INCOME AND OTHER TAXES

6 Months Ended

Jul. 02, 2022

Income Tax Disclosure [Abstract]

INCOME AND OTHER TAXES

INCOME AND OTHER TAXES

Uncertain Tax Benefits

As of July 2, 2022, we had gross unrecognized tax benefits of $6.3 (net unrecognized tax benefits of $5.6). All of these net unrecognized tax benefits would impact our effective tax rate from continuing operations if recognized.

We classify interest and penalties related to unrecognized tax benefits as a component of our income tax provision. As of July 2, 2022, gross accrued interest totaled $2.8 (net accrued interest of $2.3). As of July 2, 2022, we had no accrual for penalties included in our unrecognized tax benefits.

Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by up to $5.0. The previously unrecognized tax benefits relate to a variety of tax matters including transfer pricing and various state matters.

Other Tax Matters

For the three months ended July 2, 2022, we recorded an income tax provision of $4.4 on $23.5 of pre-tax income from continuing operations, resulting in an effective rate of 18.7%. This compares to an income tax provision for the three months ended July 3, 2021 of $2.4 on $20.1 of pre-tax income from continuing operations, resulting in an effective rate of 11.9%. The most significant item impacting the income tax provision for the second quarters of 2022 and 2021 was $0.7 and $2.2 of tax benefits, respectively, related to revisions to liabilities for uncertain tax positions. In addition, the tax provision for the second quarter of 2021 included interest associated with various refund claims.

For the six months ended July 2, 2022, we recorded an income tax provision of $7.0 on $39.1 of pre-tax income from continuing operations, resulting in an effective rate of 17.9%. This compares to an income tax provision for the six months ended July 3, 2021 of $7.7 on $48.4 of pre-tax income from continuing operations, resulting in an effective rate of 15.9%. The most significant items impacting the income tax provision during the first half of 2022 and 2021 were (i) $0.7 and $1.0, respectively, of excess tax benefits associated with stock-based compensation awards that vested and/or were exercised during the periods and (ii) the $0.7 and $2.2, respectively, of the tax benefits noted above that were recorded in the second quarter of 2022 and 2021.

We perform reviews of our income tax positions on a continuous basis and accrue for potential uncertain positions when we determine that an uncertain position meets the criteria of the Income Taxes Topic of the Codification. Accruals for these uncertain tax positions are recorded in “Income taxes payable” and “Deferred and other income taxes” in the accompanying condensed consolidated balance sheets based on the expectation as to the timing of when the matters will be resolved. As events change and resolutions occur, these accruals are adjusted, such as in the case of audit settlements with taxing authorities.

During the second quarter of 2021, the Internal Revenue Service (“IRS”) concluded its audit of our 2013, 2014, 2015, 2016 and 2017 federal income tax returns. We believe contingencies related to the subsequent returns are adequately provided for.

State income tax returns generally are subject to examination for a period of three to five years after filing the respective tax returns. The impact on such tax returns of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. We have various state income tax returns in the process of examination. We believe any uncertain tax positions related to these examinations have been adequately provided for.

We have various foreign income tax returns under examination. The most significant of these is in Germany for the 2010 through 2014 tax years. We believe that any uncertain tax positions related to these examinations have been adequately provided for.

An unfavorable resolution of one or more of the above matters could have a material impact on our results of operations or cash flows in the quarter and year in which an adjustment is recorded or the tax is due or paid. As audits and examinations are still in process, the timing of the ultimate resolution and any payments that may be required for the above matters cannot be determined at this time.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

On March 27, 2020, the CARES Act was enacted into law and provides changes to various tax laws that impact businesses. We do not believe these changes impact our current and deferred income tax balances; therefore, no resulting adjustments have been recorded to such balances as of July 2, 2022 and December 31, 2021.

As provided within the CARES Act, we deferred payments of our social security payroll taxes for the period March 27, 2020 to December 31, 2020, with such deferral totaling $3.7 as of July 2, 2022. This amount is required to be paid by the end of 2022.