Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 30, 2023
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Consolidated earnings before income taxes consists of the following for 2023, 2022, and 2021:
Year Ended
2023 2022 2021
United States $ (19,988) $ (23,996) $ 13,017 
Foreign 122,441  132,617  157,625 
Total earnings before income taxes $ 102,453  $ 108,621  $ 170,642 
Income tax expense (benefit) included in income from continuing operations consists of the following:
Year Ended
2023 2022 2021
Current
Federal $ (42) $ 42  $ (264)
State 469  297  567 
Foreign 40,913  45,869  56,668 
Total Current 41,340  46,208  56,971 
Deferred
Federal (4,031) (9,180) (4,088)
State (59) (331) (40)
Foreign 1,415  2,574  1,294 
Total Deferred (2,675) (6,937) (2,834)
$ 38,665  $ 39,271  $ 54,137 
The effective tax rate for 2023, 2022, and 2021 reconciled to the statutory U.S. Federal tax rate is as follows:
Year Ended
2023 2022 2021
Statutory U.S. federal income tax rate 21.0  % 21.0  % 21.0  %
State income taxes, net of federal tax benefit 0.5  0.4  0.4 
Permanent tax differences 0.7  0.3  0.1 
Excess foreign tax credits (16.4) (16.6) (10.9)
Net increase in valuation allowance 13.0  11.9  10.6 
Foreign income tax rate differences 8.7  9.5  1.8 
Foreign withholding taxes 10.6  9.7  7.9 
Uncertain tax position reserve (0.4) 0.5  (0.3)
All other, net —  (0.5) 1.1 
37.7  % 36.2  % 31.7  %
The effective tax rate for the year ended December 30, 2023 increased compared to the year ended December 31, 2022. The effective tax rate increase is due primarily to an unfavorable foreign currency impact on withholding tax accruals and the change in the market mix of pre-tax book income.
The significant categories of deferred taxes are as follows:
December 30,
2023		 December 31,
2022
Deferred tax assets
Inventory $ 5,588  $ 5,872 
Accruals not currently deductible 6,680  8,627 
Equity-based compensation expense 2,580  2,746 
Property and equipment 771  922 
Intangible assets 6,359  6,680 
Foreign currency translation 1,760  1,448 
Capitalized R&D expenses 13,537  9,618 
Tax credit carry forwards 134,205  115,539 
Net operating losses 1,956  1,720 
Other 3,237  3,223 
Gross deferred tax assets 176,673  156,395 
Valuation allowance (137,252) (118,136)
Net deferred tax assets 39,421  38,259 
Deferred tax liabilities
Property and equipment (5,897) (5,723)
Prepaid expenses (1,819) (2,990)
Intangible assets (6,359) (6,680)
Withholding tax on unremitted earnings (11,673) (11,639)
Other (4,941) (5,499)
Gross deferred tax liabilities (30,689) (32,531)
Net deferred taxes $ 8,732  $ 5,728 
The components of net deferred taxes on a jurisdiction basis are as follows:
December 30,
2023		 December 31,
2022
Net deferred tax assets $ 13,284  $ 9,799 
Net deferred tax liabilities (4,552) (4,071)
Net deferred taxes $ 8,732  $ 5,728 
As of December 30, 2023, the Company had foreign tax credit carryforwards of approximately $128,695. If unused, these carryforwards will expire between 2026 and 2033. The Company has generated excess foreign tax credits since the Tax Cuts and Jobs Act of 2017 was enacted on December 22, 2017. This is due to the U.S. tax rate being lower than most foreign taxing jurisdiction rates where the Company operates. Although the Company can claim foreign tax credits against U.S. source income due to overall domestic losses generated in previous years, the Company does not believe it will be able to use more foreign tax credits than it generates in a single year. The Company believes these foreign tax credit carryforwards will expire unused based on available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, available tax planning strategies, and available carryback opportunities. Similar with prior years, the Company continues to maintain a full valuation allowance on its foreign tax credit carryforwards. Valuation allowances are determined using a more-likely-than-not realization criteria and are based upon all facts and circumstances.
The Company recorded a $1,591 valuation allowance on mirrored deferred tax assets recorded in the United States, which offset deferred tax liabilities of foreign disregarded entities. These mirrored deferred tax assets represent future foreign tax credits. This valuation allowance is necessary because the Company is limited in its ability to utilize future foreign tax credits due to the U.S. tax rate being lower than most foreign taxing jurisdiction rates where the Company operates.
The Company also had $1,908 of Utah research credit carryforwards, and $3,602 of Federal research credit carryforwards as of December 30, 2023. If unused, the Utah research credit carryforwards expire between 2027 and 2037, and the Federal research credits expire between 2036 and 2043. Utah research credits are limited to Utah tax due and the Company has a history of generating more credits than it can use. Federal research credit carryforwards can only be used in a year when U.S. taxes are owed after foreign tax credits have been applied. Due to the lack of sufficient evidence to the contrary, the Company has placed a full valuation allowance on these credit carryforwards.
In addition, the Company had $6,100 of foreign operating loss carry forwards, $1,627 of which have an unlimited carryforward period. The deferred tax asset associated with these losses was $1,893 and a valuation allowance of $1,423 has been applied against this deferred tax asset. The 2023 deferred tax asset for state-tax-loss carryforwards was $63. If unused, some of the state-tax-loss carryforwards will expire between 2032 and 2042 and others can be carried forward indefinitely.
The total combined valuation allowance was $137,252 as of December 30, 2023. The 2023 valuation allowance represents a $19,116 net increase from 2022. If the Company determines that there is sufficient evidence to remove the valuation allowances addressed above, the valuation allowance will be released and the provision for income taxes will be reduced.
As of December 30, 2023, the cumulative amount of undistributed earnings of the Company’s non-U.S. subsidiaries held for indefinite reinvestment is approximately $4,000. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $400.
As of December 30, 2023, the Company reported $1,074 in "Other long-term liabilities" in unrecognized tax benefits that would impact the effective tax rate if recognized. This compares to $66 of unrecognized tax benefits in "Other current liabilities" and $1,384 in "Other long-term liabilities" for a combined total of $1,450 reported as of December 31, 2022.
The following reconciliation provides the changes in unrecognized tax benefits for the years presented:
Year Ended
2023 2022 2021
Beginning balance of unrecognized tax benefits $ 1,450  $ 1,008  $ 1,528 
Increases related to prior year tax positions 30  107  21 
Decreases related to prior year tax positions (363) —  (330)
Increases related to current year tax positions 409  468  424 
Decreases for settlements with taxing authorities (452) (133) (635)
Ending balance of unrecognized tax benefits $ 1,074  $ 1,450  $ 1,008 
The Company accounts for interest and penalties associated with unrecognized tax benefits as a component of income tax expense. For the period ended December 30, 2023 and December 31, 2022, the Company reported $66 and $201, respectively, as income tax expense related to interest and penalties. As of December 30, 2023, the Company recorded $180 of "Other long-term liabilities" associated with interest and penalties for unrecognized tax benefits. This compares to $64 of "Other current liabilities" and $239 of "Other long-term liabilities" associated with interest and penalties reported as of December 31, 2022.
The Company files income tax returns in the United States and foreign jurisdictions. In general, the Company's tax filings are subject to examination for years ended on or after December 31, 2019. However, statutes of limitations in some markets may be as long as ten years for transfer pricing related issues.