Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.20.4
INCOME TAXES
 12 Months Ended
Jan. 02, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
As discussed in Note 1 to the Company's financial statements, income taxes for periods prior to the Separation were prepared on a carve-out basis of accounting.
The following table presents income before income taxes for which the provision for income taxes was computed:
Year Ended December
(In thousands) 2020 2019 2018
Domestic $ 18,965  $ 61,691  $ 159,716 
Foreign 53,971  73,503  180,362 
Income before income taxes $ 72,936  $ 135,194  $ 340,078 
The following table presents components of the provision for income taxes:
Year Ended December
(In thousands) 2020 2019 2018
Current:
Federal $ (2,888) $ 14,831  $ 29,670 
Foreign 6,023  23,017  32,501 
State (828) 4,866  12,303 
Total current income taxes 2,307  42,714  74,474 
Deferred:
Federal and state 10,140  (5,912) 4,067 
Foreign (7,434) 1,738  (1,536)
Total deferred income taxes 2,706  (4,174) 2,531 
Total provision for income taxes $ 5,013  $ 38,540  $ 77,005 
The following table presents a reconciliation of the differences between income taxes computed by applying the statutory federal income tax rate and income tax expense reported in the financial statements:
Year Ended December
(In thousands) 2020 2019 2018
Tax at federal statutory rate $ 15,316  $ 28,391  $ 71,416 
State income taxes, net of federal tax benefit 150  2,476  10,532 
Foreign rate differences (6,689) (8,983) (5,125)
Tax reform (6,170) 258  5,526 
Employee compensation (272) (3,169) (2,692)
Adjustments to opening balances (2,797) 1,928  — 
Change in valuation allowance 3,900  17,025  (2,707)
Global intangible low-tax income ("GILTI")
 2,345  2,437  — 
Change in indefinite reinvestment assertions —  (3,914) — 
Other (770) 2,091  55 
Income taxes $ 5,013  $ 38,540  $ 77,005 
Foreign rate differences include tax benefits of $3.0 million, $4.3 million and $2.8 million in 2020, 2019 and 2018, respectively, from statutorily exempt foreign income.
Income tax expense includes tax benefits of $0.2 million, $0.6 million and $5.8 million in 2020, 2019 and 2018, respectively, from favorable audit outcomes on certain tax matters and from expiration of statutes of limitations.
On January 17, 2020, the Swiss canton of Ticino formally adopted The Federal Act on Tax and AVS Financing (“Swiss Tax Act”). Revaluation of deferred income tax asset and liability positions under the Swiss Tax Act had a one-time impact to tax expense of $6.2 million in 2020. The Company recognized net charges of $0.3 million and $5.5 million in 2019 and 2018, respectively, for the finalization of the tax impacts of the Tax Cuts and Jobs Act pursuant to Staff Accounting Bulletin (“SAB”) 118.
The following table presents the components of deferred income tax assets and liabilities:
(In thousands) December 2020 December 2019
Deferred income tax assets:
Inventories $ 11,093  $ 7,811 
Deferred compensation 10,977  13,816 
Other employee benefits 10,297  10,125 
Stock-based compensation 5,734  8,076 
Other accrued expenses 31,961  27,369 
Intangible assets 27,006  21,356 
Leases 16,627  20,219 
Operating loss carryforwards 23,372  9,779 
Gross deferred income tax assets 137,067  118,551 
Less: valuation allowance (23,118) (16,699)
Net deferred income tax assets 113,949  101,852 
Deferred income tax liabilities:
Leases 14,747  19,417 
Depreciation 15,657  2,959 
Taxes on unremitted earnings 2,760  2,163 
Other deferred income tax liabilities —  221 
Deferred income tax liabilities 33,164  24,760 
Total net deferred income tax assets $ 80,785  $ 77,092 
Amounts included in the balance sheets:
Deferred income tax assets $ 85,221  $ 79,551 
Deferred income tax liabilities (4,436) (2,459)
$ 80,785  $ 77,092 
At the end of 2020, the Company is asserting indefinite reinvestment on foreign earnings totaling $19.4 million. The Company has determined the unrecorded deferred income tax liability associated with the $19.4 million basis difference is approximately $0.8 million, primarily related to withholding taxes.
The Company has $14.1 million of potential tax benefits for foreign operating loss carryforwards, $0.7 million of which have an unlimited carryforward life. In addition, there are $9.3 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2021 and 2039.
A valuation allowance has been provided where it is more likely than not that deferred income tax assets related to operating loss carryforwards will not be realized. Valuation allowances totaled $7.5 million for available foreign operating loss carryforwards, $8.9 million for available state operating loss and credit carryforwards, $6.2 million for other foreign deferred income tax assets, and $0.5 million for other state deferred income tax assets. During 2020, the Company recorded tax expense for a net increase in valuation allowances of $1.2 million related to state operating loss and credit carryforwards as well as other state deferred income tax assets, and a net increase in valuation allowances of $5.2 million related to current year foreign operating losses and other deferred income tax assets, inclusive of foreign currency effects.
The following table presents a reconciliation of the change in the accrual for unrecognized income tax benefits:
(In thousands) Unrecognized
Income Tax
Benefits		 Accrued
Interest
and Penalties		 Unrecognized Income Tax Benefits
Including Interest
and Penalties
Balance, December 2017 $ 51,263  $ 2,488  $ 53,751 
Additions for current year tax positions 2,458  8  2,466 
Additions for prior year tax positions 6,286  2,870  9,156 
Reductions for prior year tax positions (191) —  (191)
Reductions due to statute expirations (5,735) (427) (6,162)
Balance, December 2018 54,081  4,939  59,020 
Additions for current year tax positions 1,260  —  1,260 
Additions for prior year tax positions 4,881  2,632  7,513 
Reductions for prior year tax positions (3,680) (318) (3,998)
Reductions due to statute expirations (674) (127) (801)
Payments in settlement (205) (183) (388)
Amounts transferred to former parent (41,986) (2,728) (44,714)
Balance, December 2019 13,677  4,215  17,892 
Additions for current year tax positions 138  —  138 
Additions for prior year tax positions 350  872  1,222 
Reductions for prior year tax positions (1,881) (201) (2,082)
Reductions due to statute expirations (192) (22) (214)
Payments in settlement (199) —  (199)
Balance, December 2020 $ 11,893  $ 4,864  $ 16,757 
(In thousands) December 2020 December 2019
Amounts included in the balance sheets:
Unrecognized income tax benefits, including interest and penalties $ 16,757  $ 17,892 
Less: deferred tax benefits (3,338) (3,626)
Total unrecognized tax benefits $ 13,419  $ 14,266 
The unrecognized tax benefits of $13.4 million at the end of 2020, if recognized, would reduce the annual effective tax rate.
The Company files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the Company’s 2019 tax year remains open and is subject to examination by the Internal Revenue Service. In addition, the Company is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years and has concluded that the Company’s provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on the Company’s financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months. Management also believes that it is reasonably possible that the amount of unrecognized tax benefits may decrease by $0.6 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $0.5 million of which would reduce income tax expense.