Income Taxes

9 Months Ended

Sep. 24, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s tax provision is comprised of the most recent estimated annual effective tax rate applied to year-to-date ordinary income before taxes. The tax impacts of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are recorded discretely in the interim period in which they occur.

Income tax expense was $14 million and $12 million for the three months ended September 24, 2022 and September 25, 2021, respectively. The effective income tax rate for the three months ended September 24, 2022 was 27.4% compared to 26.4% for the three months ended September 25, 2021. The increase in income tax expense and tax rate was primarily driven by foreign exchange rate adjustments for the three months ended September 24, 2022.

Income tax expense was $9 million and $24 million for the nine months ended September 24, 2022 and September 25, 2021, respectively. The effective income tax rate for the nine months ended September 24, 2022 was 35.3% compared to 33.6% for the nine months ended September 25, 2021. The net decrease in income tax expense was primarily driven by a favorable discrete tax adjustment related to the trade name impairment charge for the nine months ended September 24, 2022, and favorable discrete tax adjustments related to non-deductible loss on debt extinguishment as well as tax deductible costs incurred related to the initial public offering for the nine months ended September 25, 2021. The net increase in tax rate was primarily driven by foreign exchange rate adjustments.

In August 2022, President Biden signed into law the Inflation Reduction Act (“IRA”) and the CHIPS and Science Act of 2022. The laws implement new tax provisions and provide for various incentives and tax credits. The IRA creates a 15% corporate alternative minimum tax (“CAMT”) on the adjusted financial statement income “(AFSI”) of corporations and is effective for tax years beginning after December 31, 2022. The IRA also creates an excise tax of 1% on stock repurchases by publicly traded U.S. corporations, effective for repurchases after December 31, 2022. The CAMT will be accounted for as a period cost when the related tax consequences arise, rather than through adjustments in deferred taxes, and the tax accounting consequences of the CAMT will not be recognized in the Company’s financial statements until the first period after its effective date. The Company is still evaluating the full impact of the tax effects of the newly enacted laws.