Note 9 - Income Taxes

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

9.

Income Taxes

The effective tax rates for the

three

and

six

months ended

June 30, 2018

were

19.1%

and

19.2%,

respectively, compared to effective tax rates for the

three

and

six

months ended

July 1, 2017

of

15.2%

and

16.5%,

respectively.

The effective tax rates for the

2018

periods are higher than the effective tax rates for the

2017

periods primarily due to the impact of U.S. tax reform and the acquisition of IXYS. The effective tax rates for the

2017

periods were lower than the then applicable

35%

U.S. statutory tax rate primarily due to income earned in lower tax jurisdictions.

On

December 22, 2017,

the U.S. enacted legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). Among other things, the Tax Act reduces the U.S. corporate federal income tax rate from

35%

to

21%,

adds base broadening provisions which limit deductions and address excessive international tax planning, imposes a

one

-time tax (the “Toll Charge”) on accumulated earnings of certain non-U.S. subsidiaries and enables repatriation of earnings of non-U.S. subsidiaries free of U.S. federal income tax. Other than the Toll Charge (which, except for the IXYS impact, is applicable to the Company for

2017

), the provisions will generally be applicable to the Company in

2018

and beyond.

In accordance with the guidance provided in SEC Staff Accounting Bulletin (“SAB”)

No.

118,

in the

fourth

quarter of

2017

the Company recorded a charge of

$47

million as a provisional reasonable estimate of the impact of the Tax Act, including

$49

million for the Toll Charge net of

$2

million for other net tax benefits. The Company did

not

adjust the provisional reasonable estimate in the

first

six

months of

2018.

In addition, the Company recorded a preliminary estimate of

$10

million for the Toll Charge associated with IXYS as part of the IXYS acquisition purchase price allocation. This adjustment was reflected in the opening balance sheet as an increase to goodwill and other long-term liabilities. The Company is continuing to analyze the Tax Act and plans to finalize the

2017

provisional reasonable estimate within the measurement period outlined in SAB

No.

118

and the IXYS Toll Charge estimate during the purchase price allocation period. The final charges

may

differ from the estimates if provisions of the Tax Act, and their interaction with other provisions of the U.S. Internal Revenue Code, are interpreted differently than interpretations made by the Company in determining the estimates, whether through issuance of administrative guidance, or through further review of the Tax Act by the Company and its advisors. Aside from these interpretation issues, the final charges

may

differ from the estimates due to refinements of accumulated non-U.S. earnings and tax pool data.

The Company will elect to pay the

2017

(Littelfuse) and

2018

(IXYS) Toll Charges over the

eight

-year period prescribed by the Tax Act. The long-term portion of these Toll Charges totaling

$38.5

million (which includes the

2017

Littelfuse provisional reasonable estimate and the

2018

IXYS provisional reasonable estimate, partially offset by foreign tax credits, the

first

annual installment payment and the anticipated

second

annual installment) is recorded in the Other long-term liabilities and the short-term portion of

$3.4

million is recorded in the Accrued income taxes on the Condensed Consolidated Balance Sheet as of

June 30, 2018.

The Company recognized deferred tax liabilities of

$12.0

million (

$11.8

million for non-U.S. taxes and

$0.2

million for U.S. state taxes) as of

December 30, 2017

related to taxes on certain non-U.S. earnings which are

not

considered to be permanently reinvested. Some of these taxes

may

provide a U.S. federal income tax benefit as a foreign tax credit. However, due to uncertainty in regard to the Tax Act’s provisions,

no

such tax benefit was recorded as of

December 30, 2017,

and

no

such tax benefit was recorded in the

first

six

months of

2018.

The Company will reconsider this provisional conclusion when it finalizes its

2017

preliminary reasonable estimate of the impact of the Tax Act, based upon interpretations and administrative guidance as of that time.

One of the base broadening provisions of the Tax Act is commonly referred to as the “GILTI” provisions. In accordance with guidance issued by the FASB staff, the Company has

not

adopted an accounting policy for GILTI. Thus, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions. The Company intends to adopt an accounting policy for GILTI within the measurement period outlined in SAB

118.

Although such an accounting policy has

not

been adopted, the Company considered GILTI when determining the current portion of income tax expense recorded for the

second

quarter and

first

six

months of

2018.

Although certain administrative guidance has been issued, the appropriate application of many provisions of the Tax Act remain uncertain. The Company used its best judgement as to the application of these provisions in determining its income tax expense for the

second

quarter and

first

half of

2018.

Adjustments to income tax expense related to the

first

half of

2018

may

be necessary if provisions of the Tax Act, and their interaction with other provisions of the U.S. Internal Revenue Code, are interpreted differently than interpretations made by the Company in determining its estimates, whether through issuance of administrative guidance, or through further review of the Tax Act by the Company and its advisors.