Income Taxes

12 Months Ended

Jan. 01, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The 2017 Tax Cuts and Jobs Act (the "Tax Act"), among other things, imposed a one-time tax (the “Toll Charge”) on accumulated earnings of certain non-U.S. subsidiaries and included base broadening provisions commonly referred to as the global intangible low-taxed income provisions ("GILTI").

The Company elected to pay the 2017 Littelfuse Toll Charge over the eight-year period prescribed by the Tax Act. The long-term portion of this Toll Charge which remains payable as of January 1, 2022, totaling $17.8 million, is recorded in Other long-term liabilities, and the anticipated 2022 annual installment payment of $3.0 million is included in Accrued income taxes, on the Consolidated Balance Sheet as of January 1, 2022.

In accordance with guidance issued by the FASB staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred. Thus, for the fiscal years ended January 1, 2022, December 26, 2020 and December 28, 2019, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

Domestic and foreign income (loss) before income taxes is as follows:

 

(in thousands)	2021		2020		2019
Domestic	$	13,746	$	(16,732)	$	(11,970)
Foreign	327,279		177,985		177,854
Income before income taxes	$	341,025	$	161,253	$	165,884

Federal, state and foreign income tax expense (benefit) consists of the following:

 

(in thousands)	2021		2020		2019
Current:
Federal	$	4,832	$	437	$	(3,495)
State	1,401		203		834
Foreign	59,006		33,841		30,610
Subtotal	65,239		34,481		27,949
Deferred:
Federal and State	(9,658)		(5,354)		1,839
Foreign	1,638		2,140		(2,986)
Subtotal	(8,020)		(3,214)		(1,147)
Provision for income taxes	$	57,219	$	31,267	$	26,802

The current federal tax benefit for 2019 includes a benefit of $3.3 million from the recognition of previously unrecognized tax benefits (and the reversal of the related accrued interest) due to a lapse in the statute of limitations.

A reconciliation between income taxes computed on income before income taxes at the federal statutory rate and the provision for income taxes is provided below:

 

(in thousands)	2021		2020		2019
Tax expense at statutory rate of 21%	$	71,615	$	33,863	$	34,836
Non-U.S. income tax rate differential	(31,414)		(19,730)		(22,457)
Non-U.S. losses and expenses with no tax benefit	7,820		2,774		6,570
Tax on unremitted earnings	7,585		3,955		2,136
Certain changes in unrecognized tax benefits and related accrued interest	4,263		2,160		(1,468)
Net impact associated with the GILTI tax provisions	(238)		3,731		6,469
State and local taxes, net of federal tax benefit	(172)		(584)		1,080
Tax impact of non-deductible goodwill impairment charge	—		5,642		—
Other, net	(2,240)		(544)		(364)
Provision for income taxes	$	57,219	$	31,267	$	26,802

Deferred income taxes are provided for the tax effects of temporary differences between the financial reporting bases and the tax bases of the company’s assets and liabilities. Significant components of the company’s deferred tax assets and liabilities at January 1, 2022 and December 26, 2020, are as follows:

 

(in thousands)	2021		2020
Deferred tax assets:
Accrued expenses and reserves	$	36,168	$	31,123
Domestic and non-U.S. net operating loss carryforwards	27,818		24,763
Domestic and non-U.S. interest expense carryforwards	16,089		10,352
Excess of tax basis over the book basis for intangible assets and goodwill	5,636		—
Capitalized expenses	4,878		4,178
U.S. research and other general business tax credit carryforwards	1,104		3,724
U.S. foreign tax credit carryforwards	980		772
Other	183		117
Gross deferred tax assets	92,856		75,029
Less: Valuation allowance	(34,869)		(13,131)
Total deferred tax assets	57,987		61,898
Deferred tax liabilities:
Excess of book basis over the tax basis for intangible assets and goodwill	98,046		76,472
Tax on unremitted earnings	15,467		14,223
Unrealized foreign currency exchange gains	73		5,719
Excess of book basis over the tax basis for property, plant, and equipment	12,563		4,394
Total deferred tax liabilities	126,149		100,808
Net deferred tax liabilities	$	68,162	$	38,910

The deferred tax asset valuation allowance is mainly related to certain U.S. and non-U.S. net operating loss and non-U.S. interest expense carryforwards which are not expected to be realized. The remaining U.S. and non-U.S. net operating loss and interest expense carryforwards either have no expiration date or are expected to be utilized prior to expiration. No deferred tax asset nor valuation allowance has been recorded for certain U.S. and non-U.S. net operating loss carryforwards for which the possibility of usage has been determined to be remote.

The Company paid income taxes of $58.2 million, $35.2 million, and $47.6 million in 2021, 2020, and 2019, respectively, and received income tax refunds of $2.6 million, $7.6 million, and $7.1 million in 2021, 2020, and 2019, respectively.

Deferred income taxes are not provided on the excess of the investment value for financial reporting over the tax basis of investments in those non-U.S. subsidiaries for which such excess is considered to be permanently reinvested in those operations. The Company believes the determination of the amount of such deferred income taxes is impractical as it would depend upon income tax laws and circumstances at the time of the hypothetical distributions or dispositions. As of January 1,

2022, unremitted earnings of the Company’s non-U.S. subsidiaries were approximately $884 million. A distribution of such earnings will generally not be subject to U.S. federal income tax. The Company recognized deferred tax liabilities of $15.5 million ($15.3 million for non-U.S. taxes net of related U.S. foreign tax credits, and $0.2 million for U.S. state taxes) as of January 1, 2022 and $14.2 million ($13.9 million for non-U.S. taxes net of related U.S. foreign tax credits, and $0.3 million for U.S. state taxes) as of December 26, 2020, related to taxes on certain non-U.S. earnings which are not considered to be permanently reinvested.

The Company has two subsidiaries in China which benefit from lower tax rates due to “tax holidays” which apply for three-year periods. The tax holiday for one of the subsidiaries expires at the end of 2022, and for the other subsidiary the tax holiday will expire at the end of 2023. Together, the tax holidays contributed $7.8 million in tax benefits, or $0.31 per diluted share, during 2021. Future year tax benefits will depend upon the Company’s ability to obtain extensions, after the three-year periods expire. There can be no assurance that future extensions will be granted.

A reconciliation of the beginning and ending amount of unrecognized tax benefits as of January 1, 2022, December 26, 2020, and December 28, 2019 is as follows:

 

(in thousands)	Unrecognized Tax Benefits
Balance at December 28, 2019	$	16,721
Additions for tax positions taken in the current year	700
Decreases due to a lapse in the statute of limitations	(103)
Other	119
Balance at December 26, 2020	17,437
Additions for tax positions related to pre-acquisition periods of acquired subsidiaries	3,260
Additions for tax positions taken in the current year	1,587
Additions for tax positions taken in the prior year	1,100
Other	61
Balance at January 1, 2022	23,445

The January 1, 2022 total in the table above represents the net amount of tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. Of this amount, only an insignificant amount may be recognized in 2022 based upon the possible lapse in the statute of limitations. None of the positions included in unrecognized tax benefits are related to tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility.

The company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense. The company recognized such interest expense of $1.6 million, $1.6 million (net of a $0.6 million decrease due to a lapse in the statute of limitations), and $1.3 million (net of a $0.6 million decrease due to a lapse in the statute of limitations) in 2021, 2020, and 2019, respectively. Accrued interest for such matters included in Other long-term liabilities within the Consolidated Balance Sheets was $10.4 million and $8.8 million as of January 1, 2022 and December 26, 2020, respectively.

The U.S. federal statute of limitations remains open for the Company for the 2017 tax year (with respect to the Toll Charge) and later years. Non-U.S. and U.S. state statutes of limitations generally range from three to seven years, although certain jurisdictions do not have a statute expiration. Tax examinations occur from time to time, including examinations currently in process in Korea, the Netherlands, the Philippines, and certain U.S. states. The company does not expect to recognize a significant amount of additional tax expense as a result of concluding these examinations. During 2021, the Company received a notice of assessment for approximately $3 million from the Canadian tax authorities. The Company has objected to and appealed the assessment, and does not expect to recognize a significant amount of additional tax expense upon conclusion of such appeal.