Income Taxes

6 Months Ended

Jun. 30, 2024

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 (“AETR”) and records any changes affecting the estimated AETR in the interim period in which the change occurs, including discrete tax items.

During the six months ended June 30, 2024, the Company recorded a total income tax provision of $13.4 million on pre-tax income of $50.1 million resulting in an effective tax rate of 26.7%, as compared to a total income tax provision of $5.5 million on pre-tax income of $20.6 million resulting in an effective tax rate of 26.7% during the six months ended July 2, 2023. Although the year-over-year change in rate was flat, the effective tax rate for the period ended June 30, 2024 was favorably impacted by an increase in tax benefits related to share-based compensation and favorable changes related to the limitation on the deduction of business interest expense under Internal Revenue Code section 163(j), which were offset by a decrease in favorable tax benefits related to the repatriation of previously taxed foreign earnings realized during the six months ended July 2, 2023.

On December 20, 2021, the Organization for Economic Co-operation and Development (“OECD”) published Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax. Many non-U.S. tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. For fiscal year 2024, we expect to meet the Transitional Country-by-Country (CbCR) Safe Harbor rules for most if not all jurisdictions and do not expect these provisions to have a material impact on the Company’s financial statements. We will continue to closely monitor ongoing developments and evaluate any potential impact on future periods.

In the first six months of 2024, the Company increased its liability for unrecognized tax benefits by $0.4 million. As of June 30, 2024, the Company had accrued approximately $5.3 million for unrecognized tax benefits. In accordance with applicable accounting standards, the Company’s deferred tax asset as of June 30, 2024, reflects a reduction of $2.8 million of these unrecognized tax benefits.

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. While it is reasonably possible that some of the unrecognized tax benefits will be recognized within the next 12 months, the Company does not expect the recognition of such amounts will have a material impact on the Company’s financial results.