Income Taxes

6 Months Ended

Jul. 01, 2023

Income Taxes

Income Taxes

10. Income Taxes

Provision 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, global intangible low-taxed income and Subpart F income inclusions and other permanent differences. Income tax expense was $12.3 million and $11.0 million for the three months ended July 1, 2023 and July 2, 2022, resulting in effective tax rates of 53.0% and 33.2%, respectively. Income tax expense was $20.1 million and $22.7 million for the six months ended July 1, 2023 and July 2, 2022, resulting in effective tax rates of 44.6% and 33.5%, respectively. The increase in the effective tax rate for the three and six months ended July 1, 2023 was primarily due to a decrease to forecasted pre-tax book income, as the impact of permanent items is greater when pre-tax book income is lower, partially offset by a discrete state return-to-provision benefit recorded in the recent quarter.

Uncertain Tax Positions

As of July 1, 2023, the Company had gross unrecognized tax benefits, inclusive of interest, of $5.1 million, all of which would affect the effective tax rate if recognized. During the six months ended July 1, 2023, the Company did not release any unrecognized tax benefits.

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

10. Income Taxes (Continued)

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 $13.1 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 2023 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company’s 2021 tax year is currently under examination in India. Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially impact its financial position or results of operations. The Company is not currently under audit in any other major taxing jurisdiction.

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