|12 Months Ended|
Dec. 30, 2017
|Income Tax Disclosure [Abstract]|
Loss before income taxes are comprised of the following components for the periods indicated:
Below are the components of the Company's income tax (benefit) provision for the periods indicated:
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, among other things, a permanent corporate rate reduction to 21% requiring a remeasurement of the Company’s U.S. net deferred tax liabilities, a change in U.S. international taxation to a modified territorial system including a mandatory deemed repatriation on certain unrepatriated earnings of foreign subsidiaries (“Transition Tax”), and providing for additional first-year depreciation that allows full expensing of qualified property placed into service after September 27, 2017.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to provide guidance on accounting for the tax effects of the 2017 Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date to complete the related accounting under U.S. GAAP. In accordance with SAB 118, the Company recorded an estimate for the remeasurement of our net U.S. deferred tax liabilities, the Transition Tax, and other less significant items. The remeasurement of net U.S. deferred tax liabilities resulted in a deferred income tax benefit of approximately $75,000 for the period ended December 30, 2017. The Company did not record a liability for the Transition Tax given the lack of historical earnings in our foreign subsidiaries. The estimate of Transition Tax is considered provisional as additional time is needed to ensure a Transition Tax does not apply for December 30, 2017. Additionally, the Company recorded a provisional $807 valuation allowance on its foreign tax credit deferred tax assets given insufficient foreign source income projected to utilize the credits. Since the 2017 Tax Act was passed late in the fourth quarter of 2017, further guidance and accounting interpretation is expected over the next 12 months that will enable the Company to refine these calculations.
The Company has U.S. federal net operating loss (“NOL”) carryforwards totaling $108,086 as of December 30, 2017 that are available to offset future taxable income. These carry forwards expire from 2028 to 2037. Approximately $17,924 of the U.S. NOL carryforward has an indefinite life carryforward provided the Company continues to meet certain obligations under Luxembourg's tax codes. In addition, the Company's foreign subsidiaries have NOL carryforwards aggregating $17,396. A portion of these carryforwards expire from 2025 to 2033. Management has recorded a valuation allowance of $2,350 against the deferred tax assets recorded for a foreign subsidiary.
The Company has state NOL carryforwards with an aggregate tax benefit of $3,082 which expire from 2018 to 2037. Management estimates that the Company will not be able to utilize some of the loss carryforwards in certain states before they expire. A valuation allowance with a year-end balance of $162 has been recorded for these deferred tax assets. In 2017, the valuation allowance for state NOL carryforwards decreased by $222. The decrease was primarily a result of expiring NOLs in certain states where a valuation allowance existed.
The Company has $501 of general business tax credit carryforwards which expire from 2018 to 2037. A valuation allowance of $78 has been maintained for a portion of these tax credits. The Company has $807 of foreign tax credit carryforwards which expire from 2019 to 2025. A valuation allowance of $807 has been established for these credits given insufficient foreign source income projected to utilize these credits.
The table below reflects the significant components of the Company's net deferred tax assets and liabilities at December 30, 2017 and December 31, 2016:
Realization of the net deferred tax assets is dependent on the reversal of deferred tax liabilities and generating sufficient taxable income prior to their expiration. Although realization is not assured, management estimates it is more likely than not that the net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced.
Hillman is subject to income taxes in the United States and in certain foreign jurisdictions. In general, it is the practice and intention of the Company to reinvest the earnings of certain of its non-U.S. subsidiaries in those operations. In 2014, the Company's management revised its position with respect to permanent reinvestment of earnings in its foreign subsidiaries. As of December 30, 2017, the Company does not have any excess amount for financial reporting over the tax basis in these certain foreign subsidiaries that would result in an income tax liability.
Below is a reconciliation of statutory income tax rates to the effective income tax rates for the periods indicated:
The Company has recorded a $959 decrease in the reserve for unrecognized tax benefits for the year ended December 30, 2017 related to statute expirations and the resolution of income tax audit matters. A balance of $1,101 of the remaining unrecognized tax benefit is shown in the financial statements at December 30, 2017 as a reduction of the deferred tax asset for the Company's NOL carryforward.
The following is a summary of the changes for the periods indicated below:
The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. In conjunction with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB No. 109, “Accounting for Income Taxes”, which was codified in ASC 740-10, the Company has not recognized any adjustment of interest or penalties in its consolidated financial statements due to its NOL position. The Company does not anticipate a decrease in the unrecognized tax benefits for the tax year ending December 29, 2018.
The Company files a consolidated income tax return in the U.S. and numerous consolidated and separate income tax returns in various states and foreign jurisdictions. The Company is not under any significant audits for the period ended December 30, 2017.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef