|12 Months Ended|
Dec. 29, 2018
|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:
The Company has U.S. federal net operating loss (“NOL”) carryforwards totaling $195,746 as of December 29, 2018 that are available to offset future taxable income. These carryforwards expire from 2028 to 2038. Approximately $59,611 of the U.S. federal NOLs were acquired with the MinuteKey purchase. The MinuteKey NOLs are subject to limitation under IRC §382 from current and prior ownership changes. The Company believes that the acquired NOLs will be utilized. Approximately $23,965 of the U.S. federal NOL carryforwards are subject to dual consolidated loss limitations. In 2018, the Company established a valuation allowance on these carryforward losses given the Company's inability to generate sufficient taxable income to mitigate the dual consolidated loss limitation. In addition, the Company's foreign subsidiaries have NOL carryforwards aggregating $23,515. A portion of these carryforwards expire from 2025 to 2034. Management has recorded a valuation allowance of $3,632 against the deferred tax assets recorded for these foreign subsidiaries.
The Company has state NOL carryforwards with an aggregate tax benefit of $6,650 which expire from 2018 to 2038. Management estimates that the Company will utilize the state loss carryforwards before they expire. In 2018, the valuation allowance for state NOL carryforwards decreased by $162 primarily due to the changes established with the 2017 Tax Act's impact to certain local income tax filings.
The Company has $896 of general business tax credit carryforwards which expire from 2018 to 2038. A valuation allowance of $287 has been maintained for a portion of these tax credits. The Company has $822 of foreign tax credit carryforwards which expire from 2019 to 2025. A valuation allowance of $822 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 29, 2018 and December 30, 2017:
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. In 2018, the Company established a valuation allowance in the amount of $14,187 against the portion of interest expense that is not currently deductible for domestic federal income tax due to the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") effective for the first year beginning after December 31, 2017. In addition, the Company established a valuation allowance of $6,100 on U.S. federal NOLs subject to dual consolidated loss limitations.
Hillman considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. The Company has not recorded a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. Should management decide to repatriate the foreign earnings, the Company would need to adjust the income tax provision in the period the earnings will no longer be indefinitely invested outside the United States.
Below is a reconciliation of statutory income tax rates to the effective income tax rates for the periods indicated:
The Company's reserve for unrecognized tax benefits remains unchanged for the year ended December 29, 2018. A balance of $1,101 of unrecognized tax benefit is shown in the financial statements at December 29, 2018 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:
Tax Cuts and Jobs Act (the "2017 Tax Act")
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.
During 2017, the Company recorded a provisional $75,000 deferred income tax benefit associated with the provisions of the 2017 Tax Act based on currently available information. The Company did not record a provision for the Transition Tax in 2017 given the lack of historical earnings in the Company's foreign subsidiaries. Additionally, the Company recorded a provisional $807 valuation allowance on its foreign tax credit deferred tax asset given insufficient foreign source income projected to utilize the credits. The Company did not significantly adjust the estimate from the 2017 provisional calculations.
During 2018, the Company became subject to additional provisions of the 2017 Tax Act including computations related to Global Intangible Low Taxed Income ("GILTI") and the IRC §163(j) interest limitation (Interest Limitation). Accordingly, our 2018 effective tax rate includes the impact for these items, which was approximately $11,700 in income tax expense, a (17.3)% impact to the effective tax rate. The estimates for these additional provisions for the 2017 Tax Act were based on our current interpretation of the 2017 Tax Act as well as currently available information and may change as we receive additional clarification and implementation guidance.
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 29, 2018.
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://fasb.org/us-gaap/role/ref/legacyRef