Income Taxes

12 Months Ended

Jan. 03, 2021

The Company regularly reviews its tax positions in each significant taxing jurisdiction in the process of evaluating its unrecognized tax benefits. The Company makes adjustments to its unrecognized tax benefits when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority at a differing amount; and/or (iii) the statute of limitations expires regarding a tax position.

The tabular reconciliation of the total amounts of unrecognized tax benefits is as follows for the fiscal years ended:


	January 3, 2021		December 29, 2019		December 30, 2018
	(In thousands)
Unrecognized tax benefits, beginning of year	$	35,547	$	33,009	$	30,308
Gross increases—tax positions in prior periods	4,974		4,433		6,931
Gross decreases—tax positions in prior periods	(2,471)		(2,183)		(1,622)
Gross increases—current-period tax positions	309		152		—

Settlements	—		(45)		(2,253)
Lapse of statute of limitations	—		—		(181)
Foreign currency translation adjustments	414		181		(174)
Unrecognized tax benefits, end of year	$	38,773	$	35,547	$	33,009

The Company classifies interest and penalties as a component of income tax expense. At January 3, 2021 and December 29, 2019, the Company had accrued interest and penalties of $5.8 million and $4.1 million, respectively. During fiscal years 2020, 2019 and 2018, the Company recognized a net expense of $4.7 million, $1.6 million and $0.4 million, respectively, for interest and penalties in its total tax provision which includes settlements and statutes of limitations that had lapsed. At January 3, 2021, the Company had gross tax effected unrecognized tax benefits of $38.8 million, of which $37.1 million, if recognized, would affect the continuing operations effective tax rate. The remaining amount, if recognized, would affect discontinued operations.

The Company believes that it is reasonably possible that approximately $0.2 million of its uncertain tax positions at January 3, 2021, including accrued interest and penalties, and net of tax benefits, may be resolved over the next twelve months

as a result of lapses in applicable statutes of limitations and potential settlements. Various tax years after 2010 remain open to examination by certain jurisdictions in which the Company has significant business operations, such as China, Finland, Germany, Luxembourg, The Netherlands, Singapore, the United Kingdom and the United States. The tax years under examination vary by jurisdiction.

During fiscal year 2020, the Company recorded net discrete income tax expense of $10.8 million, which primarily consisted of a $15.2 million assessment related to foreign entities for which the Company had previously believed, in error, that the relevant tax authority had granted fiscal unity to consolidate in fiscal years 2019 and 2018. The Company determined that this is not material to any of the previous periods or the current fiscal year. The Company filed an appeal for relief on this matter with the foreign tax authority but cannot be assured of a favorable outcome and has therefore recorded the full impact in the current year’s tax provision as a result of not being granted fiscal unity in fiscal years 2019 and 2018. The Company also provided for interest on uncertain tax positions of $4.5 million, foreign tax rate changes of $2.5 million, return to provision adjustments of $1.2 million and other tax matters of $1.6 million, offset by recognition of excess tax benefits on stock compensation of $11.7 million and a valuation allowance reversal of $2.5 million. During fiscal years 2019 and 2018, the Company recorded net discrete income tax benefits of $23.4 million and $8.1 million, respectively. The $23.4 million tax benefits in fiscal year 2019 was primarily due to a valuation allowance reversal of $12.3 million, recognition of excess tax benefits on stock compensation of $4.9 million, return to provision adjustments of $6.7 million and benefits from tax elections made during fiscal year 2019 of $3.7 million, partially offset by a tax expense of $2.7 million related to the one-time transition tax under the Tax Cut and Jobs Act ("Tax Act") and additional discrete expense of $1.4 million expense related to other tax matters. The $8.1 million of tax benefits in fiscal year 2018 was primarily due to a discrete benefit of $7.2 million related to the recognition of excess tax benefits on stock compensation, along with an additional discrete benefit of $2.0 million as a result of the Tax Act, partially offset by discrete benefits of $1.1 million related to other tax matters.

The components of income from continuing operations before income taxes were as follows for the fiscal years ended:


	January 3, 2021		December 29, 2019		December 30, 2018
	(In thousands)
U.S.	$	183,452	$	29,252	$	32,627
Non-U.S.	722,912		207,890		225,056
Total	$	906,364	$	237,142	$	257,683

On a U.S. income tax basis, the Company has reported significant taxable income over the three-year period ended January 3, 2021. The Company has utilized tax attributes to minimize cash taxes paid on that taxable income.

The components of the provision for income taxes on continuing operations were as follows:


	Current Expense		Deferred Expense (Benefit)		Total
	(In thousands)
Fiscal year ended January 3, 2021
Federal	$	21,262	$	15,951	$	37,213
State	13,688		(967)		12,721
Non-U.S.	172,437		(44,105)		128,332
Total	$	207,387	$	(29,121)	$	178,266
Fiscal year ended December 29, 2019
Federal	$	3,735	$	(267)	$	3,468
State	4,425		(1,574)		2,851
Non-U.S.	62,582		(59,512)		3,070
Total	$	70,742	$	(61,353)	$	9,389
Fiscal year ended December 30, 2018
Federal	$	7,938	$	(5,250)	$	2,688
State	2,345		2,572		4,917
Non-U.S.	61,028		(48,425)		12,603
Total	$	71,311	$	(51,103)	$	20,208

The total provision for (benefit from) income taxes included in the consolidated financial statements is as follows for the fiscal years ended:


	January 3, 2021		December 29, 2019		December 30, 2018
	(In thousands)
Continuing operations	$	178,266	$	9,389	$	20,208
Discontinued operations	135		195		(1,311)
Total	$	178,401	$	9,584	$	18,897

A reconciliation of income tax expense at the U.S. federal statutory income tax rate to the recorded tax provision is as follows for the fiscal years ended:


	January 3, 2021		December 29, 2019		December 30, 2018
	(In thousands)
Tax at statutory rate	$	190,339	$	49,799	$	54,114
Non-U.S. rate differential, net	(40,216)		(32,124)		(27,281)
U.S. taxation of multinational operations	9,050		4,251		7,047
State income taxes, net	13,306		1,941		2,028
Prior year tax matters	8,262		(5,103)		1,124
Effect of stock compensation	(8,818)		(2,053)		(6,331)

General business tax credits	(4,136)		(4,325)		(3,738)
Change in valuation allowance	10		(1,117)		(759)
Foreign consolidations	15,222		—		—
Tax elections	—		(3,700)		—

Impact of U.S. Tax Act	—		2,718		(2,025)

Others, net	(4,753)		(898)		(3,971)
Total	$	178,266	$	9,389	$	20,208

The variation in the Company's effective tax rate for each year is primarily a result of the recognition of earnings in foreign jurisdictions, predominantly Finland, Singapore and the United Kingdom in fiscal year 2020 and Finland, Singapore and The Netherlands in fiscal years 2019 and 2018, which are taxed at rates lower than the U.S. federal statutory rate, resulting in a benefit from income taxes of $42.5 million in fiscal year 2020, $16.7 million in fiscal year 2019 and $18.7 million in fiscal year 2018. These amounts include $21.8 million in fiscal year 2020, $10.4 million in fiscal year 2019 and $10.3 million in fiscal year 2018 of benefits derived from tax holidays in China and Singapore. The effect of these benefits, derived from tax holidays, on basic and diluted earnings per share for fiscal year 2020 was $0.20 and $0.19, respectively, for fiscal year 2019 was $0.09 and $0.09, respectively, and for fiscal year 2018 was $0.09 and $0.09, respectively. The tax holiday in China is renewed every three years. The Company expects to renew the tax holiday for two of the Company's subsidiaries in China that expired in fiscal year 2020. The tax holiday for one of the Company's subsidiaries in Singapore is scheduled to expire in fiscal year 2023.

The tax effects of temporary differences and attributes that gave rise to deferred income tax assets and liabilities as of January 3, 2021 and December 29, 2019 were as follows:


	January 3, 2021		December 29, 2019
	(In thousands)
Deferred tax assets:
Inventory	$	4,788	$	4,662
Reserves and accruals	51,107		46,817
Accrued compensation	20,881		18,953
Net operating loss and credit carryforwards	131,884		116,751
Accrued pension	34,192		35,890
Restructuring reserve	1,579		2,983
Deferred revenue	29,838		30,412
Operating lease liabilities	42,220		46,477
Unrealized foreign exchange loss	21,614		—

Total deferred tax assets	338,103		302,945
Deferred tax liabilities:


Postretirement health benefits	(8,168)		(4,106)

Depreciation and amortization	(355,876)		(330,768)
Operating lease right-of-use assets	(38,598)		(42,774)
All other, net	(4,160)		(1,780)

Total deferred tax liabilities	(406,802)		(379,428)
Valuation allowance	(99,740)		(88,449)
Net deferred tax liabilities	$	(168,439)	$	(164,932)

The components of net deferred tax liabilities as of January 3, 2021 and December 29, 2019 were recognized in the consolidated balance sheets as follows:


	January 3, 2021		December 29, 2019
	(In thousands)
Other assets, net	$	65,518	$	60,004
Long-term liabilities	(233,957)		(224,936)
Total	$	(168,439)	$	(164,932)

At January 3, 2021, for income tax return purposes, the Company had U.S. federal net operating loss carryforwards of $36.6 million, state net operating loss carryforwards of $11.5 million, foreign net operating loss carryforwards of $495.3 million, state tax credit carryforwards of $15.3 million, general business tax credit carryforwards of $0.3 million, and foreign tax credit carryforwards of $0.1 million. These are subject to expiration in years ranging from 2021 to 2038, and without expiration for certain foreign net operating loss carryforwards and certain state credit carryforwards.

Valuation allowances take into consideration limitations imposed upon the use of the tax attributes and reduce the value of such items to the likely net realizable amount. The Company regularly evaluates positive and negative evidence available to determine if valuation allowances are required or if existing valuation allowances are no longer required. Valuation allowances have been provided on state net operating loss and state tax credit carryforwards and on certain foreign tax attributes that the Company has determined are not more likely than not to be realized. The increase in the valuation allowance of $11.3 million in fiscal year 2020 is primarily due to a net build of tax attributes related to the generation and utilization of net operating loss carryforwards by some of the Company's non-U.S. subsidiaries, as well as realization of certain U.S. state tax credit carryforwards.

The components of net deferred tax (liabilities) assets as of January 3, 2021 and December 29, 2019 were as follows:


	January 3, 2021		December 29, 2019
	(In thousands)
U.S.	$	50,302	$	43,683
Non-U.S.	(218,741)		(208,615)
Total	$	(168,439)	$	(164,932)

Prior to enactment of the Tax Act, the Company did not provide deferred income tax expense on the cumulative undistributed earnings of its international subsidiaries. The Tax Act required the Company to accrue a one-time transition tax on the unremitted earnings of its foreign subsidiaries. At December 31, 2017, the Company recorded an income tax expense of $85.0 million in continuing operations in accordance with the Tax Act. The U.S. Treasury issued regulations in 2019 and accordingly the Company refined its calculations of the one-time transition tax and recorded a tax expense (benefit) of $2.7 million and $(4.6) million during fiscal years 2019 and 2018, respectively. At the end of fiscal year 2020, the Company evaluated its undistributed foreign earnings and identified certain earnings that it no longer considered indefinitely reinvested and therefore recognized $1.6 million of income tax expense during the year. The Company's intent is to continue to reinvest the remaining undistributed earnings of its international subsidiaries indefinitely. No additional deferred income taxes have been provided for any remaining undistributed foreign earnings, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested. However, should the Company change its business plans in the future and decide to repatriate a portion of these earnings to one of its U.S. subsidiaries, the Company will recognize additional income tax liabilities. As of January 3, 2021, the Company has approximately $1.5 billion of foreign earnings that it has the intent and ability to keep invested outside the U.S. indefinitely and for which no additional incremental U.S. tax cost has been provided. It is not practicable to calculate the unrecognized deferred tax liability related to such incremental tax costs on those earnings.

- Definition

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.

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