
	Fiscal Year
	2020		2019		2018
	(in thousands)
Current expense (benefit):
Federal	$	(22,976)	$	8,414	$	(3,549)
Foreign	14,822		14,513		14,548
State	529		2,312		2,628
Current expense (benefit)	(7,625)		25,239		13,627

Deferred expense (benefit):
Federal	1,787		(625)		2,145
Foreign	(2,422)		(2,198)		(11,228)
State	769		200		194
Deferred expense (benefit)	134		(2,623)		(8,889)

Total income tax expense (benefit)	$	(7,491)	$	22,616	$	4,738

The Company’s effective tax rate was 9.4%, 22.2% and 8.6% for fiscal years 2020, 2019 and 2018, respectively. The following summary reconciles income taxes at the U.S. federal statutory rate of 21% applicable for all periods presented to the Company’s actual income tax expense:


	Fiscal Year
	2020		2019		2018
	(in thousands)
Income taxes at U.S. federal statutory rate	$	(16,678)	$	21,381	$	11,548
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax effect	(2,033)		2,321		2,228
Non-deductible business expenses	1,792		933		1,352
Non-deductible employee compensation	(210)		1,453		2,566
Tax effects of Company owned life insurance	(898)		(636)		235
Tax effects of Tax Act:
One-time transition tax on foreign earnings	—		—		(5,000)
Remeasurement of net Deferred Tax Asset	—		—		(1,739)
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested	748		(183)		61
Foreign and U.S. tax effects attributable to foreign operations	(11,991)		783		(2,226)
Valuation allowance effect	12,927		133		(79)
Research and development tax credits	(780)		(700)		(2,863)
Goodwill impairment	24,464		—		—
Changes in unrecognized tax benefits	(14,962)		(3,324)		(1,010)
Other	130		455		(335)
Income tax expense (benefit)	$	(7,491)	$	22,616	$	4,738

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic and provides certain tax relief to businesses. Tax provisions of the CARES Act include, among other things, the deferral of certain payroll taxes, relief for retaining employees, and certain income tax provisions for corporations. As of January 3, 2021, the Company deferred $4.1 million in payroll taxes under the CARES Act. In addition, the Company benefited from the relaxed 163(j) limitation and the technical correction related to depreciation of leasehold improvements, all of which did not have a material impact on the Company’s effective tax rate during the year.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. In accordance with SEC Staff Bulletin No. 118 (“SAB 118”), the Company recorded certain provisional estimates for the impact of the Tax Act as of December 31, 2017. Under the transitional provisions of SAB 118, the Company had a one-year measurement period to complete the accounting for the initial tax effects of the Tax Act. During the year ended December 30, 2018, the Company completed its accounting for the provisional estimates of the Tax Act and finalized its measurement period adjustments related to the one-time transition tax and remeasurement of its net deferred tax asset, as further discussed below.

Impacts of Deemed Repatriation: The Tax Act imposed a one-time transition tax on unrepatriated post-1986 accumulated earnings and profits of certain foreign subsidiaries (“E&P”). As of December 30, 2018, the Company had completed its assessment of the one-time transition tax which resulted in a $5.0 million decrease to the previously recorded provisional amount.

Remeasurement of Deferred Tax Assets and Liabilities: As of December 30, 2018, the Company had completed the accounting of remeasuring its net deferred tax asset to reflect the change in corporate tax rate from 35% to 21% which resulted in a $1.7 million decrease to the previously recorded provisional amount.

Deferred income taxes for the years ended January 3, 2021 and December 29, 2019, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.


	End of Fiscal Year
	2020		2019
	(in thousands)
Deferred tax assets
Lease liability	$	28,094	$	29,782
Net operating loss carryforwards	4,031		3,090
Federal tax credit carryforwards	10,412		—
Derivative instruments	2,680		1,638
Deferred compensation	20,244		20,194
Inventory	4,004		3,200
Prepaids, accruals and reserves	3,659		7,935
Pensions	11,485		9,229
Other	50		71
Deferred tax asset, gross	84,659		75,139
Valuation allowance	(13,919)		(971)
Deferred tax asset, net	$	70,740	$	74,168

Deferred tax liabilities
Property and equipment	$	27,322	$	23,770
Intangible assets	30,745		33,760
Lease asset	27,268		29,301
Foreign currency	606		3,026
Foreign withholding and U.S. state taxes on unremitted earnings	931		178
Deferred tax liabilities	86,872		90,035

Net deferred tax liabilities	$	16,132	$	15,867

Beginning in 2018, the Tax Act included two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The Company has elected to account for tax effects of GILTI in the period when incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements.

As of January 3, 2021, the Company, as a result of amending prior year tax returns, has approximately $10.1 million of foreign tax credit carryforwards with expiration dates through 2029. A full valuation allowance has been provided as the Company does not expect to utilize these foreign tax credits before the expiration dates. As of January 3, 2021, the Company has approximately $142.7 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2036 and has provided a valuation allowance against $74.8 million of such losses, which the Company does not expect to utilize. In addition, as of January 3, 2021, the Company has approximately $30.2 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

Historically, the Company has not provided for U.S. income taxes and foreign withholding taxes on the undistributed accumulated earnings of its foreign subsidiaries, with the exception of its Canada subsidiaries and a specific portion of the undistributed earnings of foreign subsidiaries outside of Canada, because such earnings were deemed to be permanently reinvested.

Although the Tax Act of 2017 created a dividends received deduction that generally eliminates additional U.S. federal income taxes on dividends from our foreign subsidiaries, the Company continues to assert that all of its undistributed earnings in its non-U.S. subsidiaries, excluding undistributed earnings for which U.S. income taxes and foreign withholding taxes have been provided, are indefinitely reinvested outside of the U.S. The Company expects that domestic cash resources will be sufficient to fund its domestic operations and cash commitments in the future. In the event the Company determines not to continue to assert that all or part of its undistributed earnings in its non-U.S. subsidiaries are permanently reinvested, an actual repatriation from its non-U.S. subsidiaries could still be subject to additional foreign withholding and U.S. state taxes, the determination of which is not practicable.

The Company’s federal income tax returns are subject to examination for the years 2017 to the present. The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years 2015 to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years 2009 to the present.

During a review of the 2015 tax return of the Company’s U.K. subsidiary, Her Majesty’s Revenue & Customs (“HMRC”) issued a discovery assessment for the years 2012 through 2014 related to the interest rate applied in its intra-group financing arrangement with a subsidiary in the Netherlands. HMRC extended its inquiry to tax years 2016 and 2017; although HMRC has not yet issued final assessments for tax years 2015 through 2017, the Company has received notices of amendment to the tax returns for these years. The Company is in the process of filing a request with the Competent Authority of the Netherlands to initiate a mutual agreement procedure (“MAP”) under article 25 of the bilateral tax treaty between the United Kingdom and the Netherlands related to the double taxation arising from the HMRC adjustments. Management believes it is more likely than not that the Company will obtain relief from double taxation through the MAP, and as such, does not anticipate the HMRC adjustments related to its intra-group financing arrangement with the Netherlands will result in a material change to its financial position. The Company will continue to evaluate the progress of the MAP and will recognize all related adjustments when the recognition thresholds have been met.

As of January 3, 2021, and December 29, 2019, the Company had $10.8 million and $25.5 million, respectively, of unrecognized tax benefits. For the years ended January 3, 2021 and December 29, 2019, the Company recognized as income tax benefits $15.0 million and $3.3 million, respectively, of previously unrecognized tax benefits. Of the $15.0 million income tax benefits recognized for the year ended January 3, 2021, $12.7 million related to a worthless stock loss claimed on the Company’s exit of its broadloom business (discontinued operations). It is reasonably possible that approximately $2.1 million of unrecognized tax benefits may be recognized within the next 12 months due to a lapse of statute of limitations and settlements with taxing authorities.

If any of the $10.8 million of unrecognized tax benefits as of January 3, 2021 are recognized, there would be a favorable impact on the Company’s effective tax rate of approximately $10.0 million in future periods. If the unrecognized tax benefits are not favorably settled, $7.8 million of the total amount of unrecognized tax benefits would require the use of cash in future periods. The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. As of January 3, 2021, the Company had accrued interest and penalties of $1.5 million, which is included in the total unrecognized tax benefit noted above. The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control.


	Fiscal Year
	2020		2019		2018
	(in thousands)
Balance at beginning of year	$	25,486	$	28,143	$	29,221
Increases related to tax positions taken during the current year	271		318		671
Increases related to tax positions taken during the prior years	536		1,093		180
Decreases related to tax positions taken during the prior years	(673)		(2,809)		—
Decreases related to lapse of applicable statute of limitations	(14,992)		(1,266)		(1,861)
Changes due to foreign currency translation	171		7		(68)
Balance at end of year	$	10,799	$	25,486	$	28,143