Income Taxes (Notes)

9 Months Ended

Sep. 28, 2023

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

The process for calculating the Company’s income tax expense involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability and whether a valuation allowance is necessary.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and negative evidence. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.

Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the activity surrounding our prior earnings history, including the forward losses previously recognized in the U.S., the Company has recorded a valuation allowance against U.S. deferred tax assets. Increases in the valuation allowances recorded against U.S. deferred tax assets in the nine months ended September 28, 2023 were $112.6. This is comprised of ($0.4) related to other comprehensive income (“OCI”) and $113.0 from continuing operations. As of September 28, 2023, the total net U.S. deferred tax asset before the valuation allowance was $544.9 and the total net U.S. valuation allowance was $547.7. The net U.S. deferred tax liability after valuation allowances was $2.8.

The Company has determined a valuation allowance on certain U.K. deferred tax assets is needed based upon cumulative losses generated in the U.K. Increases in the valuation allowances recorded against U.K. deferred tax assets in the nine-month period ended September 28, 2023 were $46.9. This is comprised of $0.0 related to other comprehensive income (“OCI”) and $46.9 from continuing operations, including utilization of net operating losses. As of September 28, 2023, the total net U.K. deferred tax asset before the valuation allowance was $322.1 and the total net U.K. valuation allowance was $326.2. The net U.K. deferred tax liability after valuation allowance was $4.1.

The Company files income tax returns in all jurisdictions in which it operates. The Company establishes reserves to provide for additional income taxes that may be due upon audit. These reserves are established based on management’s assessment as to the potential exposure attributable to permanent tax adjustments and associated interest. All tax reserves are analyzed quarterly and adjustments made as events occur that warrant modification.

In general, the Company records income tax expense each quarter based on its estimate as to the full year’s effective tax rate. Certain items, however, are given discrete period treatment and the tax effects for such items are therefore reported in the quarter that an event arises. Events or items that may give rise to discrete recognition include excess tax benefits with respect to share-based compensation, finalizing amounts in income tax returns filed, finalizing audit examinations for open tax years, expiration of statutes of limitations, and changes in tax law.

The (0.16%) effective tax rate for the nine months ended September 28, 2023 differs from the (6.49%) effective tax rate for the same period of 2022 primarily due to changes in the valuation allowances recorded on U.S. and U.K. deferred tax assets, nondeductible interest expense and nondeductible excise tax. As the Company is currently reporting a pre-tax loss for the nine months ended September 28, 2023, an increase in the effective tax rate results in an increase of income tax benefits while a decrease in the rate results in a reduction of income tax benefits.

As allowed by the Coronavirus Aid, Relief, and Economic Security Act, the Company has filed a claim for a pre-tax employee retention credit of $18.8 for 2020 and $1.0 for 2021. The outstanding pre-tax employee retention credit refund claim as of September 28, 2023 is $2.2.

The Company's federal audit is conducted under the Internal Revenue Service Compliance Assurance Process (“CAP”) program and is essentially complete for the 2020 tax year. The Company will continue to participate in the CAP program for 2021 through 2023. The CAP program's objective is to resolve issues in a timely, contemporaneous manner and eliminate the need for a lengthy post-filing examination. The Company has an open tax audit in the Kingdom of Morocco for tax years ending prior to the Company's ownership of the Moroccan legal entity. There are ongoing audits in other jurisdictions that are not material to the financial statements and the Company believes appropriate provisions for all outstanding tax issues have been made for all jurisdictions and years.

On July 11, 2023, the U.K. Finance Bill 2023 Number 2, also known as the Spring Finance Bill 2023, received Royal Assent. This legislation is effective for periods beginning after December 31, 2023 and has no impact on the current financial statements.