Income Taxes

3 Months Ended

Apr. 01, 2022

Income Tax Disclosure [Abstract]

Income Tax Disclosure

5. Income Taxes

As further discussed in Note 1, in light of the Company's Chapter 11 Cases initiated on October 12, 2020, the Company concluded that there is substantial doubt about its ability to continue as a going concern within one year from the date of issuance of the unaudited condensed consolidated financial statements. The Company considered this in determining that certain net deferred tax assets were no longer more likely than not realizable. As a result, as of both April 1, 2022 and December 31, 2021, all of the Company's net deferred tax assets in applicable tax jurisdictions are fully offset by a valuation allowance.

The Company recognized an income tax benefit of $5.9 million on a loss from continuing operations before income taxes of $126.1 million for the three months ended April 1, 2022, and an income tax benefit of $16.4 million on a loss from continuing operations before income taxes of $160.6 million for the three months ended March 26, 2021. This resulted in effective tax rates of

4.7% and 10.2% for the three months ended April 1, 2022 and March 26, 2021, respectively. The income tax benefit for the three months ended April 1, 2022 was comprised of $5.0 million of current tax benefit and $0.9 million of deferred tax benefit. The current tax benefit was predominantly related to an increase to prepaid taxes. The deferred tax benefit was predominantly related to intangible asset amortization partially offset by utilization of loss carryforwards in non-valuation allowance jurisdictions. The income tax benefit for the three months ended March 26, 2021 was comprised of $13.0 million of current tax benefit and $3.4 million of deferred tax benefit. The current tax benefit was predominately related to an increase to prepaid taxes, partially offset by changes to uncertain tax positions. The deferred tax benefit was predominantly related to intangible asset amortization, partially offset by utilization of loss carryforwards in non-valuation allowance jurisdictions.

The income tax benefit was $5.9 million for the three months ended April 1, 2022, compared with an income tax benefit of $16.4 million for the three months ended March 26, 2021. The $10.5 million net decrease in the tax benefit included a decrease of $12.5 million attributed to changes in the timing, amount and jurisdictional mix of income, a decrease of $1.3 million attributed to the Coronavirus Aid, Relief, and Economic Security (CARES) Act and a decrease of $0.9 million attributed to separation costs, reorganization items, net and restructuring charges, net, partially offset by an increase of $4.2 million attributed to uncertain tax positions.

During the three months ended April 1, 2022 and March 26, 2021, net cash payments for income taxes were $2.7 million and $8.1 million, respectively.

The Company's unrecognized tax benefits, excluding interest, totaled $333.5 million as of both April 1, 2022 and December 31, 2021. If favorably settled, $77.0 million of unrecognized tax benefits as of April 1, 2022 would benefit the effective tax rate. The total amount of accrued interest and penalties related to these obligations was $20.4 million and $18.9 million as of April 1, 2022 and December 31, 2021, respectively. As of April 1, 2022, $7.0 million of unrecognized tax benefits, including interest and penalties, were reflected within LSTC on the Company's unaudited condensed consolidated balance sheet.

It is reasonably possible that within the next twelve months the unrecognized tax benefits could decrease by up to $230.9 million and the amount of related interest and penalties could decrease by up to $18.5 million as a result of payments or releases due to the resolution of examinations, appeals and litigation, successful emergence from Chapter 11 and the expiration of various statutes of limitation.

Certain of the Company's subsidiaries continue to be subject to examination by taxing authorities. The earliest open years subject to examination for various jurisdictions, including Ireland, Japan, Luxembourg, Switzerland and the United Kingdom are from 2013 to present and the earliest open years for the U.S federal and state jurisdictions are 2013 and 2009, respectively.