Income Taxes

12 Months Ended

Jan. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

 

	January 2, 2022		January 3, 2021		December 29, 2019
	(In thousands)
U.S.	$	562,704	$	183,452	$	29,252
Non-U.S.	717,182		722,912		207,890
Total	$	1,279,886	$	906,364	$	237,142

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 2, 2022
Federal	$	150,621	$	(37,551)	$	113,070
State	62,381		3,508		65,889
Non-U.S.	172,943		(15,299)		157,644
Total	$	385,945	$	(49,342)	$	336,603
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

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

	January 2, 2022		January 3, 2021		December 29, 2019
	(In thousands)
Continuing operations	$	336,603	$	178,266	$	9,389
Discontinued operations	126		135		195
Total	$	336,729	$	178,401	$	9,584

 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 2, 2022		January 3, 2021		December 29, 2019
	(In thousands)
Tax at statutory rate	$	268,776	$	190,339	$	49,799
Non-U.S. rate differential, net	(34,676)		(40,216)		(32,124)
U.S. taxation of multinational operations	9,731		9,050		4,251
State income taxes, net	37,907		13,306		1,941
Prior year tax matters	3,068		8,262		(5,103)
Effect of stock compensation	(2,961)		(8,818)		(2,053)
General business tax credits	(4,277)		(4,136)		(4,325)
Change in valuation allowance	3,070		10		(1,117)
Rate change on long term intangibles	14,031		—		—
Effect of foreign operations	37,147		—		—
Foreign consolidations	—		15,222		—
Tax elections	—		—		(3,700)
Impact of U.S. Tax Act	—		—		2,718
Others, net	4,787		(4,753)		(898)
Total	$	336,603	$	178,266	$	9,389

 The variation in the Company's effective tax rate for fiscal year 2021 is primarily affected by the recognition of $37.1 million in U.S. federal, U.S. state and non-U.S. taxes due when the Company repatriates foreign earnings that it no longer considers indefinitely reinvested. The Company also recognized $19.0 million in fiscal year 2021, $21.8 million in fiscal year 2020 and $10.4 million in fiscal year 2019 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 2021 was $0.16 and $0.16, respectively, for fiscal year 2020 was $0.20 and $0.19, respectively, and for fiscal year 2019 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 2021. The tax holiday for one of the Company's subsidiaries in Singapore is scheduled to expire in fiscal year 2023.

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 2, 2022		January 3, 2021		December 29, 2019
	(In thousands)
Unrecognized tax benefits, beginning of year	$	38,773	$	35,547	$	33,009
Gross increases—tax positions in prior periods	2,877		4,974		275
Gross decreases—tax positions in prior periods	—		(2,471)		(2,183)
Gross increases—current-period tax positions	149		151		152
Gross increases related to acquisitions	22,697		158		4,158
Settlements	(2,252)		—		(45)
Lapse of statute of limitations	(563)		—		—
Foreign currency translation adjustments	(23)		414		181
Unrecognized tax benefits, end of year	$	61,658	$	38,773	$	35,547

The Company classifies interest and penalties as a component of income tax expense. At January 2, 2022 and January 3, 2021, the Company had accrued interest and penalties of $7.6 million and $5.8 million, respectively. During fiscal years 2021, 2020 and 2019, the Company recognized a net expense of $1.8 million, $1.8 million and $1.6 million, respectively, for interest

and penalties in its total tax provision which includes settlements and statutes of limitations that had lapsed. At January 2, 2022, the Company had tax effected unrecognized tax benefits which, if recognized, $58.0 million would affect the continuing operations effective tax rate and $1.7 million would affect discontinued operations.

The Company believes that it is reasonably possible that approximately $1.0 million of its uncertain tax positions at January 2, 2022, 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 2021, the Company recorded net discrete income tax expense of $43.2 million, which primarily consisted of $37.1 million related to the assertions regarding reinvestment of foreign earnings, increase in unrecognized tax benefits of $1.9 million, other adjustments of $3.9 million and a discrete tax expense of $14.0 million due to the remeasurement of United Kingdom deferred tax liabilities on long-lived purchase accounting intangibles and a $1.8 million tax benefit related to other net United Kingdom deferred tax assets and liabilities in connection with United Kingdom Finance Act 2021, which increased the United Kingdom corporation tax from 19% to 25%, effective April 1, 2023. The remaining discrete tax benefit, excluding the United Kingdom rate change, related to excess tax benefits on stock compensation of $5.5 million and $6.4 million resulting from a transaction that was completed during the second quarter of fiscal year 2021.

During fiscal year 2020, the Company recorded net discrete income tax expense of $10.8 million, which primarily consisted of $15.2 million assessment related to the consolidation of foreign entities in fiscal years 2019 and 2018. The Company filed an appeal for relief on this matter with the relevant foreign tax authority, but cannot be assured of a favorable outcome, and has therefore recorded the full impact in the tax provision. 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 year 2019, the Company recorded a net discrete income tax benefit of $23.4 million which 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 tax effects of temporary differences and attributes that gave rise to deferred income tax assets and liabilities were as follows:

	January 2, 2022		January 3, 2021
	(In thousands)
Deferred tax assets:
Inventory	$	3,152	$	4,788
Reserves and accruals	56,085		51,107
Accrued compensation	30,352		20,881
Net operating loss and credit carryforwards	113,787		131,884
Accrued pension	23,801		34,192
Restructuring reserve	1,442		1,579
Deferred revenue	49,431		29,838
Operating lease liabilities	37,936		42,220
Unrealized foreign exchange loss	14,631		21,614
All other, net	631		—
Total deferred tax assets	331,248		338,103
Deferred tax liabilities:
Postretirement health benefits	(5,303)		(8,168)
Depreciation and amortization	(1,037,637)		(355,876)
Operating lease right-of-use assets	(34,111)		(38,598)
Prepaids	(3,263)		(4,160)
Deferred tax liability on foreign earnings	(31,239)		—
Total deferred tax liabilities	(1,111,553)		(406,802)
Valuation allowance	(91,503)		(99,740)
Net deferred tax liabilities	$	(871,808)	$	(168,439)

The components of net deferred tax liabilities were recognized in the consolidated balance sheets as follows:

	January 2, 2022		January 3, 2021
	(In thousands)
Other assets, net	$	22,007	$	65,518
Deferred taxes and other long-term liabilities	(893,815)		(233,957)
Total	$	(871,808)	$	(168,439)

At January 2, 2022, for income tax return purposes, the Company had U.S. federal net operating loss carryforwards of $74.8 million, state net operating loss carryforwards of $10.8 million, foreign net operating loss carryforwards of $452.0 million, state tax credit carryforwards of $15.0 million, general business tax credit carryforwards of $0.6 million, and foreign tax credit carryforwards of $0.1 million. These losses begin to expire in 2022 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 decrease in the valuation allowance of $8.2 million in fiscal year 2021 is primarily due to release of net operating loss carryforwards as a result of an audit settlement in Finland and utilization of carryforwards in Luxembourg, offset by an increase in China and other jurisdictions.

The components of net deferred tax liabilities were as follows:

	January 2, 2022		January 3, 2021
	(In thousands)
U.S.	$	(621,449)	$	50,302
Non-U.S.	(250,359)		(218,741)
Total	$	(871,808)	$	(168,439)

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 accrued for a one-time transition tax expense of $85.0 million on its unremitted foreign earnings in accordance with the Tax Act. The U.S. Treasury subsequently issued regulations on the Tax Act and the Company recorded tax expense (benefit) of $2.7 million and $(4.6) million during fiscal years 2019 and 2018, respectively.

As of January 2, 2022, the Company evaluated its undistributed foreign earnings and identified approximately $1.2 billion in earnings that it no longer considers indefinitely reinvested. The Company intends to begin repatriating such earnings to the U.S., in whole or in part, during fiscal year 2022. In doing so, the Company has recorded a provision of approximately $37.1 million for the U.S. federal, U.S. state and non-U.S. taxes that would fall due when such earnings are repatriated. No additional income tax expense has 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.