Note 13 - Taxes on Income

12 Months Ended

Jan. 03, 2016

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

TAXES ON INCOME

Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:

	FISCAL YEAR
	2015			2014		2013
	(in thousands)
Current expense/(benefit):
Federal	$	1,524		$	224	$	473
Foreign		9,279			5,555		2,605
State		1,403			712		627
		12,206			6,491		3,705
Deferred expense/(benefit):
Federal		19,971			3,856		3,246
Foreign		3,795			493		8,692
State		(2,624	)		94		5,106
		21,142			4,443		17,044
	$	33,348		$	10,934	$	20,749

Income before taxes on income consisted of the following:

	FISCAL YEAR
	2015		2014		2013
	(in thousands)
U.S. operations	$	58,318	$	10,345	$	21,292
Foreign operations		47,448		25,397		47,712
	$	105,766	$	35,742	$	69,004

Deferred income taxes for the years ended January 3, 2016, and December 28, 2014, 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.

At January 3, 2016, the Company had approximately $57 million in federal net operating loss carryforwards with expiration dates through 2032, of which $30.8 million is from share-based payment awards. In accordance with applicable accounting standards, a financial statement benefit has not been recorded for the net operating loss related to the share-based payment awards. The Company’s foreign subsidiaries had approximately $3.7 million in net operating losses, the majority of which is available for an unlimited carryforward period. The Company expects to utilize all of its federal and foreign carryforwards prior to their expiration. The Company had approximately $139.3 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2034. The Company had provided a valuation allowance against $70.5 million of such losses, which the Company does not expect to utilize. In addition, the Company has approximately $126.6 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

The sources of the temporary differences and their effect on the net deferred tax asset are as follows:

	2015					2014
	ASSETS			LIABILITIES		ASSETS			LIABILITIES
	(in thousands)
Basis differences of property and equipment	$	0		$	16,254	$	0		$	15,958
Basis difference of intangible assets		0			368		0			384
Foreign currency		0			5,375		0			3,848
Net operating loss carryforwards		5,575			0		28,463			0
Valuation allowances on net operating loss carryforwards		(4,457	)		0		(10,298	)		0
Federal tax credits		4,580			0		2,751			0
Deferred compensation		26,352			0		21,190			0
Basis difference of prepaids, accruals and reserves		7,971			0		7,816			0
Pensions		1,075			0		3,152			0
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested		0			1,226		0			948
Basis difference of other assets and liabilities		458			0		0			68
	$	41,554		$	23,223	$	53,074		$	21,206

Deferred tax assets and liabilities are included in the accompanying balance sheets as follows:

	FISCAL YEAR
	2015			2014
	(in thousands)
Deferred income taxes (current asset)	$	8,726		$	9,732
Deferred tax asset (non-current asset)		20,110			33,138
Deferred income taxes (non-current liabilities)		(10,505	)		(11,002	)
	$	18,331		$	31,868

Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the federal deferred tax assets at January 3, 2016.

As of January 3, 2016 and December 28, 2014, non-current deferred tax assets were reduced by approximately $14.2 million and $21.8 million, respectively, of unrecognized tax benefits.

The Company’s effective tax rate was 31.5%, 30.6% and 30.1% for fiscal years 2015, 2014 and 2013, respectively. The following summary reconciles income taxes at the U.S. federal statutory rate of 35% to the Company’s actual income tax expense:

	FISCAL YEAR
	2015			2014			2013
	(in thousands)
Income taxes at U.S federal statutory rate	$	37,018		$	12,510		$	24,151
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax effect		3,003			57			496
Non-deductible business expenses		614			570			601
Non-deductible employee compensation		168			491			409
Tax effects of Company owned life insurance		128			(395	)		(1,117	)
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested		458			362			562
Foreign and U.S. tax effects attributable to foreign operations		(3,347	)		(3,021	)		(3,958	)
Valuation allowance effect – State NOL		(3,797	)		468			3,232
Non-deductible reserve against capital asset		0			0			(218	)
Advance pricing agreements with tax authorities		0			0			(2,492	)
Federal tax credits		(352	)		0			(595	)
Other		(545	)		(108	)		(322	)
Income tax expense	$	33,348		$	10,934		$	20,749

The Company does not provide for U.S. income taxes on the undistributed earnings of its foreign subsidiaries that are considered to be indefinitely reinvested outside of the U.S. as determination of the amount of unrecognized deferred U.S. income tax liability related to the indefinitely reinvested earnings is not practicable because of the complexities associated with its hypothetical calculation. At January 3, 2016, approximately $259 million of undistributed earnings of the Company’s foreign subsidiaries are deemed to be indefinitely reinvested outside of the U.S., on which withholding taxes of approximately $5.6 million would be payable upon remittance.

At January 3, 2016, the Company has provided for approximately $1.2 million in U.S. federal income taxes and approximately $0.2 million in foreign withholding taxes on approximately $3.6 million of undistributed earnings from foreign subsidiaries that are not deemed to be indefinitely reinvested outside of the U.S.

As of January 3, 2016 and December 28, 2014, the Company had $28.3 million and $27.3 million, respectively, of unrecognized tax benefits. If the $28.3 million of unrecognized tax benefits as of January 3, 2016 are recognized, there would be a favorable impact on the Company’s effective tax rate in future periods. If the unrecognized tax benefits are not favorably settled, $6.3 million of the total amount of unrecognized tax benefits would require the use of cash in future periods.

The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. As of January 3, 2016, the Company had accrued interest and penalties of $1.5 million, which is included in the total unrecognized tax benefit noted above.

The Company’s federal income tax returns are subject to examination for the years 2003 to the present. The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years 2010 to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years 2004 to the present.

During 2013, the Company executed advance pricing agreements (“APA”) with the Canadian tax authorities (“CRA”) and the Internal Revenue Service (“IRS”), for tax years 2006 through 2011, with respect to certain intercompany transactions (“Covered Transactions”) between Interface, Inc. (including its U.S. subsidiaries) and its Canadian subsidiary, InterfaceFLOR Canada, Inc. The Covered Transactions include intercompany buy-sale distribution, contract manufacturing, provision of management services, and licensing intangibles.

The APAs encompass the final resolution resulting from the bilateral negotiations between the CRA and the IRS under the Canada-U.S. bilateral advance pricing agreement program (“BAPA”), which the Company was accepted into during 2008, with respect to the Covered Transactions for tax years 2006 through 2011.

During 2013, the Company recognized tax benefits of $1.9 million relating to the final resolution of the BAPA and a reduction of $0.6 million in federal income taxes and foreign withholding taxes previously provided on undistributed earnings, from its Canadian subsidiary, that were not deemed to be indefinitely reinvested outside the U.S.

Management believes changes to our unrecognized tax benefits that are reasonably possible in the next 12 months will not have a significant impact on our financial positions or results of operations.  The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:

	FISCAL YEAR
	2015			2014			2013
	(in thousands)
Balance at beginning of year	$	27,301		$	27,361		$	25,186
Increases related to tax positions taken during the current year		641			875			911
Increases related to tax positions taken during the prior years		1,230			1,157			3,938
Decreases related to tax positions taken during the prior years		(194	)		(697	)		(9	)
Decreases related to settlements with taxing authorities		0			0			(1,928	)
Decreases related to lapse of applicable statute of limitations		(367	)		(919	)		(397	)
Changes due to foreign currency translation		( 340	)		(476	)		(340	)
Balance at end of year	$	28,271		$	27,301		$	27,361