Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.0.1
Income Taxes
 12 Months Ended
Jan. 01, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES

12. INCOME TAXES

For financial reporting purposes, income before income taxes includes the following components:

 

 

For the year ended

 

 

 

January 1, 2022

 

 

January 2, 2021

 

 

December 28, 2019

 

United States

 

$

87,122

 

 

$

30,619

 

 

$

51,007

 

Foreign

 

 

44,057

 

 

 

(6,572

)

 

 

24,300

 

Total

 

$

131,179

 

 

$

24,047

 

 

$

75,307

 

The Company derives its pretax income based on the consolidated results of its legal entities. Products manufactured in the U.S. are sold worldwide and are the primary reason that pretax income in the U.S. is higher than foreign pretax income. The U.S. legal entities had third-party export sales of $166,900, $106,147 and $105,976 for the 2021, 2020 and 2019 years, respectively. Foreign pretax income is impacted by the level of foreign manufacturing, sales at varying market levels, as well as direct sales to large OEM customers.

The components of the income tax provision (benefit) are as follows:

 

 

For the year ended

 

 

 

January 1, 2022

 

 

January 2, 2021

 

 

December 28, 2019

 

Current tax expense (benefit):

 

 

 

 

 

 

 

 

 

United States

 

$

10,727

 

 

$

3,251

 

 

$

7,380

 

State and local

 

 

3,129

 

 

 

1,166

 

 

 

(388

)

Foreign

 

 

17,245

 

 

 

7,430

 

 

 

9,107

 

Total current

 

 

31,101

 

 

 

11,847

 

 

 

16,099

 

Deferred tax expense (benefit):

 

 

 

 

 

 

 

 

 

United States

 

 

(1,126

)

 

 

3,190

 

 

 

665

 

State and local

 

 

230

 

 

 

(326

)

 

 

58

 

Foreign

 

 

(3,622

)

 

 

(4,882

)

 

 

(1,783

)

Total deferred

 

 

(4,518

)

 

 

(2,018

)

 

 

(1,060

)

Total income tax provision

 

$

26,583

 

 

$

9,829

 

 

$

15,039

 

 

The reconciliation between the effective income tax rate and the U.S. federal statutory rate is as follows:

 

 

For the year ended

 

 

 

January 1, 2022

 

 

January 2, 2021

 

 

December 28, 2019

 

U.S. federal taxes at statutory rate

 

$

27,547

 

 

$

5,057

 

 

$

15,815

 

Increase (decrease)

 

 

 

 

 

 

 

 

 

986(c) FX gain/(loss)

 

 

—

 

 

 

—

 

 

 

(281

)

Foreign withholding tax

 

 

93

 

 

 

326

 

 

 

—

 

Capitalized transaction costs

 

 

—

 

 

 

387

 

 

 

—

 

Foreign income taxed at different rate

 

 

3,573

 

 

 

1,363

 

 

 

1,446

 

FDII deduction

 

 

(3,220

)

 

 

(1,265

)

 

 

(1,790

)

Changes in estimates related to prior years including foreign

 

 

(206

)

 

 

(2,530

)

 

 

—

 

Goodwill impairment

 

 

—

 

 

 

6,693

 

 

 

—

 

State and local taxes, net

 

 

2,702

 

 

 

595

 

 

 

(73

)

Current year tax credits

 

 

(490

)

 

 

(674

)

 

 

(663

)

Foreign deferred other true up

 

 

(1,628

)

 

 

—

 

 

 

—

 

Change in reserve

 

 

(1,930

)

 

 

(453

)

 

 

957

 

Foreign patent box benefit

 

 

—

 

 

 

—

 

 

 

(1,213

)

Increase in valuation allowance

 

 

—

 

 

 

—

 

 

 

116

 

Other

 

 

142

 

 

 

330

 

 

 

725

 

Income tax provision

 

$

26,583

 

 

$

9,829

 

 

$

15,039

 

Deferred income tax assets and liabilities are provided to reflect the future tax consequences of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of January 1, 2022 and January 2, 2021, are presented below:

 

 

 

January 1, 2022

 

 

January 2, 2021

 

Deferred tax assets:

 

 

 

 

 

 

Foreign tax benefit of U.S. reserves

 

$

1,849

 

 

$

5,086

 

Net operating losses

 

 

5,186

 

 

 

6,159

 

Inventory

 

 

3,029

 

 

 

2,495

 

Intangible assets and goodwill

 

 

675

 

 

 

675

 

Accrued expenses and other

 

 

6,618

 

 

 

5,485

 

Other comprehensive income

 

 

3,411

 

 

 

—

 

Total deferred tax assets

 

 

20,768

 

 

 

19,900

 

Less: Valuation allowance

 

 

(428

)

 

 

(428

)

Net deferred tax assets

 

 

20,340

 

 

 

19,472

 

Deferred tax liabilities:

 

 

 

 

 

 

Depreciation

 

 

(9,572

)

 

 

(7,493

)

Intangible assets and goodwill

 

 

(79,352

)

 

 

(82,126

)

Other deferred tax liabilities

 

 

(318

)

 

 

(1,564

)

Other comprehensive income

 

 

—

 

 

 

(508

)

Total deferred tax liabilities

 

 

(89,242

)

 

 

(91,691

)

Net deferred tax liabilities

 

$

(68,902

)

 

$

(72,219

)

 

As of January 1, 2022, the Company has federal net operating loss (“NOL”) carryforwards of approximately $10,961, Oklahoma NOLs carryforwards of $13,945 and California NOL carryforwards of $33,819. The Oklahoma NOLs are expected to be fully utilized by 2023. The federal and California NOLs were generated by Balboa during pre-acquisition tax years 2011-2019 and are subject to a 20-year carryforward period. As a result of the acquisition, both the federal and the California NOLs are subject to various limitations under Internal Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership change of more than 50 percent. Additionally, California enacted legislation in June 2020 to suspend the usage of NOLs for tax years 2020, 2021 and 2022. Despite these limitations, the Company expects to fully utilize the federal NOLs by 2027 and the California NOLs by 2024 and thus has recorded a deferred tax asset of $5,186 for all NOLs.

A valuation allowance to reduce the deferred tax assets reported is required if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. For the fiscal years 2021 and 2020, management has determined that no material valuation allowances were required.

The Company accounts for investment tax credits utilizing the deferral method. Investment tax credits generated in 2021 totaled $1,122.

The Company prescribes a recognition threshold and measurement attribute for an uncertain tax position taken or expected to be taken in a tax return.

The following is a roll-forward of the Company’s unrecognized tax benefits:

 

Unrecognized tax benefits - December 29, 2018

 

$

6,113

 

Increases from positions taken during prior periods

 

 

1,121

 

Increases from positions taken during current period

 

 

817

 

Settled positions

 

 

—

 

Lapse of statute of limitations

 

 

—

 

Unrecognized tax benefits - December 28, 2019

 

$

8,051

 

Increases from positions taken during prior periods

 

 

656

 

Increases from positions taken during current period

 

 

459

 

Current year acquisitions

 

 

3,170

 

Settled positions

 

 

(947

)

Lapse of statute of limitations

 

 

—

 

Unrecognized tax benefits - January 2, 2021

 

$

11,389

 

Increases from positions taken during prior periods

 

 

(175

)

Increases from positions taken during current period

 

 

610

 

Current year acquisitions

 

 

—

 

Settled positions

 

 

—

 

Lapse of statute of limitations

 

 

(2,824

)

Unrecognized tax benefits - January 1, 2022

 

$

9,000

 

 

At January 1, 2022, the Company had unrecognized tax benefits of $9,000 including accrued interest. If recognized, $2,500 of unrecognized tax benefits would reduce the effective tax rate in future periods. The Company recognizes interest and penalties related to income tax matters in income tax expense. Interest related to the unrecognized tax benefit has been recognized and included in income tax expense. Interest accrued as of January 1, 2022, is not considered material to the Company’s Consolidated Financial Statements.

The Company is currently under state audit and remains subject to income tax examinations in the U.S. and various state and foreign jurisdictions for tax years 2009-2019. Although the Company is not currently under examination in most jurisdictions, limited transfer pricing disputes exist for years dating back to 2008. The Company believes it has adequately reserved for income taxes that could result from any audit adjustments. Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months.