Income Taxes

9 Months Ended

Oct. 02, 2021

Income Taxes

Income Taxes

13. Income Taxes

Provision (benefit) for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Income tax expense (benefit) was $9.4 million and $(3.5) million for the three months ended October 2, 2021 and October 3, 2020, resulting in effective tax rates of (90.7)% and 11.5%, respectively. Income tax expense (benefit) was $12.5 million and $(11.9) million for the nine months ended October 2, 2021 and October 3, 2020, resulting in effective tax rates of (24.7)% and 11.2%, respectively.

The higher provision for income taxes for the three and nine months ended October 2, 2021 was primarily due to the adoption of ASU 2019-12 Simplifying the Accounting for Income Taxes as of the beginning of the current fiscal year and its requirement to reallocate income tax benefit from continuing operations to discontinued operations. Under ASU 2019-12, which is being applied prospectively from the date of adoption, the income tax benefit of a loss from continuing operations should be reallocated to discontinued operations if the Company would be unable to benefit from the loss without considering the income from discontinued operations. As such, an income tax benefit of $1.3 million and $10.9 million associated with continuing operations for the three and nine months ended October 2, 2021, respectively, was reallocated to discontinued operations. Prior to ASU 2019-12, if the Company reported a loss from continuing operations and income from discontinued operations, income from discontinued operations would be considered in determining the income tax benefit allocated to continuing operations.

Additionally, for the three and nine months ended October 2, 2021, there was an increase in the beginning of year valuation allowance on state attribute carryforwards as a result of changes in state tax estimates, primarily due to the divestiture of the infrastructure and automotive business to Skyworks Solutions.

An estimated tax on the gain from the divestiture of the infrastructure and automotive business to Skyworks Solutions of $346.9 million was recorded in discontinued operations for the period, as well as additional tax benefit associated with discontinued operations of $(13.7) million for the three-month period ended October 2, 2021. As of October 2, 2021, the Company had recorded $328.0 million of income taxes payable in connection with the gain from the divestiture, of which $320.1 million was included in other current liabilities in the Condensed Consolidated Balance Sheets.

Uncertain Tax Positions

As of October 2, 2021, the Company had gross unrecognized tax benefits, inclusive of interest, of $3.7 million, all of which would affect the effective tax rate if recognized. During the nine months ended October 2, 2021, the Company did not release any unrecognized tax benefits.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision (benefit) for income taxes. These amounts were not material for any of the periods presented.

Following the completion of the Norwegian Tax Administration (“NTA”) examination of the Company’s Norwegian subsidiary for income tax matters relating to fiscal years 2013 - 2016, the Company received an assessment from the NTA in December 2017 concerning an adjustment to its 2013 taxable income related to the pricing of an intercompany transaction. The Company is currently appealing the assessment. The adjustment to the pricing of the intercompany transaction results in approximately 141.3 million Norwegian kroner, or $16.3 million additional Norwegian income tax. The Company disagrees with the NTA’s assessment and believes the Company’s position on this matter is more likely than not to be sustained. The Company plans to exhaust all available administrative remedies, and if unable to resolve this matter through administrative remedies with the NTA, the Company plans to pursue judicial remedies.

The Company believes that it has accrued adequate reserves related to all matters contained in tax periods open to examination. Should the Company experience an unfavorable outcome in the NTA matter, however, such an outcome could have a material impact on its financial statements.

Tax years 2015 through 2021 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company is not currently under audit in any major taxing jurisdiction.

The Company does not reasonably expect material changes to its gross unrecognized tax benefits in the next 12 months.