Income Taxes

12 Months Ended

Jan. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes included income from domestic operations of $108.0 million for 2021, $289.5 million for 2020 and $295.9 million for 2019. Income before taxes included income from foreign operations of $425.9 million for 2021, $180.2 million for 2020 and $177.8 million for 2019.  

Income tax provision/(benefit) - (in millions):	2021		2020		2019
Current
Federal	$	43.0	$	25.3	$	66.0
State	10.8		7.0		10.6
Foreign	57.5		39.1		28.4
Total current	111.3		71.4		105.0
Deferred
Federal	(39.7)		(0.5)		(37.0)
State	(0.1)		2.3		(2.3)
Foreign	17.0		(5.4)		5.7
Total deferred	(22.8)		(3.6)		(33.6)
Provision for income taxes	$	88.5	$	67.8	$	71.4

The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:

Tax rate reconciliation:	2021		2020		2019
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State and local taxes, net of federal benefit	1.8		2.0		2.2
Research and development tax credits	(3.4)		(3.4)		(2.2)
Investment tax credits	(1.1)		(1.0)		(1.1)
Foreign rate differential	1.4		0.6		0.7
Net reversals for unrecognized tax benefits	(2.4)		0.7		(0.6)
Stock-based compensation	(2.5)		(4.5)		(3.3)
U.S. export sales	(1.3)		(2.5)		(3.0)
Acquisition-related costs	1.7		—		—
Other	1.4		1.5		1.4
Effective income tax rate	16.6%		14.4	%	15.1	%

Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be recognized when those temporary differences reverse.

The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and expense were as follows (in millions):

Deferred income tax assets:	2021		2020
Long-term:
Accrued liabilities	$	52.6	$	22.2
Inventory valuation	41.5		15.4
Accrued vacation	9.6		7.6
Deferred compensation and other benefit plans	39.1		39.0
Postretirement benefits other than pensions	1.7		1.8
Operating lease liabilities	38.7		29.9
Capitalization of research and development	34.1		37.1
Tax credit and net operating loss carryforward	47.4		44.2
Valuation allowance	(12.7)		(12.9)
Total deferred income tax assets	252.0		184.3
Deferred income tax liabilities:
Long-term:
Intangible amortization	751.5		139.4
Property, plant and equipment differences	37.8		16.5
Operating lease right-of-use assets	35.0		27.7
Unremitted earnings of foreign subsidiaries	15.9		—
Other	7.9		3.7
Total deferred income tax liabilities	848.1		187.3
Net deferred income tax liabilities	$	596.1	$	3.0

We intend to reinvest indefinitely the earnings of our material foreign subsidiaries in our operations outside of the United States. The cash that the Company’s foreign subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. We estimate that future domestic cash generation will be sufficient to meet future domestic cash requirements. U.S. federal and applicable state income taxes have been accrued for deemed repatriations. At January 2, 2022, the amount of undistributed foreign earnings was $619.8 million, for which we have not recorded a deferred tax liability of approximately $1.3 million for corporate income taxes which would be due if reinvested foreign earnings were repatriated. Should we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that we would no longer indefinitely reinvest the earnings outside the United States.

In assessing the need for a valuation allowance, we consider all positive and negative evidence, including recent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carryback periods and tax planning strategies. Based on a review of such information, management believes that it is possible that some portion of deferred tax assets will not be realized as a future benefit and therefore has recorded a valuation allowance. The valuation allowance for deferred tax assets decreased by $0.2 million in 2021, primarily related to the evidence for future utilization of remaining investment tax credits, offset by acquisition-related valuation allowance.

At January 2, 2022, the Company had approximately $45.3 million of net operating loss carryforward primarily from the Company’s entities in the United Kingdom, Denmark and Norway, of which $28.8 million have no expiration dates and $16.5 million have expiration dates ranging from 2025 to 2040. The Company had Canadian capital loss carryforward in the amount of $4.2 million which has no expiration date. Also the Company had aggregate Canadian federal and provincial investment tax credits of $16.9 million, which have expiration dates ranging from 2030 to 2041. The Company had Spanish federal research and development credit carryforward in the amount of $0.4 million, which have expiration dates ranging from 2025 to 2028. In addition, the Company had domestic federal and state net operating loss carryforward of $28.0 million and $117.1 million, respectively. Generally, federal net operating loss carryforward amounts are limited in their use by earnings of certain acquired subsidiaries. Of the $28.0 million federal net operation loss carryforward, $20.6 million have no expiration dates and $7.4 million have expiration dates ranging from 2024 to 2037. The state net operating loss carryforward amounts have expiration dates ranging from 2022 to 2041. Finally, the Company had federal research and development credit carryforward in the amount of $0.3 million which has an expiration date of 2037 and state tax credits of $17.9 million, of which $14.1 million have no expiration date and $3.8 million have expiration dates ranging from 2023 to 2035.

Unrecognized tax benefits (in millions):	2021		2020		2019
Beginning of year	$	32.3	$	24.5	$	25.0
Increase due to FLIR acquisition	413.8		—		—
Increase for tax positions taken during the current period	6.3		9.4		4.3
Increase in prior year tax positions	2.5		5.1		4.2
Reduction related to settlements with taxing authorities	(1.6)		(1.9)		(4.6)
Reduction related to lapse of the statute of limitations	(20.7)		(4.9)		(4.3)
Impact of exchange rate changes	(30.6)		0.1		(0.1)
End of year	$	402.0	$	32.3	$	24.5

In the next 12 months, the Company anticipates the total unrecognized tax benefit for various federal, state and foreign tax items may be reduced by $19.1 million due to the expiration of statutes of limitation for various federal, state and foreign tax issues.

We recognized net tax benefits and expense for interest and penalties related to unrecognized tax benefits within the provision for income taxes in our statements of operations of $2.4 million of expense, $0.1 million of expense and $0.3 million of benefit, for 2021, 2020 and 2019, respectively. Interest and penalties in the amount of $160.8 million, $1.2 million and $1.1 million were recognized in the 2021, 2020 and 2019 statement of financial position, respectively. In 2021, interest and penalties of $157.0 million were accrued as a result of the acquisition of FLIR. Substantially all of the unrecognized tax benefits as of January 2, 2022, if recognized, would affect our effective tax rate.

Current accrued liabilities on the consolidated balance sheet included unrecognized tax benefits including accrued interest and penalties of $341.0 million as of January 2, 2022, compared with no balance as of January 3, 2021. Teledyne paid $296.4 million related to this current accrued liabilities balance on February 2, 2022.

 We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. The Company has substantially concluded on all U.S. federal income tax matters for all years through 2011, Canadian income tax matters for all years through 2012, Swedish income tax matters for all years through 2011, Norwegian income tax matters for all years through 2016, Belgian income tax matters for all years through 2018, French income tax matters for all years through 2018 and United Kingdom income tax matters for all years through 2019.