Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.25.0.1
Income Taxes
 12 Months Ended
Dec. 28, 2024
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
Consolidated earnings before income taxes consists of the following for 2024, 2023, and 2022:
Year Ended
2024 2023 2022
United States $ (35,274) $ (19,988) $ (23,996)
Foreign 111,625  122,441  132,617 
Total earnings before income taxes $ 76,351  $ 102,453  $ 108,621 
Income tax expense (benefit) included in income from continuing operations consists of the following:
Year Ended
2024 2023 2022
Current
Federal $ —  $ (42) $ 42 
State 330  469  297 
Foreign 40,699  40,913  45,869 
Total Current 41,029  41,340  46,208 
Deferred
Federal (6,803) (4,031) (9,180)
State (100) (59) (331)
Foreign 165  1,415  2,574 
Total Deferred (6,738) (2,675) (6,937)
$ 34,291  $ 38,665  $ 39,271 
The effective tax rate for 2024, 2023, and 2022 reconciled to the statutory U.S. Federal tax rate is as follows:
Year Ended
2024 2023 2022
Statutory U.S. federal income tax rate 21.0  % 21.0  % 21.0  %
State income taxes, net of federal tax benefit 0.5  0.5  0.4 
Permanent tax differences 0.9  0.7  0.3 
Excess foreign tax credits (26.3) (16.4) (16.6)
Net increase in valuation allowance 24.4  13.0  11.9 
Foreign income tax rate differences 15.2  8.7  9.5 
Foreign withholding taxes 12.3  10.6  9.7 
Uncertain tax position reserve 0.6  (0.4) 0.5 
Change in U.S. tax laws (2.6) —  — 
All other, net (1.0) —  (0.5)
44.9  % 37.7  % 36.2  %
The effective tax rate for the year ended December 28, 2024 increased compared to the year ended December 30, 2023. The higher effective tax rate can be attributed to lower consolidated earnings partially due to costs associated with the Hiya Acquisition, China's increased relative share of taxable income, and a valuation allowance placed on deferred tax assets in India, partially offset by a change in U.S. tax law for foreign currency conversion of foreign branch operations.
The significant categories of deferred taxes are as follows:
December 28,
2024		 December 30,
2023
Deferred tax assets
Inventory $ 4,749  $ 5,588 
Accruals not currently deductible 6,869  6,680 
Equity-based compensation expense 2,438  2,580 
Depreciation and amortization 777  771 
Intangible assets 6,162  6,359 
Foreign currency translation 2,066  1,760 
Capitalized R&D expenses 16,450  13,537 
Tax credit carry forwards 152,951  134,205 
Net operating losses 2,348  1,956 
Other 5,343  3,237 
Gross deferred tax assets 200,153  176,673 
Valuation allowance (156,669) (137,252)
Net deferred tax assets 43,484  39,421 
Deferred tax liabilities
Depreciation and amortization (6,653) (5,897)
Prepaid expenses (1,992) (1,819)
Intangible assets (6,162) (6,359)
Withholding tax on unremitted earnings (9,899) (11,673)
Other (3,207) (4,941)
Gross deferred tax liabilities (27,913) (30,689)
Net deferred taxes $ 15,571  $ 8,732 
The components of net deferred taxes are as follows:
December 28,
2024		 December 30,
2023
Net deferred tax assets $ 19,644  $ 13,284 
Net deferred tax liabilities (4,073) (4,552)
Net deferred taxes $ 15,571  $ 8,732 
As of December 28, 2024, the Company had foreign tax credit carryforwards of approximately $148,807. If unused, these carryforwards will expire between 2026 and 2034. 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 $1,531 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 $1,769 of Utah research credit carryforwards, and $2,375 of Federal research credit carryforwards as of December 28, 2024. If unused, the Utah research credit carryforwards expire between 2027 and 2038, and the Federal research credits expire between 2036 and 2044. 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 $7,626 of foreign operating loss carry forwards, $1,082 of which have an unlimited carryforward period. The deferred tax asset associated with these losses was $2,282 and a valuation allowance of $2,113 has been applied against this deferred tax asset. The 2024 deferred tax asset for state-tax-loss carryforwards was $67. If unused, some of the state-tax-loss carryforwards will expire between 2033 and 2043 and others can be carried forward indefinitely.
The total combined valuation allowance was $156,669 as of December 28, 2024. The 2024 valuation allowance represents a $19,417 net increase from 2023. 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 28, 2024, 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 28, 2024, the Company reported $153 in "Other current liabilities" and $1,034 in "Other long-term liabilities" for a combined total of $1,187 in unrecognized tax benefits that would impact the effective tax rate if recognized. This compares $1,074 of unrecognized tax benefits in "Other long-term liabilities" as of December 30, 2023.
The following reconciliation provides the changes in unrecognized tax benefits for the years presented:
Year Ended
2024 2023 2022
Beginning balance of unrecognized tax benefits $ 1,074  $ 1,450  $ 1,008 
Increases related to prior year tax positions 43  30  107 
Decreases related to prior year tax positions (69) (363) — 
Increases related to current year tax positions 139  409  468 
Decreases for settlements with taxing authorities —  (452) (133)
Ending balance of unrecognized tax benefits $ 1,187  $ 1,074  $ 1,450 
The Company accounts for interest and penalties associated with unrecognized tax benefits as a component of income tax expense. For the period ended December 28, 2024 and December 30, 2023, the Company reported $43 and $66, respectively, as income tax expense related to interest and penalties. As of December 28, 2024, the Company recorded $130 of "Other current liabilities" and $93 of "Other long-term liabilities" associated with interest and penalties for unrecognized tax benefits. This compares to $0 of "Other current liabilities" and $180 of "Other long-term liabilities" associated with interest and penalties reported as of December 30, 2023.
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, 2020. However, statutes of limitations in some markets may be as long as ten years for transfer pricing related issues.