Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Jan. 01, 2022
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) 2021 2020 2019
Domestic $ 118,142  $ 18,965  $ 61,691 
Foreign 126,458  53,971  73,503 
Income before income taxes $ 244,600  $ 72,936  $ 135,194 
The following table presents components of the provision for income taxes:
Year Ended December
(In thousands) 2021 2020 2019
Current:
Federal $ 24,514  $ (2,888) $ 14,831 
Foreign 15,877  6,023  23,017 
State 5,149  (828) 4,866 
Total current income taxes 45,540  2,307  42,714 
Deferred:
Federal and state 2,951  10,140  (5,912)
Foreign 686  (7,434) 1,738 
Total deferred income taxes 3,637  2,706  (4,174)
Total provision for income taxes $ 49,177  $ 5,013  $ 38,540 
The following table presents a reconciliation of the differences between income taxes computed by applying the statutory federal income tax rate and "income taxes" recorded in the Company's statements of operations:
Year Ended December
(In thousands) 2021 2020 2019
Tax at federal statutory rate $ 51,366  $ 15,316  $ 28,391 
State income tax, net of federal tax benefit 5,167  150  2,476 
Foreign rate differences (13,698) (6,689) (8,983)
Tax reform —  (6,170) 258 
Employee compensation 940  (272) (3,169)
Adjustments to opening balances —  (2,797) 1,928 
Change in valuation allowance 2,010  3,900  17,025 
Global intangible low-tax income ("GILTI")
 2,852  2,345  2,437 
Change in indefinite reinvestment assertions —  —  (3,914)
Other 540  (770) 2,091 
Income taxes $ 49,177  $ 5,013  $ 38,540 
Foreign rate differences include tax benefits of $5.5 million, $3.0 million and $4.3 million in 2021, 2020 and 2019, respectively, from statutorily exempt foreign income.
Income tax expense includes tax benefits of $0.2 million and $0.6 million in 2020 and 2019, respectively, from favorable audit outcomes on certain tax matters and from expiration of statutes of limitations. Income tax expense includes an immaterial amount of these benefits in 2021.
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 in 2019 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 "deferred income tax liabilities" recorded in the Company's balance sheets:
(In thousands) December 2021 December 2020
Deferred income tax assets:
Inventories $ 12,922  $ 11,093 
Deferred compensation 10,907  10,977 
Other employee benefits 13,596  10,297 
Stock-based compensation 6,896  5,734 
Other accrued expenses 21,616  31,961 
Intangible assets 22,826  27,006 
Leases 12,621  16,627 
Operating loss carryforwards 27,835  23,372 
Gross deferred income tax assets 129,219  137,067 
Less: valuation allowance (21,789) (23,118)
Net deferred income tax assets 107,430  113,949 
Deferred income tax liabilities:
Leases 11,877  14,747 
Depreciation 22,846  15,657 
Taxes on unremitted earnings 3,403  2,760 
Deferred income tax liabilities 38,126  33,164 
Total net deferred income tax assets $ 69,304  $ 80,785 
Amounts included in the balance sheets:
Deferred income tax assets $ 74,876  $ 85,221 
Deferred income tax liabilities (5,572) (4,436)
$ 69,304  $ 80,785 
At the end of 2021, the Company is asserting indefinite reinvestment on foreign earnings totaling $78.3 million. The Company has determined the unrecorded deferred tax liability associated with the $78.3 million basis difference is approximately $0.6 million, primarily related to withholding taxes.
The Company has $19.4 million of potential tax benefits for foreign operating loss carryforwards, $19.1 million of which will expire between 2025 and 2029. In addition, there are $8.5 million of potential tax benefits for state operating loss and credit carryforwards, $6.9 million of which expire between 2022 and 2041.
A valuation allowance has been provided where it is more likely than not that deferred tax assets related to operating loss carryforwards will not be realized. Valuation allowances totaled $12.9 million for available foreign operating loss carryforwards, $7.2 million for available state operating loss and credit carryforwards, and $1.7 million for other foreign deferred income tax assets. During 2021, the Company recorded a tax benefit due to a $2.2 million decrease in valuation allowances related to state operating loss and credit carryforwards as well as other state deferred income tax assets, and a $0.9 million net increase in valuation allowances 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 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 
Additions for current year tax positions 154  —  154 
Additions for prior year tax positions 18  525  543 
Reductions for prior year tax positions (348) (340) (688)
Balance, December 2021 $ 11,717  $ 5,049  $ 16,766 
(In thousands) December 2021 December 2020
Amounts included in the balance sheets:
Unrecognized income tax benefits, including interest and penalties $ 16,766  $ 16,757 
Less: deferred tax benefits (3,308) (3,338)
Total unrecognized tax benefits $ 13,458  $ 13,419 
The unrecognized tax benefits of $13.5 million at the end of 2021, 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 and 2020 tax years remain open and are 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 also believes that it is reasonably possible that the amount of unrecognized tax benefits may decrease by $0.2 million within the next 12 months due to expiration of statutes of limitations, all of which would reduce income tax expense.