Income Taxes

9 Months Ended

Oct. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 7. Income Taxes

The income tax benefit for the three and nine months ended October 2, 2022 was $4.3 million, or an effective tax rate of 285.1%, and $9.0 million, or an effective tax rate of 12.5%, respectively. The income tax provision for the three and nine months ended October 3, 2021 was $3.2 million, or an effective tax rate of 25.0%, and $15.4 million, or an effective tax rate of 23.4%, respectively. The change in taxes for the three months ended October 2, 2022, compared to the prior year period, was primarily due to the pre-tax loss of $1.5 million during the period coupled with the impact of changes in estimate for the effective tax rate resulting in a true-up in tax benefit for the prior periods. Additionally, the Company recorded a tax benefit for favorable changes in estimates recorded during the quarter upon completion of the 2021 US federal tax return. For the nine months ended October 2, 2022, the tax benefit recorded for favorable changes in estimates recorded during the quarter upon completion of the 2021 US federal tax return was offset by the tax impact of a goodwill impairment that is not deductible for tax purposes. For the three and nine months ended October 3, 2021, tax expenses were partially offset by tax benefits related to stock-based compensation and non-taxable income related to adjustments to acquisition-related contingent accruals. Additionally, the Company recorded a tax benefit for favorable changes in estimates recorded during the fiscal quarter upon completion of the 2020 US federal tax return.

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The future foreign tax rate could be affected by changes in the composition in earnings in countries with tax rates differing from the U.S. federal rate. The Company is under examination in various U.S. and foreign jurisdictions.

The Company files income tax returns in the U.S. federal jurisdiction as well as various state, local, and foreign jurisdictions. Due to the uncertain nature of ongoing tax audits, the Company has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next twelve months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities. The possible reduction in liabilities for uncertain tax

positions in multiple jurisdictions in the next twelve months is approximately $0.4 million, excluding the interest, penalties and the effect of any related deferred tax assets or liabilities. The Company is currently under examination by the U.S. Internal Revenue Service for its fiscal year ended December 31, 2018 as well as other state, local and foreign jurisdictions for different years.

On March 11, 2021, the American Rescue Plan Act of 2021, also known as the COVID-19 Stimulus Package, was signed into law. The provisions of the American Rescue Plan do not have a material impact on income taxes or liquidity in the current year.

On August 16, 2022, the “Inflation Reduction Act” (“IRA”) was signed into law. IRA includes a new corporate minimum tax on certain large corporations, a 1% exercise tax on stock repurchases, numerous green energy credits, other tax provisions, and significantly increased enforcement resources. The Company does not expect the IRA will have a material impact to the Company's financial statements when it becomes effective for the tax years after December 31, 2022.