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Income Taxes | 12 Months Ended
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Dec. 28, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, the U.S. enacted legislation referred to as the "Tax Act". Among other things, the Tax Act reduces the U.S. corporate federal income tax rate from 35% to 21%, adds base broadening provisions which limit deductions and address excessive international tax planning, imposes a Toll Charge on accumulated earnings of certain non-U.S. subsidiaries and enables repatriation of earnings of non-U.S. subsidiaries free of U.S. federal income tax. Other than the Toll Charge (which, except for the IXYS impact, was applicable to the Company for 2017), the provisions are generally applicable to the Company in 2018 and beyond. In accordance with the guidance provided in SEC SAB No. 118, in the fourth quarter of 2017 the Company recorded a charge of $47.0 million as a provisional reasonable estimate of the impact of the Tax Act, including $49.0 million for the Toll Charge net of $2.0 million for other net tax benefits. In the fourth quarter of 2018, within the measurement period outlined in SAB No. 118, the Company finalized its estimates of the impact of the Tax Act as of December 30, 2017 and recorded a charge of $3.2 million, including $2.3 million for the Toll Charge and $0.9 million for the net impact of other items. In addition, the Company recorded $7.0 million for the Toll Charge associated with IXYS as part of the IXYS acquisition purchase price allocation. This was reflected in the opening balance sheet as an increase to goodwill and other long-term liabilities. Although certain administrative guidance has been issued, including final and proposed regulations, the appropriate application of many provisions of the Tax Act remain uncertain. The Company used its best judgment as to the application of these provisions in determining its final estimates of the impact of the Tax Act as of December 30, 2017, the Toll Charge associated with the IXYS acquisition as well as the Company’s income tax expense for the fiscal years ended December 28, 2019 and December 29, 2018. Adjustments to income tax expense may be necessary in future periods if provisions of the Tax Act, and their interaction with other provisions of the U.S. Internal Revenue Code, are interpreted differently than interpretations made by the Company, whether through issuance of additional administrative guidance, or through further review of the Tax Act by the Company and its advisors. The Company has 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 28, 2019, totaling $23.8 million, is recorded in Other long-term liabilities, and the anticipated 2020 annual installment payment of $3.0 million is included in Accrued income taxes, on the Consolidated Balance Sheet as of December 28, 2019. The Company did not elect to pay the 2018 IXYS Toll Charge over the eight year period provided by the Tax Act and therefore there is no long-term portion of this Toll Charge which remains payable as of December 28, 2019. One of the base broadening provisions of the Tax Act is commonly referred to as the “GILTI” provisions. 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 28, 2019 and December 29, 2018, 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) | 2019 |  | 2018 |  | 2017
Domestic | $ | (11,970 | ) |  | $ | (49,995 | ) |  | $ | (20,496 | )
Foreign | 177,854 |  |  | 254,937 |  |  | 224,533 |
Income before income taxes | $ | 165,884 |  |  | $ | 204,942 |  |  | $ | 204,037 |
Federal, state and foreign income tax expense (benefit) consists of the following:
(in thousands) | 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal | $ | (3,495 | ) |  | $ | (3,193 | ) |  | $ | 34,060 |
State | 834 |  |  | 119 |  |  | 450 |
Foreign | 30,610 |  |  | 48,130 |  |  | 32,945 |
Subtotal | 27,949 |  |  | 45,056 |  |  | 67,455 |
Deferred: |  |  |  |  |
Federal and State | 1,839 |  |  | (3,896 | ) |  | 16,562 |
Foreign | (2,986 | ) |  | (783 | ) |  | 501 |
Subtotal | (1,147 | ) |  | (4,679 | ) |  | 17,063 |
Provision for income taxes | $ | 26,802 |  |  | $ | 40,377 |  |  | $ | 84,518 |
The current federal tax benefit for 2019 includes a benefit of $3.3 million from the recognition of previously unrecognized tax benefits (and the reversal of the related accrued interest) due to a lapse in the statute of limitations. The current federal tax benefit for 2018 includes the benefit of current year losses (which served to partially offset the amount of the IXYS Toll Charge that would otherwise have been payable). The current federal and state income tax expense for 2017 includes the preliminary estimate of $49 million for the Toll Charge as discussed above, partially offset by 13.0 million of foreign tax credits. 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) | 2019 |  | 2018 |  | 2017
Tax expense at statutory rate of 21% (35% for 2017) | $ | 34,836 |  |  | $ | 43,038 |  |  | $ | 71,413 |
Non-U.S. income tax rate differential | (22,457 | ) |  | (20,472 | ) |  | (47,077 | )
Non-U.S. losses and expenses with no tax benefit | 6,570 |  |  | 3,107 |  |  | — |
Net impact associated with the GILTI tax provisions | 6,469 |  |  | 5,075 |  |  | — |
Tax on unremitted earnings | 2,136 |  |  | 4,660 |  |  | 12,202 |
Certain changes in unrecognized tax benefits and related accrued interest | (1,468 | ) |  | 208 |  |  | 914 |
State and local taxes, net of federal tax benefit | 1,080 |  |  | (1,238 | ) |  | 292 |
Nondeductible professional fees | 195 |  |  | 1,001 |  |  | 1,240 |
2017 Toll Charge (and 2018 adjustment) | — |  |  | 2,278 |  |  | 49,000 |
Provisional Tax Act impact other than Toll Charge (and 2018 adjustment) | — |  |  | 966 |  |  | (1,962 | )
Other, net | (559 | ) |  | 1,754 |  |  | (1,504 | )
Provision for income taxes | $ | 26,802 |  |  | $ | 40,377 |  |  | $ | 84,518 |
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 28, 2019 and December 29, 2018, are as follows:
(in thousands) | 2019 |  | 2018
Deferred tax assets: |  |  |
Accrued expenses and reserves | $ | 28,294 |  |  | $ | 34,113 |
Domestic and non-U.S. net operating loss carryforwards | 10,511 |  |  | 8,613 |
Non-U.S. interest expense carryforwards | 5,324 |  |  | 885 |
U.S. research credit carryforwards | 2,581 |  |  | 1,245 |
Capitalized expenses | 2,400 |  |  | — |
U.S. foreign tax credit carryforwards | 1,320 |  |  | 1,506 |
Other | 1,261 |  |  | 1,000 |
Gross deferred tax assets | 51,691 |  |  | 47,362 |
Less: Valuation allowance | (5,957 | ) |  | (4,794 | )
Total deferred tax assets | 45,734 |  |  | 42,568 |
Deferred tax liabilities: |  |  |
Excess of book basis over the tax basis of assets | 74,460 |  |  | 74,410 |
Tax on unremitted earnings | 12,968 |  |  | 12,681 |
Total deferred tax liabilities | 87,428 |  |  | 87,091 |
Net deferred tax liabilities | $ | 41,694 |  |  | $ | 44,523 |
The deferred tax asset valuation allowance is related to certain net operating loss and non-U.S. interest expense carryforwards which are not expected to be realized. The remaining net operating loss and non-U.S. interest expense carryforwards either have no expiration date or are expected to be utilized prior to expiration (which begin expiring in 2021). 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 $47.6 million, $46.2 million, and $31.8 million in 2019, 2018, and 2017, respectively, and received income tax refunds of $7.1 million, $4.3 million, and 13.7 million in 2019, 2018, and 2017, 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 non-U.S. 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 28, 2019, unremitted earnings of the Company’s non-U.S. subsidiaries was approximately $776 million. A distribution of such earnings will generally not be subject to U.S. federal income tax. The Company recognized deferred tax liabilities of $13.0 million ($12.6 million for non-U.S. taxes net of related U.S. foreign tax credits, and $0.4 million for U.S. state taxes) as of December 28, 2019 and $12.7 million ($12.5 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 29, 2018, related to taxes on certain non-U.S. earnings which are not considered to be permanently reinvested. Some of these non-U.S. taxes will provide a U.S. federal income tax benefit as a foreign tax credit, and the amounts as of December 28, 2019 and December 29, 2018 are net of such benefit (some of which, in respect of the year ended December 29, 2018, was recorded as part of finalizing the provisional reasonable estimate of the impact of the Tax Act). The Company has three subsidiaries in China which benefit from lowered income tax rates due to “tax holidays” which apply for three-year periods, subject to extension. The tax holiday for two of these subsidiaries expired at the end of 2019 (one will seek an extension and the tax holiday benefits for the other was not material). The tax holiday for the third subsidiary will expire at the end of 2020 and the Company plans to seek an extension. Such tax holidays contributed $4.2 million in tax benefits, or $0.17 per diluted share, during 2019. Future year tax benefits will depend upon the Company’s ability to obtain extensions, and the level of income earned by the two applicable subsidiaries. A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 28, 2019, December 29, 2018, and December 30, 2017 is as follows:
(in thousands) | Unrecognized Tax Benefits
Balance at December 30, 2017 | $ | 7,660 |
Additions for tax positions taken in the current year | 2,929 |
Additions for tax positions related to the pre-acquisition periods of acquired subsidiaries | 9,394 |
Decreases due to a lapse in the statute of limitations | (1,257 | )
Other | (467 | )
Balance at December 29, 2018 | 18,259 |
Additions for tax positions taken in the current year | 1,305 |
Decreases due to a lapse in the statute of limitations | (2,758 | )
Other | (85 | )
Balance at December 28, 2019 | 16,721 |
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 $1.3 million (net of a $0.6 million decrease due to a lapse in the statute of limitations), $1.5 million (net of a $0.3 million decrease due to a lapse in the statute of limitations), and $0.9 million in 2019, 2018, and 2017, respectively. Accrued interest for such matters included in Other long-term liabilities within the Consolidated Balance Sheets was $7.2 million and $5.9 million as of December 28, 2019 and December 29, 2018, respectively. The amount of unrecognized tax benefits included in Other long-term liabilities within the Consolidated Balance Sheets was $16.7 million and $18.3 million as of December 28, 2019 and December 29, 2018, respectively. The December 28, 2019 total represents the net amount of tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. Of this amount, approximately $0.1 million may be recognized in 2020 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 U.S. federal statute of limitations remains open for the Company for the 2016 tax year and later years, although the Company has been audited for the 2016 tax year and the audit concluded in 2018 with no significant adjustments. The U.S. federal statute of limitations remains open for IXYS pre-acquisition tax periods ending March 31, 2017 and January 17, 2018. 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. Non-U.S. tax examinations occur from time to time, including examinations currently in process in Italy, Canada, and Hong Kong. The company does not expect to recognize a significant amount of additional tax expense as a result of concluding these examinations.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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