Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 30, 2023
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

 

 

 

December 30, 2023

 

 

December 31, 2022

 

 

January 1, 2022

 

United States

 

$

12.8

 

 

$

71.3

 

 

$

87.1

 

Foreign

 

 

36.4

 

 

 

50.5

 

 

 

44.1

 

Total

 

$

49.2

 

 

$

121.8

 

 

$

131.2

 

The Company derives its pretax income based on the consolidated results of its legal entities. The U.S. legal entities had third-party export sales of $131.8, $146.5 and $166.9 for the 2023, 2022 and 2021 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

 

 

 

December 30, 2023

 

 

December 31, 2022

 

 

January 1, 2022

 

Current tax expense (benefit):

 

 

 

 

 

 

 

 

 

United States

 

$

6.7

 

 

$

12.3

 

 

$

10.7

 

State and local

 

 

1.5

 

 

 

0.4

 

 

 

3.1

 

Foreign

 

 

11.4

 

 

 

15.9

 

 

 

17.3

 

Total current

 

 

19.6

 

 

 

28.6

 

 

 

31.1

 

Deferred tax expense (benefit):

 

 

 

 

 

 

 

 

 

United States

 

 

(3.6

)

 

 

(0.4

)

 

 

(1.1

)

State and local

 

 

(1.4

)

 

 

(2.6

)

 

 

0.2

 

Foreign

 

 

(2.9

)

 

 

(2.2

)

 

 

(3.6

)

Total deferred

 

 

(7.9

)

 

 

(5.2

)

 

 

(4.5

)

Total income tax provision

 

$

11.7

 

 

$

23.4

 

 

$

26.6

 

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

 

 

For the year ended

 

 

 

December 30, 2023

 

 

December 31, 2022

 

 

January 1, 2022

 

U.S. federal taxes at statutory rate

 

$

10.3

 

 

$

25.6

 

 

$

27.5

 

Increase (decrease)

 

 

 

 

 

 

 

 

 

Capitalized transaction costs

 

 

0.2

 

 

 

0.3

 

 

 

—

 

Foreign income taxed at different rate

 

 

1.4

 

 

 

1.7

 

 

 

3.6

 

FDII deduction

 

 

(1.2

)

 

 

(2.8

)

 

 

(3.2

)

Changes in estimates related to prior years including foreign

 

 

0.1

 

 

 

0.2

 

 

 

(0.2

)

State and local taxes, net

 

 

0.4

 

 

 

(1.0

)

 

 

2.7

 

Current year tax credits

 

 

(1.0

)

 

 

(0.9

)

 

 

(0.5

)

Foreign deferred other true up

 

 

(1.8

)

 

 

(1.0

)

 

 

(1.6

)

Change in reserve

 

 

0.2

 

 

 

0.2

 

 

 

(1.9

)

Excess officer compensation

 

 

1.3

 

 

 

1.4

 

 

 

—

 

Change in valuation allowance

 

 

1.3

 

 

 

—

 

 

 

—

 

Other

 

 

0.5

 

 

 

(0.3

)

 

 

0.1

 

Income tax provision

 

$

11.7

 

 

$

23.4

 

 

$

26.6

 

 

The effective tax rate for the year ended December 30, 2023 was higher than the rate for 2022 primarily due to an increase in the state and local tax expense and the increased impacts for foreign income taxed at different rates. The relative impact of excess officer compensation compared to pre-tax book income increased in 2023, as well as an increase in the change in valuation allowance. The rate for all years benefited from tax deductions for FDII deduction.

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 December 30, 2023 and December 31, 2022, are presented below:

 

 

 

December 30, 2023

 

 

December 31, 2022

 

Deferred tax assets:

 

 

 

 

 

 

Foreign tax benefit of U.S. reserves

 

$

1.4

 

 

$

1.9

 

Net operating losses

 

 

6.2

 

 

 

6.2

 

Inventory

 

 

3.7

 

 

 

3.2

 

Intangible assets and goodwill

 

 

0.7

 

 

 

0.7

 

Lease liability

 

 

4.5

 

 

 

2.0

 

Capitalized research expenditures

 

 

8.0

 

 

 

3.8

 

Interest expense limitation carryforward

 

 

3.6

 

 

 

—

 

Accrued expenses and other

 

 

6.4

 

 

 

5.2

 

Other comprehensive income

 

 

3.0

 

 

 

5.6

 

Total deferred tax assets

 

 

37.5

 

 

 

28.6

 

Less: Valuation allowance

 

 

(3.0

)

 

 

(1.7

)

Net deferred tax assets

 

 

34.5

 

 

 

26.9

 

Deferred tax liabilities:

 

 

 

 

 

 

Depreciation

 

 

(7.4

)

 

 

(8.6

)

Right of use asset

 

 

(4.4

)

 

 

(1.9

)

Intangible assets and goodwill

 

 

(78.1

)

 

 

(75.5

)

Other deferred tax liabilities

 

 

—

 

 

 

(0.3

)

Total deferred tax liabilities

 

 

(89.9

)

 

 

(86.3

)

Net deferred tax liabilities

 

$

(55.4

)

 

$

(59.4

)

 

As of December 30, 2023, the Company has federal net operating loss (“NOL”) carryforwards of approximately $7.2 that will expire between 2029 and 2032 state net operating loss carryforwards of $35.2 that will expire between 2024 and 2039 and foreign net operating loss carryforwards of $10.6, of which $6.6 are indefinite-lived and the remaining will expire between 2024 and 2043. 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. Despite these limitations, the Company expects to fully utilize the federal and California NOLs by 2027. The Company has foreign NOL carryforwards of $7.1 that it does not anticipate utilizing. Consequently, it has fully reserved against the deferred tax asset related to these 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. The valuation allowance for deferred tax assets as of December 30, 2023 and December 31, 2022 was $3.0 and $1.7, respectively. The portion of valuation allowance related to capital losses was $1.0, interest expense limitation carryforward was $0.7, and foreign loss carryforward was $1.3 as of December 30, 2023. The net change in total valuation was an increase of $1.3 in 2023 and was primarily related to interest expense limitation carryforward and capital losses that, in the judgment of management, are not more likely than not to be realized.

The Company accounts for investment tax credits utilizing the deferral method. Investment tax credits generated in 2023 totaled $0.9.

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 - January 2, 2021

 

$

11.4

 

Decreases from positions taken during prior periods

 

 

(0.2

)

Increases from positions taken during current period

 

 

0.6

 

Lapse of statute of limitations

 

 

(2.8

)

Unrecognized tax benefits - January 1, 2022

 

$

9.0

 

Increases from positions taken during prior periods

 

 

0.9

 

Increases from positions taken during current period

 

 

0.2

 

Settled positions

 

 

(0.2

)

Lapse of statute of limitations

 

 

(2.0

)

Unrecognized tax benefits - December 31, 2022

 

$

7.9

 

Increases from positions taken during prior periods

 

 

1.1

 

Increases from positions taken during current period

 

 

0.2

 

Settled positions

 

 

(2.7

)

Lapse of statute of limitations

 

 

(0.4

)

Unrecognized tax benefits - December 30, 2023

 

$

6.1

 

 

At December 30, 2023, the Company had unrecognized tax benefits of $6.1 including accrued interest. If recognized, $0.2 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 December 30, 2023, is not considered material to the Company’s Consolidated Financial Statements.

The Company remains subject to income tax examinations in the U.S. and various state and foreign jurisdictions for tax years 2018-2023. 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.