Income Taxes

12 Months Ended

Dec. 31, 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 December 31, 2022, totaling $14.8 million, is recorded in Other long-term liabilities, and the anticipated 2023 annual installment payment of $5.0 million is included in Accrued income taxes, on the Consolidated Balance Sheet as of December 31, 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 December 31, 2022, January 1, 2022, and December 26, 2020, 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)	2022		2021		2020
Domestic	$	32,462	$	13,746	$	(16,732)
Foreign	410,582		327,279		177,985
Income before income taxes	$	443,044	$	341,025	$	161,253

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

 

(in thousands)	2022		2021		2020
Current:
Federal	$	12,423	$	4,832	$	437
State	2,183		1,401		203
Foreign	77,551		59,006		33,841
Subtotal	92,157		65,239		34,481
Deferred:
Federal and State	(9,182)		(9,658)		(5,354)
Foreign	(13,237)		1,638		2,140
Subtotal	(22,419)		(8,020)		(3,214)
Provision for income taxes	$	69,738	$	57,219	$	31,267

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)	2022		2021		2020
Tax expense at statutory rate of 21%	$	93,039	$	71,615	$	33,863
Non-U.S. income tax rate differential	(41,731)		(31,414)		(19,730)
One-time tax deductions for stock of subsidiaries	(11,495)		—		—
Tax on unremitted earnings	10,870		7,585		3,955
Non-U.S. losses and expenses with no tax benefit	10,660		7,820		2,774
Net impact associated with U.S. tax on Non-U.S. income, including GILTI	2,546		(238)		3,731
Certain changes in unrecognized tax benefits and related accrued interest	1,839		4,263		2,160
State and local taxes, net of federal tax benefit	215		(172)		(584)
Tax impact of non-deductible goodwill impairment charge	—		—		5,642
Other, net	3,795		(2,240)		(544)
Provision for income taxes	$	69,738	$	57,219	$	31,267

For fiscal year ended December 31, 2022, the Company classified certain amounts in “Net impact associated with U.S. tax on Non-U.S. income, including GILTI,” that in prior years were classified in “Other, net”.

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 December 31, 2022 and January 1, 2022, are as follows:

 

(in thousands)	2022		2021
Deferred tax assets:
Accrued expenses and reserves	$	49,138	$	36,168
Net operating loss carryforwards	30,403		27,818
Interest expense carryforwards	33,507		16,089
Capitalized expenses	11,632		4,878
U.S. foreign tax credit carryforwards	3,385		980
U.S. research and other general business tax credit carryforwards	2,076		1,104
Excess of tax basis over the book basis for intangible assets and goodwill	404		5,636
Other	—		183
Deferred tax assets	130,545		92,856
Less: Valuation allowance	(37,001)		(34,869)
Total deferred tax assets	93,544		57,987
Deferred tax liabilities:
Excess of book basis over the tax basis for intangible assets and goodwill	143,542		98,046
Excess of book basis over the tax basis for property, plant, and equipment	18,489		12,563
Tax on unremitted earnings	16,282		15,467
Unrealized foreign currency exchange gains	1,094		73
Total deferred tax liabilities	179,407		126,149
Net deferred tax liabilities	$	85,863	$	68,162

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 $96.8 million, $58.2 million, and $35.2 million in 2022, 2021, and 2020, respectively, and received income tax refunds of $3.2 million, $2.6 million, and $7.6 million in 2022, 2021, and 2020, 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 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 December 31, 2022, unremitted earnings of the Company’s non-U.S. subsidiaries were approximately $1.2 billion. A distribution of such earnings will generally not be subject to U.S. federal income tax. The Company recognized deferred tax liabilities of $16.3 million ($16.1 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 December 31, 2022 and $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, 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 expired at the end of 2022, and for the other subsidiary the tax holiday will expire at the end of 2023. The Company intends to seek an extension for the expired tax holiday. Together, the tax holidays contributed $10.1 million in tax benefits, or $0.40 per diluted share, during 2022. 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 December 31, 2022, January 1, 2022, and December 26, 2020 is as follows:

 

(in thousands)	Unrecognized Tax Benefits
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
Additions for tax positions related to pre-acquisition periods of acquired subsidiaries	6,726
Additions for tax positions taken in the current year	2,153
Decreases for tax positions taken in the prior year	(957)
Decreases for lapses in statute of limitations	(758)
Other	(235)
Balance at December 31, 2022	$	30,374

The December 31, 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, approximately $1.3 million may be recognized in 2023 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 $1.4 million (net of a $0.2 million decrease due to a lapse in the statute of limitations), $1.6 million (net of a $0.6 million decrease due to a lapse in the statute of limitations) and $1.6 million (net of a $0.6 million decrease due to a lapse in the statute of limitations) in 2022, 2021, and 2020, respectively. Accrued interest for such matters included in Other long-term liabilities within the Consolidated Balance Sheets was $11.8 million and $10.4 million as of December 31, 2022 and January 1, 2022, 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 Canada, Germany, the Netherlands, Singapore, the U.S., 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.