Income Taxes

12 Months Ended

Dec. 30, 2023

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 30, 2023, totaling $8.2 million, is recorded in Other long-term liabilities, and the anticipated 2024 annual installment payment of $6.6 million is included in Accrued income taxes, on the Consolidated Balance Sheet as of December 30, 2023.

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 30, 2023, December 31, 2022, and January 1, 2022, 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)	2023		2022		2021
Domestic	$	40,571	$	32,462	$	13,746
Foreign	288,027		410,582		327,279
Income before income taxes	$	328,598	$	443,044	$	341,025

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

 

(in thousands)	2023		2022		2021
Current:
Federal	$	8,188	$	12,423	$	4,832
State	2,880		2,183		1,401
Foreign	57,999		77,551		59,006
Subtotal	69,067		92,157		65,239
Deferred:
Federal and State	1,751		(9,182)		(9,658)
Foreign	(1,705)		(13,237)		1,638
Subtotal	46		(22,419)		(8,020)
Provision for income taxes	$	69,113	$	69,738	$	57,219

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)	2023		2022		2021
Tax expense at statutory rate of 21%	$	69,006	$	93,039	$	71,615
Non-U.S. income tax rate differential	(25,623)		(41,731)		(31,414)
Non-U.S. losses and expenses with no tax benefit	11,261		10,660		7,820
Tax on unremitted earnings	6,394		10,870		7,585
Net impact associated with U.S. tax on Non-U.S. income, including GILTI	4,739		2,546		(238)
State and local taxes, net of federal tax benefit	1,503		215		(172)
Certain changes in unrecognized tax benefits and related accrued interest	(172)		1,839		4,263
One-time tax deductions for stock of subsidiaries	—		(11,495)		—
Other, net	2,005		3,795		(2,240)
Provision for income taxes	$	69,113	$	69,738	$	57,219

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 30, 2023 and December 31, 2022, are as follows:

 

(in thousands)	2023		2022
Deferred tax assets:
Accrued expenses and reserves	$	39,299	$	49,138
Net operating loss carryforwards	36,941		30,403
Interest expense carryforwards	34,205		33,507
Capitalized expenses	16,872		11,632
U.S. foreign tax credit carryforwards	3,561		3,385
U.S. research and other general business tax credit carryforwards	1,468		2,076
Excess of tax basis over the book basis for intangible assets and goodwill	—		404
Deferred tax assets	132,346		130,545
Less: Valuation allowance	(41,542)		(37,001)
Total deferred tax assets	90,804		93,544
Deferred tax liabilities:
Excess of book basis over the tax basis for intangible assets and goodwill	148,659		143,542
Excess of book basis over the tax basis for property, plant, and equipment	22,570		18,489
Tax on unremitted earnings	18,621		16,282
Unrealized foreign currency exchange gains	1,288		1,094
Total deferred tax liabilities	191,138		179,407
Net deferred tax liabilities	$	100,334	$	85,863

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 more likely that not 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 (which begin expiring in 2025). 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 $81.1 million, $96.8 million, and $58.2 million in 2023, 2022, and 2021, respectively, and received income tax refunds of $7.2 million, $3.2 million, and $2.6 million in 2023, 2022, and 2021, 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 30, 2023, unremitted earnings of the Company’s non-U.S. subsidiaries were approximately $1.5 billion. A distribution of such earnings will generally not be subject to U.S. federal income tax. The Company recognized deferred tax liabilities of $18.6 million as of December 30, 2023 and $16.3 million as of December 31, 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, but was later extended for an additional three years, retroactive to include all of 2023, as well as 2024 and 2025, and for the other subsidiary the tax holiday expired at the end of 2023. The Company intends to seek an extension for the expired tax holiday. Together, the tax holidays contributed $5.8 million in tax benefits, or $0.23 per diluted share, during 2023. 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 30, 2023, December 31, 2022, and January 1, 2022 is as follows:

 

(in thousands)	Unrecognized Tax Benefits
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
Additions for tax positions related to pre-acquisition periods of acquired subsidiaries	1,975
Additions for tax positions taken in the current year	1,200
Decreases for tax positions taken in the prior year	(792)
Decreases for lapses in statute of limitations	(1,051)
Decreases for settlements	(215)
Other	(42)
Balance at December 30, 2023	$	31,449

The December 30, 2023 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 $7.8 million may be recognized in 2024 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 $0.5 million (net of a $1.7 million decrease due to a lapse in the statute of limitations), $1.4 million (net of a $0.2 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 2023, 2022, and 2021, respectively. Accrued interest for such matters included in Other long-term liabilities within the Consolidated Balance Sheets was $14.4 million and $11.8 million as of December 30, 2023 and December 31, 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 Germany, the Netherlands, Singapore, 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.