Income Taxes

9 Months Ended

Oct. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The Company determines its provision for income taxes for interim periods using an estimate of its annual effective tax rate and records any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items.

During the nine months ended October 2, 2022, the Company recorded a total income tax provision of $22.3 million on pre-tax income of $66.5 million resulting in an effective tax rate of 33.6%, as compared to a total income tax provision of $13.0 million on pre-tax income of $46.4 million resulting in an effective tax rate of 28.0% during the nine months ended October 3, 2021. The increase in the effective tax rate for the period ended October 2, 2022 as compared to the period ended October 3, 2021 was primarily due to a non-recurring favorable change to unrecognized tax benefits in the period ended October 3, 2021, unfavorable changes related to company-owned life insurance, an increase in non-deductible executive compensation, and unfavorable changes related to foreign currency.

In April of 2021, the Company filed requests with both the Competent Authority in the Netherlands and in the U.K. to initiate a mutual agreement procedure (“MAP”) related to the double taxation arising from adjustments made by Her Majesty’s Revenue & Customs to the Company’s U.K. subsidiaries’ tax returns for years 2012 through 2017. The adjustments result from the interest rate applied in the intra-group financing arrangement between a Company subsidiary in the U.K. and the Netherlands. In June of 2022, the Company was notified that the Competent Authorities had reached an agreement on the interest rate to be applied for the years 2012 through 2017. The Company recognized the adjustments in the nine-month period ending October 2, 2022, based on the outcome of the MAP. The recognition of the adjustments did not have a material impact on the Company’s effective tax rate or its financial position.

In the first nine months of 2022, the Company decreased its liability for unrecognized tax benefits by $0.1 million. As of October 2, 2022, the Company had accrued approximately $8.1 million for unrecognized tax benefits. In accordance with applicable accounting standards, the Company’s deferred tax asset as of October 2, 2022 reflects a reduction for $2.8 million of these unrecognized tax benefits.

On October 15, 2022, the statute of limitations for the 2018 U.S. federal income tax return and Georgia income tax return closed. As a result of this lapse in the statute of limitations, the Company will recognize $2.2 million of unrecognized tax benefits in the fourth quarter of 2022.

Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, it is reasonably possible that approximately $2.6 million of unrecognized tax benefits, including the $2.2 million to be recognized in the fourth quarter of 2022, may be recognized within the next 12 months due to a lapse of statute of limitations.