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Income Taxes
 12 Months Ended
Jan. 02, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
 
Income (loss) before income taxes consisted of the following:
 
 Fiscal Year
 202120202019
 (in thousands)
U.S. operations$4,460 $(7,104)$46,463 
Foreign operations68,173 (72,316)55,353 
Income (loss) before income taxes$72,633 $(79,420)$101,816 

Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:

 Fiscal Year
 202120202019
 (in thousands)
Current expense (benefit):   
Federal$1,987 $(22,976)$8,414 
Foreign21,372 14,822 14,513 
State1,418 529 2,312 
Current expense (benefit)24,777 (7,625)25,239 
 
Deferred expense (benefit):   
Federal(2,841)1,787 (625)
Foreign(3,846)(2,422)(2,198)
State(691)769 200 
Deferred expense (benefit)(7,378)134 (2,623)
 
Total income tax expense (benefit)$17,399 $(7,491)$22,616 
 
The Company’s effective tax rate was 24.0%, 9.4% and 22.2% for fiscal years 2021, 2020 and 2019, 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
 202120202019
 (in thousands)
Income taxes at U.S. federal statutory rate$15,253 $(16,678)$21,381 
Increase (decrease) in taxes resulting from:   
State income taxes, net of federal tax effect(87)(2,033)2,321 
Non-deductible business expenses330 1,792 933 
Non-deductible employee compensation1,213 (210)1,453 
Tax effects of Company-owned life insurance(762)(898)(636)
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested1,219 748 (183)
Foreign and U.S. tax effects attributable to foreign operations1,748 (11,991)783 
Valuation allowance effect1,349 12,927 133 
Research and development tax credits(793)(780)(700)
Goodwill impairment— 24,464 — 
Unrecognized tax benefits(2,663)(14,962)(3,324)
Other592 130 455 
Income tax expense (benefit)$17,399 $(7,491)$22,616 

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. For the tax year ended January 3, 2021, the Company deferred $4.1 million in payroll taxes under the CARES Act which was paid as of January 2, 2022. In addition, for the year ended January 3, 2021, the Company benefited from the relaxed 163(j) limitation and the technical correction related to depreciation of leasehold improvements, both of which did not have a material impact on the Company’s effective tax rate for that year. Some of the provisions of the CARES Act, including the deferral of certain payroll taxes and the relaxed 163(j) limitation, are not applicable for tax years after 2020, and as a result the Company did not benefit from these provisions for the tax year ended January 2, 2022. In addition, the Company did not materially benefit from the provisions of the CARES Act that remained in effect during the tax year ended January 2, 2022.

Deferred income taxes for the years ended January 2, 2022 and January 3, 2021, 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.
The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:
 
 End of Fiscal Year
 20212020
 (in thousands)
Deferred tax assets
Lease liability$25,426 $28,094 
Net operating loss and interest carryforwards5,962 4,031 
Federal tax credit carryforwards10,054 10,412 
Derivative instruments1,126 2,680 
Deferred compensation19,487 20,244 
Inventory3,100 4,004 
Prepaids, accruals and reserves8,777 3,659 
Capitalized costs4,805 — 
Pensions6,431 11,485 
Other175 50 
Deferred tax asset, gross85,343 84,659 
Valuation allowance(15,338)(13,919)
Deferred tax asset, net$70,005 $70,740 
 
Deferred tax liabilities
Property and equipment$25,352 $27,322 
Intangible assets30,736 30,745 
Lease asset24,856 27,268 
Foreign currency458 606 
Foreign withholding and U.S. state taxes on unremitted earnings1,332 931 
Deferred tax liabilities82,734 86,872 
 
Net deferred tax liabilities$12,729 $16,132 

Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the federal deferred tax assets at January 2, 2022.

Beginning in 2018, the Company has elected to account for tax effects of the global intangible low-taxed income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Internal Revenue Code Section 163(j) interest limitation (“Interest Limitation”) and base-erosion and anti-abuse tax (“BEAT”) provisions included in the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) in the period when incurred, and therefore has not provided any deferred tax impacts for these provisions in its consolidated financial statements.

As of January 2, 2022, the Company 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 2, 2022, the Company has approximately $153.0 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2041 and has provided a valuation allowance against $90.1 million of such losses, which the Company does not expect to utilize. In addition, as of January 2, 2022, the Company has approximately $25.7 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.

As of January 2, 2022, and January 3, 2021, non-current deferred tax assets were reduced by approximately $2.8 million and $3.0 million, respectively, of unrecognized tax benefits.
 
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. In September of 2021, as part of an overall restructuring plan, the Company made the decision to close its manufacturing facility in Thailand. As a result, the Company is no longer asserting that the undistributed earnings in its Thailand subsidiaries are permanently reinvested. The Company provided for U.S. income taxes and foreign withholding taxes on these earnings at January 2, 2022.

Although the Tax Act 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 2018 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 2016 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 2010 to the present.

As a result of an audit of the Company’s U.K. subsidiaries, Her Majesty’s Revenue & Customs (“HMRC”) issued notices of amendment to the Company’s U.K. tax returns for the years 2012 through 2017. Final assessments including the adjustments have not been issued. The adjustments result from the interest rate applied in the intra-group financing arrangement between a Company subsidiary in the U.K. and the Netherlands. In April of 2021, the Company filed requests with both the Competent Authority in the Netherlands and in the U.K. to initiate a mutual agreement procedure (“MAP”) 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 these adjustments 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 2, 2022, and January 3, 2021, the Company had $8.2 million and $10.8 million, respectively, of unrecognized tax benefits. For the years ended January 2, 2022 and January 3, 2021, the Company recognized as income tax benefits $2.7 million and $15.0 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 $2.5 million of unrecognized tax benefits may be recognized within the next 12 months due to a lapse of statute of limitations.

If any of the $8.2 million of unrecognized tax benefits as of January 2, 2022 are recognized, there would be a favorable impact on the Company’s effective tax rate of approximately $7.5 million in future periods. If the unrecognized tax benefits are not favorably settled, $5.4 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 2, 2022, the Company had accrued interest and penalties of $0.9 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.
 
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:
 
 Fiscal Year
 202120202019
 (in thousands)
Balance at beginning of year$10,799 $25,486 $28,143 
Increases related to tax positions taken during the current year265 271 318 
Increases related to tax positions taken during the prior years198 536 1,093 
Decreases related to tax positions taken during the prior years— (673)(2,809)
Decreases related to lapse of applicable statute of limitations(2,309)(14,992)(1,266)
Changes due to settlements(836)— — 
Changes due to foreign currency translation103 171 7 
Balance at end of year$8,220 $10,799 $25,486