Income Taxes

12 Months Ended

Dec. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 12: INCOME TAXES

Income before taxes and the provision (benefit) for taxes consisted of the following:

	2022			2021			2020
(In millions)
Income before taxes:
United States	$	117.7		$	144.0		$	24.7
Foreign	451.4			430.6			370.3
Total	$	569.1		$	574.6		$	395.0
Provision (benefit) for taxes:
U.S. Federal:
Current	$	98.4		$	27.1		$	(5.8)
Deferred	(97.7)			(22.9)			(16.3)
	0.7			4.2			(22.1)
U.S. State:
Current	12.6			5.6			0.8
Deferred	(5.0)			(2.5)			7.1
	7.6			3.1			7.9
Foreign:
Current	48.4			76.0			62.2
Deferred	62.7			(1.5)			(43.6)
	111.1			74.5			18.6
Income tax provision	$	119.4		$	81.8		$	4.4
Effective tax rate	21.0		%	14.2		%	1.1		%

The difference between the tax provision (benefit) at the statutory federal income tax rate and the tax provision (benefit) as a percentage of income before taxes (“effective tax rate”) was as follows:

	2022		2021		2020
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
Increase (reduction) in tax rate resulting from:
Foreign income taxed at different rates	4.4	%	0.5	%	1.7	%
Change in valuation allowance	—	%	—	%	2.0	%
U.S. State income taxes	1.0	%	1.1	%	0.5	%
Stock-based compensation	1.8	%	1.7	%	1.5	%
Excess tax benefit related to stock-based compensation	(0.6)	%	(2.5)	%	(1.5)	%
Other U.S. taxes on foreign operations	(3.5)	%	(1.6)	%	(1.0)	%
U.S. Federal research and development credits	(2.2)	%	(2.1)	%	(2.3)	%
Tax reserve releases	(1.8)	%	(2.1)	%	(4.8)	%
Intellectual property restructuring and tax law changes	—	%	(2.5)	%	(16.2)	%
Other	0.9	%	0.7	%	0.2	%
Effective tax rate	21.0	%	14.2	%	1.1	%

Our effective income tax rates for 2022 and 2021 were 21.0% and 14.2%. The effective income tax rate in 2022 increased compared to 2021 primarily due to a one-time tax benefit recorded in 2021 related to the revaluation of the Netherlands deferred tax assets mentioned below and lower stock-based compensation deductions during 2022.

In December 2021, due to a change in the Netherlands tax law, the statutory tax rate was increased from 25.0% to 25.8% effective January 1, 2022. As a result, we recorded a one-time tax benefit of $14.4 million in 2021 due to the revaluation of the Netherlands deferred tax assets.

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of deferred tax assets and liabilities were as follows:

At the End of Year	2022		2021
(In millions)
Deferred tax liabilities:
Global intangible low-taxed income	$	137.8	$	207.6
Purchased intangibles	121.1		115.8
Operating lease right-of-use assets	29.0		33.5
Other	16.1		12.7
Total deferred tax liabilities	304.0		369.6
Deferred tax assets:
Depreciation and amortization	400.0		474.9
Capitalized research and development	67.5		6.9
Operating lease liabilities	32.8		36.4
U.S. tax credit carryforwards	25.6		25.8
Expenses not currently deductible	30.9		43.7
Foreign net operating loss carryforwards	15.3		18.0
Stock-based compensation	13.8		13.9
U.S. net operating loss carryforwards	4.7		5.8
Other	36.6		28.8
Total deferred tax assets	627.2		654.2
Valuation allowance	(42.6)		(45.7)
Total deferred tax assets	584.6		608.5
Total net deferred tax assets	$	280.6	$	238.9
Reported as:
Non-current deferred income tax assets	$	438.4	$	502.0
Non-current deferred income tax liabilities	(157.8)		(263.1)
Net deferred tax assets	$	280.6	$	238.9

At the end of 2022, we have U.S. federal and foreign net operating loss carryforwards, or NOLs, of approximately $9.8 million and $82.4 million, respectively. The U.S. federal NOLs will begin to expire in 2026. There is generally no expiration for the foreign NOLs. Utilization of our U.S. federal NOLs is subject to annual limitations in accordance with the applicable tax code. We have determined that it is more likely than not that we will not realize a portion of the foreign NOLs and, accordingly, a valuation allowance has been established for such amount.

We have California research and development credit carryforwards of approximately $33.6 million, which have an indefinite carryforward period. We believe that it is more likely than not that we will not realize a significant portion of the California research and development credit carryforwards and, accordingly, a valuation allowance has been established for such amount.

As a result of the Tax Act, we can repatriate foreign earnings back to the U.S. when needed with minimal U.S. income tax consequences. We reinvested a large portion of our undistributed foreign earnings in acquisitions and other investments and intend to bring back a portion of foreign cash that was subject to the transition tax and the global intangible low-taxed income tax. During 2022, we repatriated $350.3 million of our foreign earnings to the U.S.

The total amount of unrecognized tax benefits at the end of 2022 was $76.5 million. A reconciliation of gross unrecognized tax benefits was as follows: 

	2022		2021		2020
(In millions)
Beginning balance	$	64.2	$	64.1	$	71.6
Increase related to current year tax positions	23.0		9.6		8.0
(Decrease) increase related to prior years' tax positions	(0.7)		1.3		(0.4)
Settlement with taxing authorities	—		(1.3)		(0.5)
Lapse of statute of limitations	(10.0)		(9.5)		(14.6)
Ending balance	$	76.5	$	64.2	$	64.1

Total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $51.6 million and $42.3 million at the end of 2022 and 2021.

We and our subsidiaries are subject to U.S. federal, state, and foreign income taxes. Our tax years are substantially closed for all U.S. federal and state income taxes for audit purposes through 2015. Non-U.S. income tax matters have been concluded for years through 2008. We are currently in various stages of multiple year examinations from state and foreign (multiple jurisdictions) taxing authorities. While we generally believe it is more likely than not that our tax positions will be sustained, it is reasonably possible that future obligations related to these matters could arise. We believe that our reserves are adequate to cover any potential assessments that may result from the examinations and negotiations.

Although timing of the resolution and/or closure of audits is not certain, we do not believe that our gross unrecognized tax benefits would materially change in the next twelve months.

Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Our liability for unrecognized tax benefits including interest and penalties was recorded in Other non-current liabilities on our Consolidated Balance Sheets. At the end of 2022 and 2021, we accrued $8.4 million and $9.2 million for interest and penalties.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act (“IRA”) of 2022. The IRA includes a 15% corporate alternative minimum tax effective in 2024 for certain large corporations, a 1% excise tax on net share repurchases after December 31, 2022, and several tax incentives to promote clean energy. We do not expect the provisions of the IRA to have a material impact on our financial results.