Income Taxes

9 Months Ended

Oct. 03, 2021

Income Tax Disclosure [Abstract]

Income Taxes

(10) Income taxes

During the fiscal quarter ended October 3, 2021, the Company reported income before provision for income taxes of $20.7 million and recognized a provision for income taxes of $6.0 million, resulting in an effective tax rate of 29.1%. During the fiscal nine months ended October 3, 2021, the Company incurred a loss before provision for income taxes of $20.0 million and recognized a provision for income taxes of $24.4 million, resulting in a negative effective tax rate of 122.2%. The effective tax rate for the fiscal nine months ended October 3, 2021 differs from the U.S. federal statutory rate primarily due to (i) a net cost of $27.5 million for the impacts of operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances, (ii) a net benefit of $10.9 million related to non-U.S. earnings being taxed at rates that are different than the U.S. statutory rate, and (iii) a net cost of $10.6 million for the tax expense associated with the remeasurement of deferred tax assets and liabilities due to the enactment of new tax rates, primarily in the United Kingdom.

During the fiscal quarter ended September 27, 2020, the Company incurred a loss before provision for income taxes of $38.8 million and recognized an income tax benefit of $10.3 million, resulting in an effective tax rate of 26.5%. During the fiscal nine months ended September 27, 2020, the Company incurred a loss before provision for income taxes of $173.4 million and recognized an income tax benefit of $2.4 million, resulting in an effective tax rate of 1.4%. The effective tax rate for the fiscal nine months ended September 27, 2020 differs from the U.S. federal statutory rate primarily due to (i) a net cost of $39 million for the impacts of operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances, (ii) a net benefit of $12 million related to the increase in the Company’s interest expense on prior year reserves for uncertain tax positions, and (iii) a net cost of $9.7 million due to the non-U.S. earnings being taxed at rates that are different than the U.S. statutory rate.

The balance of unrecognized tax benefits at October 3, 2021, not including interest and penalties, was $28.3 million, of which $23.8 million would affect the effective income tax rate in future periods, if recognized. The Company also recognizes interest and penalties related to unrecognized tax benefits in tax expense. At October 3, 2021, the Company had approximately $6.7 million of interest and penalties accrued related to unrecognized tax benefits. The Company estimates that within the next twelve months, its uncertain tax positions, excluding interest, will not significantly decrease.

Indemnification assets

On January 16, 2014, Bermuda Holdco entered into a stock and asset purchase agreement (the “Acquisition Agreement”) of (i) certain assets and liabilities, and (ii) all of the equity interests and substantially all of the assets and liabilities of certain entities which, together with their subsidiaries, comprised the Ortho Clinical Diagnostics business from Johnson & Johnson. The Acquisition Agreement generally provided that Johnson & Johnson retained all income tax liabilities accrued as of the date of the acquisition, including reserves for unrecognized tax benefits. The indemnification receivable from Johnson & Johnson totaled $17.6 million and $17.0 million as of October 3, 2021 and January 3, 2021, respectively. The Company recorded $0.2 million and $0.6 million of interest and penalties during the fiscal quarter and nine months ended October 3, 2021, respectively. These receivables are included as a component of Other current assets and Other assets on the unaudited consolidated balance sheets.