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

INCOME TAXES

v3.26.1
INCOME TAXES
 12 Months Ended
Jan. 03, 2026
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Consolidated earnings before income taxes consists of the following:
Year Ended
2025 2024 2023
United States $ (56,248) $ (35,274) $ (19,988)
Foreign 97,775  111,625  122,441 
Total earnings before income taxes $ 41,527  $ 76,351  $ 102,453 
Income tax expense (benefit) included in income from continuing operations consists of the following:
Year Ended
2025 2024 2023
Current
Federal $ —  $ —  $ (42)
State 855  330  469 
Foreign 36,331  40,699  40,913 
Total current 37,186  41,029  41,340 
Deferred
Federal (6,853) (6,803) (4,031)
State (628) (100) (59)
Foreign 345  165  1,415 
Total deferred (7,136) (6,738) (2,675)
$ 30,050  $ 34,291  $ 38,665 
In 2025, the Company adopted ASU 2023-09, Improvements to Income Tax Disclosures, which expands the information provided in the annual income tax footnote. The Company elected to apply the new disclosure requirements on a prospective basis. Accordingly, the income tax disclosures for the current 2025 fiscal year reflect the new format prescribed by ASU 2023-09 including a detailed effective tax rate reconciliation presented with both percentage and dollar amounts by category, and disaggregated information on income taxes paid to federal, state, and foreign jurisdictions. This transition to the new format does not impact the amounts of income tax expense or benefit reported for prior periods; it affects only the level of detail and presentation of the disclosures. Comparative information for the prior 2024 and 2023 fiscal years is presented as originally reported under the previous guidance and has not been retrospectively adjusted. This comparative information is in the table that shows the reconciliation of the effective tax rate to the statutory U.S. federal tax rate.
The effective tax rate for 2024 and 2023 reconciled to the statutory U.S. federal tax rate is as follows:
Year Ended
2024 2023
Statutory U.S. federal income tax rate 21.0 % 21.0 %
State income taxes, net of federal tax benefit 0.5  0.5 
Permanent tax differences 0.9  0.7 
Excess foreign tax credits (26.3) (16.4)
Net increase in valuation allowance 24.4  13.0 
Foreign income tax rate differences 15.2  8.7 
Foreign withholding taxes 12.3  10.6 
Uncertain tax position reserve 0.6  (0.4)
Change in U.S. tax laws (2.6) — 
All other, net (1.0) — 
44.9 % 37.7 %
The effective tax rate for 2025 is disaggregated and reconciled to the statutory U.S. federal tax rate according to the new requirements of ASU 2023-09 as follows:
Year Ended
2025
Amount Percent
U.S. federal statutory tax rate $ 8,721  21.0%
State and local income taxes, net of federal income tax effect(1)
684  1.6%
Foreign tax effects
China
Statutory income tax rate difference 3,635  8.8%
Withholding taxes 8,293  20.0%
Other 577 1.4%
India
Changes in valuation allowances 469  1.1%
Other (39) (0.1)%
Other foreign jurisdictions 1,303  3.1%
Effects of cross-border tax laws
U.S. taxation of foreign disregarded entities 20,692  49.8%
Tax credits
Foreign tax credits (37,651) (90.6)%
Changes in valuation allowances 21,487  51.7%
Nontaxable and nondeductible items
Share-based payment awards 1,375  3.3%
Non-deductible compensation 513  1.2%
Other (554) (1.2)%
Changes in unrecognized tax benefits 545  1.3%
Effective tax rate $ 30,050  72.4%
______________________________
(1)State and local taxes in New York and California comprise the majority (greater than 50%) of the tax effect in this category.
The effective tax rate for the year ended January 3, 2026 increased compared to the year ended December 28, 2024. The higher effective tax rate was driven by lower U.S. earnings before taxes including cost realignment and impairment while still paying a relatively similar amount of foreign taxes.
Income taxes paid (net of refunds received) for 2025 were as follows:
Year Ended
2025
U.S. federal $ — 
U.S. state and local 683 
Foreign
China 32,800 
All other foreign 3,697 
36,497 
Total $ 37,180 
Income taxes paid, net of refunds received, were $40,395 and $42,325 for 2024 and 2023, respectively.
The significant categories of deferred taxes are as follows:
January 3,
2026		 December 28,
2024
Deferred tax assets
Inventory $ 6,222  $ 4,749 
Accruals not currently deductible 6,543  6,869 
Equity-based compensation 2,304  2,438 
Depreciation and amortization 834  777 
Intangible assets 6,436  6,162 
Foreign currency translation 1,713  2,066 
Capitalized R&D expenses 18,163  16,450 
Tax credit carry forwards 173,927  152,951 
Net operating losses 2,770  2,348 
Other 5,654  5,343 
Gross deferred tax assets 224,566  200,153 
Valuation allowance (178,670) (156,669)
Net deferred tax assets 45,896  43,484 
Deferred tax liabilities
Depreciation and amortization (4,972) (6,653)
Prepaid expenses (1,587) (1,992)
Intangible assets (6,436) (6,162)
Withholding tax on unremitted earnings (7,868) (9,899)
Other (2,716) (3,207)
Gross deferred tax liabilities (23,579) (27,913)
Net deferred taxes $ 22,317  $ 15,571 
The components of net deferred taxes are as follows:
January 3,
2026		 December 28,
2024
Net noncurrent deferred tax assets $ 27,209  $ 19,644 
Net noncurrent deferred tax liabilities (4,892) (4,073)
Net deferred taxes $ 22,317  $ 15,571 
As of January 3, 2026, the Company had foreign tax credit carryforwards of approximately $169,736. If unused, these carryforwards will expire between 2026 and 2035. 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 $2,090 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 $1,846 of Utah research credit carryforwards, and $2,345 of federal research credit carryforwards as of January 3, 2026. If unused, the Utah research credit carryforwards expire between 2027 and 2039, and the federal research credits expire between 2036 and 2045. 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 $8,891 of foreign operating loss carry forwards, $307 of which have an unlimited carryforward period. The deferred tax asset associated with these losses was $2,646 and a valuation allowance of $2,637 has been applied against this deferred tax asset. The 2025 deferred tax asset for state-tax-loss carryforwards was $125. If unused, some of the state-tax-loss carryforwards will expire between 2032 and 2044 and others can be carried forward indefinitely.
The total combined valuation allowance was $178,670 as of January 3, 2026. The 2025 valuation allowance represents a $22,001 net increase from 2024. 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 January 3, 2026, 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 January 3, 2026, the Company reported $146 in "Other current liabilities" and $1,399 in "Other long-term liabilities" for a combined total of $1,545 in unrecognized tax benefits that would impact the effective tax rate if recognized. This compares to $153 in "Other current liabilities" and $1,034 in "Other long-term liabilities" for a combined total of $1,187 in unrecognized tax benefits reported as of December 28, 2024.
The following reconciliation provides the changes in unrecognized tax benefits for the years presented:
Year Ended
2025 2024 2023
Beginning balance of unrecognized tax benefits $ 1,187  $ 1,074  $ 1,450 
Increases related to prior year tax positions —  43  30 
Decreases related to prior year tax positions (26) (69) (363)
Increases related to current year tax positions 384  139  409 
Decreases for settlements with taxing authorities —  —  (452)
Ending balance of unrecognized tax benefits $ 1,545  $ 1,187  $ 1,074 
The Company accounts for interest and penalties associated with unrecognized tax benefits as a component of income tax expense. For the periods ended January 3, 2026, December 28, 2024, and December 30, 2023, the Company reported $187, $43, and $66, respectively, as income tax expense related to interest and penalties. As of January 3, 2026, the Company recorded $173 of "Other current liabilities" and $237 of "Other long-term liabilities" associated with interest and penalties for unrecognized tax benefits. This compares to $130 of "Other current liabilities" and $93 of "Other long-term liabilities" associated with interest and penalties reported as of December 28, 2024.
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, 2021. However, statutes of limitations in some markets may be as long as ten years for transfer pricing related issues.
On July 3, 2025, U.S. legislation formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” (“the Act”) and commonly referred to as the One Big Beautiful Bill Act was signed into law. The Act, among other things, extended key provisions of the 2017 Tax Cuts and Jobs Act and introduced targeted changes to the U.S. federal income tax regime. The Act has not materially impacted the Company’s effective tax rate.