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Income Taxes | 12 Months Ended
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Jan. 02, 2021
Income Tax Disclosure [Abstract] |
Income Taxes |
1 3. | Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act (the “CARES Act”) was signed into law. The CARES Act includes provisions relating to modifications to the net interest deduction limitation, net operating loss carryforward rules, refundable payroll tax credits and deferment of the employer portion of certain payroll taxes. On July 20, 2020, the U.S. Treasury Department released final regulations under Internal Revenue Code Section 951A (TD 9902) permitting a taxpayer to elect to exclude from its global intangible low-taxed income (“GILTI”) inclusion items of income subject to a high effective rate of foreign tax. As a result of the final regulations, the Company recorded a $7,566 tax benefit in fiscal 2020 related to the 2018 and 2019 taxes previously accrued attributable to GILTI. The following tables summarize the Company’s consolidated provision for U.S. federal, state and foreign taxes on income:
|  | January 2, |  |  | December 28, |  |  | December 29, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | (14,052 | ) |  | $ | 20,900 |  |  | $ | 1,235 |
State |  |  | 4,421 |  |  |  | 1,873 |  |  |  | 5,918 |
Foreign |  |  | 28,533 |  |  |  | 18,164 |  |  |  | 27,013 |
|  | $ | 18,902 |  |  | $ | 40,937 |  |  | $ | 34,166 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 94 |  |  | $ | (9,137 | ) |  | $ | (10,367 | )
State |  |  | (2,835 | ) |  |  | (2,434 | ) |  |  | (2,566 | )
Foreign |  |  | 1,301 |  |  |  | 2,147 |  |  |  | (740 | )
|  | $ | (1,440 | ) |  | $ | (9,424 | ) |  | $ | (13,673 | )
Total tax provision |  | $ | 17,462 |  |  | $ | 31,513 |  |  | $ | 20,493 |
The components of the Company’s consolidated income before income taxes consist of the following:
|  | January 2, |  |  | December 28, |  |  | December 29, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
Domestic |  | $ | (10,467 | ) |  | $ | 75,932 |  |  | $ | 126,171 |
Foreign |  |  | 102,970 |  |  |  | 75,028 |  |  |  | 117,890 |
|  | $ | 92,503 |  |  | $ | 150,960 |  |  | $ | 244,061 |
The effective tax rates for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018 were 18.9%, 20.9% and 8.4%, respectively. The difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate is as follows: The Company’s effective tax rate for the fiscal year ended January 2, 2021 was impacted by the following items: (i) a $7,566 tax benefit related to the reversal of the tax impact of GILTI, (ii) a $4,714 tax benefit related to tax windfalls from stock compensation and (iii) a $1,401 tax benefit related to f oreign-derived intangible income (“FDII”). These benefits were partially offset by (i) a $8,056 tax expense related to income earned in foreign jurisdictions at rates higher than the U.S. and (ii) a $2,278 tax expense for out-of-period income tax adjustments. The Company’s effective tax rate for the fiscal year ended December 28, 2019 was impacted by the following items: (i) a $5,148 tax expense related to income earned in foreign jurisdictions and (ii) a $3,524 tax expense related to GILTI. In addition, the effective tax rate for fiscal 2019 was impacted by the following: (i) a $5,650 tax benefit related to FDII, (ii) a $1,375 tax benefit related to the reversal of tax reserves no longer needed, and (iii) a $746 tax benefit related to the cessation of certain publishing operations. The Company’s effective tax rate for the fiscal year ended December 29, 2018 was affected by the following items: (i) a $25,353 tax benefit related to tax windfalls from stock compensation, (ii) a $8,535 tax benefit due to the reversal of a valuation allowance on foreign tax credit carryforwards that have been fully utilized, (iii) a $3,435 tax benefit due to the reversal of a valuation allowance on certain net operating losses that are now expected to be realized, (iv) a $3,430 tax benefit primarily related to the reversal of tax reserves resulting from the closure of various tax audits, (v) a $2,678 tax benefit related to favorable tax return adjustments due to the Tax Cuts and Jobs Act (the “2017 Tax Act”) and (vi) a $1,858 tax benefit related to the cessation of operations of the Company’s Mexican subsidiary.
|  | January 2, |  |  | December 28, |  |  | December 29, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
U.S. federal statutory tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State income taxes (net of federal benefit) |  |  | 1.0 | % |  |  | (0.3 | %) |  |  | 1.1 | %
Cessation of operations |  |  | 0.0 | % |  |  | (0.5 | %) |  |  | (0.8 | %)
Research and development credit |  |  | (2.2 | %) |  |  | (1.2 | %) |  |  | (0.5 | %)
Tax windfall on share-based awards |  |  | (4.3 | %) |  |  | (0.1 | %) |  |  | (8.6 | %)
Reserves for uncertain tax positions |  |  | 0.9 | % |  |  | (0.9 | %) |  |  | (1.4 | %)
Tax rate changes |  |  | (1.2 | %) |  |  | 0.0 | % |  |  | 0.3 | %
Decrease in valuation adjustment related to foreign tax credits |  |  | 0.0 | % |  |  | 0.0 | % |  |  | (3.5 | %)
Executive compensation limitation |  |  | 1.2 | % |  |  | 0.5 | % |  |  | 0.3 | %
GILTI |  |  | (8.2 | %) |  |  | 2.3 | % |  |  | 1.5 | %
FDII |  |  | (1.5 | %) |  |  | (3.7 | %) |  |  | (1.9 | %)
Increase (decrease) in valuation allowance due to net operating loss |  |  | 0.0 | % |  |  | 0.4 | % |  |  | (0.7 | %)
Out-of-period adjustments |  |  | 2.5 | % |  |  | 0.0 | % |  |  | 0.0 | %
Tax return adjustments related to the 2017 Tax Act |  |  | 0.0 | % |  |  | (0.7 | %) |  |  | (1.1 | %)
Impact of foreign operations |  |  | 8.7 | % |  |  | 3.4 | % |  |  | 3.2 | %
Other |  |  | 1.0 | % |  |  | 0.7 | % |  |  | (0.5 | %)
Total effective tax rate |  |  | 18.9 | % |  |  | 20.9 | % |  |  | 8.4 | %
The deferred tax assets and liabilities recorded on the Company’s consolidated balance sheets are as follows:
|  | January 2, |  |  | December 28, |
|  | 2021 |  |  | 2019 |
Interest expense disallowance |  | $ | 32,971 |  |  | $ | 38,396 |
Operating lease liabilities |  |  | 31,108 |  |  |  | 39,095 |
Operating loss carryforwards |  |  | 8,780 |  |  |  | 9,375 |
Provision for estimated expenses |  |  | 1,643 |  |  |  | 2,578 |
Salaries and wages |  |  | 3,875 |  |  |  | 2,037 |
Share-based compensation |  |  | 14,747 |  |  |  | 7,533 |
Other comprehensive income |  |  | 8,525 |  |  |  | 9,816 |
Other |  |  | 6,320 |  |  |  | 4,125 |
Less: valuation allowance |  |  | (7,190 | ) |  |  | (6,760 | )
Total deferred tax assets |  | $ | 100,779 |  |  | $ | 106,195 |
Goodwill and intangible assets |  | $ | (227,198 | ) |  | $ | (228,048 | )
Operating lease assets |  |  | (28,378 | ) |  |  | (36,670 | )
Depreciation |  |  | (3,912 | ) |  |  | (1,082 | )
Prepaid expenses |  |  | (1,379 | ) |  |  | (1,311 | )
Total deferred tax liabilities |  | $ | (260,867 | ) |  | $ | (267,111 | )
Net deferred tax liabilities |  | $ | (160,088 | ) |  | $ | (160,916 | )
Certain foreign operations of the Company have generated net operating loss carryforwards. If it has been determined that it is more-likely-than-not that the deferred tax assets associated with these net operating loss carryforwards will not be utilized, a valuation allowance has been recorded. As of January 2, 2021 and December 28, 2019, various foreign subsidiaries had net operating loss carryforwards of approximately $32,265 and $35,534, respectively, some of which have an unlimited carryforward period, while others will begin to expire in fiscal 2021. As a result of the 2017 Tax Act changing the U.S. to a modified territorial tax system, the Company will no longer assert its $86,133 of undistributed foreign earnings as of January 2, 2021 are permanently reinvested. The Company has considered whether there would be any potential future costs of not asserting indefinite reinvestment and does not expect such costs to be significant. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | January 2, |  |  | December 28, |  |  | December 29, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
Balance at beginning of year |  | $ | 206 |  |  | $ | 3,665 |  |  | $ | 15,173 |
Increases related to tax positions taken in current year |  |  | 0 |  |  |  | 0 |  |  |  | 60 |
Increases related to tax positions taken in prior years |  |  | 605 |  |  |  | 264 |  |  |  | 1,207 |
Reductions related to tax positions taken in prior years |  |  | 0 |  |  |  | (2,731 | ) |  |  | (10,560 | )
Reductions related to settlements with tax authorities |  |  | 0 |  |  |  | (992 | ) |  |  | (2,215 | )
Effects of foreign currency translation |  |  | 40 |  |  |  | 0 |  |  |  | 0 |
Balance at end of year |  | $ | 851 |  |  | $ | 206 |  |  | $ | 3,665 |
At January 2, 2021, the total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate is $808. Given the potential outcome of current examinations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. If the taxing authorities prevail in the existing German audit, the assessed tax (including interest) impacting our financial statements could be $835. In fiscal 2020, the Company reached a favorable settlement with the IRS for the 2017 tax year, which resulted in no adjustment. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. At January 2, 2021, with few exceptions, the Company was no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2018, or non-U.S. income tax examinations by tax authorities for years prior to 2015. The Company is subject to audits in certain non-U.S. jurisdictions for tax years 2013 to 2016. The resolution of these audits is not expected to be material. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had $196 and $6 of accrued interest and penalties at January 2, 2021 and December 28, 2019, respectively. The Company recognized $190, $(257) and $(65) of an income tax expense (benefit) in interest and penalties during the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.

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