Income Taxes (Notes)

3 Months Ended

Apr. 02, 2020

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

The process for calculating the Company’s income tax expense involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability. We have reviewed our material deferred tax assets to determine whether or not a valuation allowance was necessary. Based on the Company’s earnings history, in conjunction with other positive and negative evidence, we have determined it is more likely than not that the benefits from the deferred tax assets will be realized and therefore, a valuation allowance is not appropriate at this time. The total net deferred tax asset at April 2, 2020, and December 31, 2019, was $184.4 and $98.2, respectively. The difference is primarily due to the creation of deductible temporary differences and utilization of taxable temporary differences within the current year.

The Company files income tax returns in all jurisdictions in which it operates. The Company establishes reserves to provide for additional income taxes that may be due upon audit. These reserves are established based on management’s assessment as to the potential exposure attributable to permanent tax adjustments and associated interest. All tax reserves are analyzed quarterly and adjustments made as events occur that warrant modification.

For the three months ending April 2, 2020, the amount of income tax benefit that would have been recognized under the expected annual effective tax rate would have exceeded the tax benefit we expect to realize for the full year. Due to this, the loss was limited by the year to date tax benefit that would have been recognized if the year to date loss were the full year anticipated loss (“Loss Limitation Rule”). Essentially, the year to date period was deemed to be the full year for purposes of computing the tax benefit recognized. Certain items, however, continue to be given discrete period treatment and the tax effects for such items are therefore reported in the quarter that an event arises. Events or items that may give rise to discrete recognition include excess tax benefits with respect to share-based compensation, finalizing amounts in income tax returns filed, finalizing audit examinations for open tax years and expiration of statutes of limitations, and changes in tax law.

The 35.1% effective tax rate for the three months ended April 2, 2020 differs from the 19.8% effective tax rate for the same period of 2019 primarily due to the benefit generated by state tax credits. In addition, the incorporation of the Loss Limitation Rule and the benefit generated related to the carryback of our 2020 estimated income tax loss as permitted by Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) resulted in increases to the rate which were offset by increases to GILTI and other permanent differences. As the Company is currently reporting a pre-tax loss for the three months ended April 2, 2020, increases to tax expense result in a decrease to the effective tax rate and decreases to tax expense result in an increase to the effective tax rate.

The Company's federal audit is effectively complete under the Internal Revenue Service’s Compliance Assurance Process (“CAP”) program for the 2018 tax year. The Company will continue to participate in the CAP program for the 2019 and 2020 tax years. The CAP program’s objective is to resolve issues in a timely, contemporaneous manner and eliminate the need for a lengthy post-filing examination.  There are no open audits in the Company’s foreign jurisdictions.