XML 25 R15.htm IDEA: XBRL DOCUMENT v3.22.2.2
Income Taxes
 9 Months Ended
Oct. 01, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
At the end of each interim reporting period, the Company makes an estimate of its annual effective income tax rate. Tax expense in interim periods is calculated at the estimated annual effective tax rate plus or minus the tax effects of items of income and expense that are discrete to the period. The estimate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods.
In January 2022, the Company completed an intra-group transfer of certain intellectual property ("IP") rights from non-U.S. wholly-owned subsidiaries of the Company to the United States in order to better align with current and future business operations. The transfer resulted in a step-up in tax basis driven by the fair value of the transferred IP rights, resulting in a one-time net deferred benefit of $77 million in the quarter ended April 2, 2022. The determination of the fair value involves judgment on future revenue growth, operating margins and discount rates. The Company expects to realize the net deferred tax asset recorded as a result of the IP transfer and will periodically assess such realizability. The tax-deductible amortization related to the transferred IP rights will be recognized over a 15-year period.
The following table provides details of income taxes:
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Net earnings before income taxes$333 $405 $852 $1,034 
Income tax expense53 97 75 186 
Effective tax rate16 %24 %9 %18 %
The effective tax rate for the three months ended October 1, 2022 of 16% was lower than the U.S. federal statutory tax rate of 21% primarily due to higher excess tax benefits of share-based compensation. The effective tax rate for the nine months ended October 1, 2022 of 9% was lower than the U.S. federal statutory tax rate of 21% primarily due to a net deferred tax benefit as a result of an intra-group transfer of certain IP rights (as described above) and the excess tax benefits of share-based compensation.
The effective tax rate for the three months ended October 2, 2021 of 24% was higher than the U.S. federal statutory tax rate of 21% due to state tax expense, offset by the excess tax benefits of share-based compensation. The effective tax rate for the nine months ended October 2, 2021 of 18% was lower than the U.S. federal statutory tax rate of 21% primarily due to a tax benefit related to a partial release of $33 million of a valuation allowance recorded on the U.S. foreign tax credit carryforward and the excess tax benefits of share-based compensation.
The effective tax rate for the three months ended October 1, 2022 of 16% was lower than the effective tax rate for the three months ended October 2, 2021 of 24%, primarily due to higher excess tax benefits of share-based compensation in 2022. The effective tax rate for the nine months ended October 1, 2022 of 9% was lower than the effective tax rate for the nine months ended October 2, 2021 of 18%, primarily due to a net deferred tax benefit as a result of an intra-group transfer of certain IP rights
(as described above) and higher excess tax benefits of share-based compensation in 2022, offset by a tax benefit due to a partial release of a valuation allowance in 2021.