Income Taxes

The Company regularly reviews its tax positions in each significant taxing jurisdiction in the process of evaluating its unrecognized tax benefits. The Company makes adjustments to its unrecognized tax benefits when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority at a differing amount; and/or (iii) the statute of limitations expires regarding a tax position.

The tabular reconciliation of the total amounts of unrecognized tax benefits is as follows for the fiscal years ended:



	December 31, 2017			January 1, 2017			January 3, 2016
				(In thousands)
Unrecognized tax benefits, beginning of year	$	29,607		$	28,143		$	32,342
Gross increases—tax positions in prior periods	749			1,514			325
Gross decreases—tax positions in prior periods	(828		)	(183		)	(2,305		)
Gross increases—current-period tax positions	2,346			3,547			—
Settlements	(324		)	—			(441		)
Lapse of statute of limitations	(1,371		)	(4,109		)	(1,077		)
Foreign currency translation adjustments	129			695			(701		)
Unrecognized tax benefits, end of year	$	30,308		$	29,607		$	28,143

The Company classifies interest and penalties as a component of income tax expense. At December 31, 2017 and January 1, 2017, the Company had accrued interest and penalties of $1.9 million and $2.2 million, respectively. During fiscal years 2017, 2016 and 2015, the Company recognized a net benefit of $0.3 million, $0.1 million and $1.6 million, respectively, for interest and penalties in its total tax provision primarily due to settlements and statutes of limitations that had lapsed. At December 31, 2017, the Company had gross tax effected unrecognized tax benefits of $30.3 million, of which $28.6 million, if recognized, would affect the continuing operations effective tax rate. The remaining amount, if recognized, would affect discontinued operations.

The Company believes that it is reasonably possible that approximately $3.1 million of its uncertain tax positions at December 31, 2017, including accrued interest and penalties, and net of tax benefits, may be resolved over the next twelve months as a result of lapses in applicable statutes of limitations and potential settlements. Various tax years after 2010 remain open to examination by certain jurisdictions in which the Company has significant business operations, such as Finland, Germany, Italy, Netherlands, Singapore, the United Kingdom and the United States. The tax years under examination vary by jurisdiction.

On December 22, 2017, the President of the United States signed into law tax reform legislation, known as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. Internal Revenue Code, which includes reducing the corporate income tax rate from 35% to 21% and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.

Based on currently available information, the Company performed a preliminary analysis of the impacts of the Tax Act and recorded a discrete tax expense of $106.5 million during fiscal year 2017, which comprised of $21.5 million from the remeasurement of certain net deferred tax assets using the lower enacted corporate income tax rate and $85.0 million from the one-time deemed repatriation tax on earnings of foreign subsidiaries, which will be paid over 8 years. The estimated provision incorporates assumptions made based upon the Company’s current interpretation of the Tax Act, and may change as additional clarification and implementation guidance becomes available during 2018.

The Company will be subject to the new Global Intangible Low Tax Income ("GILTI") tax rules that are part of the modified territorial tax system imposed by the Tax Act. Because of the complexity of the new rules, the Company continues to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into our measurement of deferred taxes (the “deferred method”). The Company's selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends not only on its current structure and estimated future results of global operations, but also on the Company's intent and ability to modify its structure and/or business, the Company is currently unable to reasonably estimate the effect of this provision of the Tax Act. Therefore, the Company has not made any adjustments related to potential GILTI tax in the consolidated financial statements and has not made a policy decision regarding whether to record deferred taxes on GILTI.

During fiscal year 2017, the Company recorded net discrete income tax expense of $98.6 million, of which $106.5 million was a result of the enactment of the Tax Act, partially offset by discrete benefit of $5.1 million related to the recognition of excess tax benefits on stock compensation and the resolution of other tax matters. During fiscal years 2016 and 2015, the Company recorded net discrete income tax benefits of $9.6 million and $6.4 million, respectively, primarily related to the recognition of excess tax benefits on stock compensation, reversals of uncertain tax position reserves, and resolution of other tax matters.

The components of income (loss) from continuing operations before income taxes were as follows for the fiscal years ended:



	December 31, 2017		January 1, 2017		January 3, 2016
			(In thousands)
U.S.	$	3,743	$	39,689	$	(21,510	)
Non-U.S.	292,975		204,379		230,317
Total	$	296,718	$	244,068	$	208,807

On a U.S. income tax basis, the Company has reported significant taxable income over the three year period ended December 31, 2017. The Company has utilized tax attributes to minimize cash taxes paid on that taxable income.

The components of the provision for (benefit from) income taxes for continuing operations were as follows:



	Current Expense (Benefit)			Deferred Expense (Benefit)			Total
	(In thousands)
Fiscal year ended December 31, 2017
Federal	$	62,003		$	35,435		$	97,438
State	3,332			(792		)	2,540
Non-U.S.	45,639			(5,789		)	39,850
Total	$	110,974		$	28,854		$	139,828
Fiscal year ended January 1, 2017
Federal	$	14		$	2,994		$	3,008
State	2,143			(575		)	1,568
Non-U.S.	30,754			(6,968		)	23,786
Total	$	32,911		$	(4,549	)	$	28,362
Fiscal year ended January 3, 2016
Federal	$	(10,952	)	$	(4,794	)	$	(15,746	)
State	2,613			(2,563		)	50
Non-U.S.	37,963			(2,245		)	35,718
Total	$	29,624		$	(9,602	)	$	20,022

The total provision for income taxes included in the consolidated financial statements is as follows for the fiscal years ended:



	December 31, 2017		January 1, 2017		January 3, 2016
	(In thousands)
Continuing operations	$	139,828	$	28,362	$	20,022
Discontinued operations	44,522		4,255		11,537
Total	$	184,350	$	32,617	$	31,559

A reconciliation of income tax expense at the U.S. federal statutory income tax rate to the recorded tax provision is as follows for the fiscal years ended:



	December 31, 2017			January 1, 2017			January 3, 2016
				(In thousands)
Tax at statutory rate	$	103,851		$	85,424		$	73,082
Non-U.S. rate differential, net	(65,836		)	(52,648		)	(47,994		)
U.S. taxation of multinational operations	5,408			6,941			1,732
State income taxes, net	1,810			1,509			80
Prior year tax matters	(7,955		)	(9,621		)	(6,387		)
Federal tax credits	(8,249		)	(7,189		)	(2,096		)
Change in valuation allowance	1,951			(2,755		)	2,593
Non-deductible acquisition expense	—			5,701			—
Impact of federal tax reform	106,538			—			—
Others, net	2,310			1,000			(988		)
Total	$	139,828		$	28,362		$	20,022

The variation in the Company's effective tax rate for each year is primarily a result of the recognition of earnings in foreign jurisdictions, predominantly Singapore, Finland, Netherlands and China, which are taxed at rates lower than the U.S. federal statutory rate, resulting in a benefit from income taxes of $55.9 million in fiscal year 2017, $48.2 million in fiscal year 2016 and $36.1 million in fiscal year 2015. These amounts include $10.1 million in fiscal year 2017, $11.4 million in fiscal year 2016 and $8.3 million in fiscal year 2015 of benefits derived from tax holidays in China and Singapore. The effect of these benefits derived from tax holidays on basic and diluted earnings per share for fiscal year 2017 was $0.09 and $0.09, respectively, for fiscal year 2016 was $0.10 and $0.10, respectively, and for fiscal year 2015 was $0.07 and $0.07, respectively. The tax holiday in one of the Company's subsidiaries in China expired in 2017 and the tax holiday in one other subsidiary in China is scheduled to expire in fiscal year 2019. The tax holiday in one of the Company's subsidiaries in Singapore is scheduled to expire in fiscal year 2018.

The tax effects of temporary differences and attributes that gave rise to deferred income tax assets and liabilities as of December 31, 2017 and January 1, 2017 were as follows:



	December 31, 2017			January 1, 2017
	(In thousands)
Deferred tax assets:
Inventory	$	6,376		$	10,994
Reserves and accruals	26,657			24,669
Accrued compensation	17,333			26,715
Net operating loss and credit carryforwards	88,503			113,415
Accrued pension	34,682			37,005
Restructuring reserve	2,586			1,954
Deferred revenue	28,478			38,113
Unrealized foreign exchange loss	10,910			—
All other, net	—			682
Total deferred tax assets	215,525			253,547
Deferred tax liabilities:
Postretirement health benefits	(3,391		)	(4,785		)
Unrealized foreign exchange gain	—			(15,730		)
Depreciation and amortization	(392,293		)	(130,176		)
All other, net	(594		)	—
Total deferred tax liabilities	(396,278		)	(150,691		)
Valuation allowance	(68,895		)	(65,640		)
Net deferred tax (liabilities) assets	$	(249,648	)	$	37,216

The components of net deferred tax (liabilities) assets as of December 31, 2017 and January 1, 2017 were recognized in the consolidated balance sheets as follows:



	December 31, 2017			January 1, 2017
	(In thousands)
Other assets, net	$	67,280		$	85,312
Long-term liabilities	(316,928		)	(48,096		)
Total	$	(249,648	)	$	37,216

At December 31, 2017, for income tax return purposes, the Company had U.S. federal net operating loss carryforwards of $40.6 million, state net operating loss carryforwards of $198.6 million, foreign net operating loss carryforwards of $263.1 million, state tax credit carryforwards of $6.0 million, general business tax credit carryforwards of $0.1 million, and foreign tax credit carryforwards of $0.1 million. These are subject to expiration in years ranging from 2018 to 2037, and without expiration for certain foreign net operating loss carryforwards and certain state credit carryforwards.

Valuation allowances take into consideration limitations imposed upon the use of the tax attributes and reduce the value of such items to the likely net realizable amount. The Company regularly evaluates positive and negative evidence available to determine if valuation allowances are required or if existing valuation allowances are no longer required. Valuation allowances have been provided on state net operating loss and state tax credit carryforwards and on certain foreign tax attributes that the Company has determined are not more likely than not to be realized. The increase in the valuation allowance of $3.3 million in fiscal year 2017 is primarily due to an increase in tax attributes that the Company does not expect to realize for one of its non-U.S. subsidiaries.

The components of net deferred tax (liabilities) assets as of December 31, 2017 and January 1, 2017 were as follows:



	December 31, 2017			January 1, 2017
	(In thousands)
U.S.	$	44,974		$	52,604
Non-U.S.	(294,622		)	(15,388		)
Total	$	(249,648	)	$	37,216

The Company plans to keep its unremitted foreign earnings indefinitely reinvested overseas except for instances where the Company can remit such earnings to the U.S. without an associated net incremental tax cost, such as withholding or state and local taxes. The Company's indefinite reinvestment determination is based on the future operational and capital requirements of its U.S. and non-U.S. operations. As of December 31, 2017, the amount of foreign earnings that the Company has the intent and ability to keep invested outside the U.S. indefinitely and for which no additional incremental U.S. tax cost has been provided, other than the $85.0 million from the one-time transition tax on deemed repatriation, was approximately $1.4 billion. It is not practical to calculate the unrecognized deferred tax liability related to such incremental tax costs on those earnings.