 Months Ended

Dec. 28, 2019

Significant components of the provision for income taxes, including those related to non-controlling interest, are as follows (in thousands):



	2019		2018			2017
Current:
Federal	$	20,122	$	15,663		$	9,501
State	5,418		4,877			3,408
Foreign	662		936			789
Current provision	26,202		21,476			13,698
Deferred:
Federal	4,140		4,002			(35,914		)
State	1,634		1,320			2,552
Foreign	235		(1,399		)	378
Deferred provision	6,009		3,923			(32,984		)
Total income tax expense	$	32,211	$	25,399		$	(19,286	)

The differences between the actual tax expense and tax expense computed at the statutory United States federal tax rate are explained as follows (in thousands):



	2019			2018			2017
Federal statutory tax expense	$	29,970		$	24,943		$	24,678
State taxes, net of federal tax effect	5,159			3,997			2,197
Credit for increasing research activities	(4,050		)	(3,950		)	(3,407		)
Deduction related to domestic production activities	—			—			(1,537		)
Valuation allowance	98			(1,141		)	4,232
Federal rate adjustment to deferred taxes	—			—			(45,386		)
Equity based compensation	639			(666		)	(1,544		)
Change in uncertain tax positions	(357		)	766			(163		)
Foreign income tax rate differential	596			124			2,094
Other – net	156			1,326			(450		)
Total income tax expense	$	32,211		$	25,399		$	(19,286	)

On December 22, 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 percent to 21 percent effective for tax years beginning after December 31, 2017, the transition of United States 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.

Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of United States GAAP in the reporting period that includes December 22, 2017 in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Corporation determined as of the end of fiscal 2017, the $45.4 million of the deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $0.1 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate as of December 30, 2017. Additional work was necessary to complete a more detailed analysis of historical foreign earnings as well as potential correlative adjustments. Subsequent adjustments to these amounts, which were not material, were recorded to current tax expense in the third quarter of 2018 when the analysis was completed.

During the third quarter of 2019, the 2018 federal income tax return was completed resulting in a $0.3 million benefit related to a change in estimate of state income taxes, research and development credit and other items.

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 tax purposes.

Significant components of the Corporation’s deferred tax liabilities and assets are as follows (in thousands):



	December 28, 2019			December 29, 2018
Deferred Taxes
Allowance for doubtful accounts	$	746		$	897
Compensation	7,243			6,419
Inventory differences	1,445			2,498
Marketing accrual	1,238			1,260
Stock-based compensation	7,680			8,456
Accrued post-retirement benefit obligations	6,287			5,500
Vacation accrual	2,687			2,783
Warranty accrual	3,842			3,761
Net operating loss carryforward	4,522			4,790
Capital loss carryforward	2,011			2,001
Lease liability	17,212			—
Other – net	8,916			11,413
Total deferred tax assets	$	63,829		$	49,778
Deferred income	(4,838		)	(4,707		)
Goodwill and other intangible assets	(54,951		)	(52,468		)
Prepaids	(6,867		)	(6,536		)
Right of use asset	(16,251		)	—
Tax over book depreciation	(57,682		)	(59,500		)
Total deferred tax liabilities	$	(140,589	)	$	(123,211	)
Valuation allowance	(10,260		)	(7,153		)
Total net deferred tax liabilities	$	(87,020	)	$	(80,586	)

Long-term net deferred tax assets	176			1,569
Long-term net deferred tax liabilities	(87,196		)	(82,155		)
Total net deferred tax liabilities	$	(87,020	)	$	(80,586	)

The valuation allowance for deferred tax assets is as follows (in thousands):



	Balance at beginning of period		Charged to expenses			Adjustments to balance sheet			Balance at end of period
Year ended December 28, 2019	$	7,153	$	98		$	3,009		$	10,260
Year ended December 29, 2018	$	8,664	$	(839	)	$	(672	)	$	7,153
Year ended December 30, 2017	$	4,159	$	4,505		$	—		$	8,664

The current year increase in the valuation allowance of $3.1 million primarily relates to an increase of deferred tax assets related to foreign tax due to adjustments for prior tax years.

As of December 28, 2019, the Corporation had approximately $0.2 million of United States state tax net operating losses and $1.3 million of United States state tax credits, which expire over the next twenty years.

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



	2019			2018
Balance at beginning of period	$	2,937		$	2,524
Increases in positions taken in a prior period	14			262
Decreases in positions taken in a prior period	(127		)	—
New positions taken in a current period	562			529
Decrease due to settlements	—			(9		)
Decrease due to lapse of statute of limitations	(808		)	(369		)
Balance at end of period	$	2,578		$	2,937

The amount of unrecognized tax benefits, which would impact the Corporation's effective tax rate, if recognized, was $2.6 million as of December 28, 2019 and $2.9 million as of December 29, 2018.

As of December 28, 2019, it is reasonably possible the amount of unrecognized tax benefits may increase or decrease within the twelve months following the reporting date. These increases or decreases in the unrecognized tax benefits would be due to new positions that may be taken on income tax returns, settlement of tax positions, and the closing of statutes of limitation. It is not expected any of the changes will be material individually, or in total, to the results or financial position of the Corporation.

The Corporation recognized interest accrued related to unrecognized tax benefits in interest expense, and penalties in operating expenses, consistent with the recognition of these items in prior reporting periods. Interest, penalties, and benefits recognized in the Consolidated Statements of Comprehensive Income were as follows (in thousands):



	2019		2018		2017
Interest, penalties, and (benefits)	$	4	$	92	$	(25	)

The Corporation recorded a liability for interest and penalties related to unrecognized tax benefits in the Consolidated Balance Sheets as follows (in thousands):



	December 28, 2019		December 29, 2018
Liability related to unrecognized tax benefits	$	279	$	275

Tax years 2016 through 2018 remain open for examination by the Internal Revenue Service ("IRS"). The Corporation is currently under examination in one state jurisdiction; however, years 2014 through 2018 remain open for examination in various state jurisdictions.

Under the Act, a corporation’s foreign earnings accumulated under legacy tax laws are deemed repatriated. There were approximately $37 million of accumulated earnings considered permanently reinvested in Hong Kong and Canada as of December 28, 2019. The Corporation believes the tax costs on accumulated unremitted foreign earnings would be approximately $0.02 million if the amounts were not considered permanently reinvested.