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Income Taxes | 9 Months Ended
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Sep. 28, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For interim financial statement purposes, U.S. GAAP provision (benefit) for taxes related to ordinary income is determined by applying an estimated annual effective income tax rate against a company’s ordinary income, subject to certain limitations on the benefit of losses. Provision (benefit) for taxes related to items not characterized as ordinary income is recognized as a discrete item when incurred. The estimation of the Company’s income tax provision requires the use of management forecasts and other estimates, the application of statutory income tax rates, and an evaluation of valuation allowances. The Company’s estimated annual effective income tax rate may be revised, if necessary, in each interim period. The worldwide effective income tax rates were 24.3% and 33.6% for the fiscal three months ended September 28, 2025 and September 29, 2024, respectively, and 27.5% and 31.1% for the fiscal nine months ended September 28, 2025 and September 29, 2024, respectively. The decrease in the effective tax rate for the fiscal three months ended September 28, 2025 as compared to the fiscal three months ended September 29, 2024 was primarily the result of changes to the jurisdictional mix of income and favorable return-to-provision adjustments. The decrease in the effective tax rate for the fiscal nine months ended September 28, 2025 as compared to the fiscal nine months ended September 29, 2024 was primarily the result of the quarter-to-date effective tax rate impacts discussed above, as well as a windfall on stock-based compensation recorded during the fiscal nine months ended September 28, 2025 as compared to a shortfall on stock-based compensation recorded during the fiscal nine months ended September 29, 2024. The decrease was partially offset by income tax benefits recognized during the fiscal nine months ended September 29, 2024 resulting from the impairment to the Dr.Ci:Labo® skin health business and the corresponding reversal of a deferred tax liability at the higher Japanese rate, the remeasurement of the state deferred tax liability recognized during the fiscal nine months ended September 29, 2024 as a result of a change in the Company’s state tax rate, and reduced income tax benefits derived from fewer releases of income tax reserves due to the expiration of certain statutes of limitations during the fiscal nine months ended September 28, 2025 as compared to the fiscal nine months ended September 29, 2024. As of September 28, 2025, the Company had approximately $205 million of liabilities from unrecognized tax benefits. The Company conducts business and files tax returns in numerous countries. With respect to the United States, per the Tax Matters Agreement between J&J and the Company, J&J remains liable for all liabilities related to the final settlement of any U.S. federal income tax audits in which the Company was part of J&J’s federal consolidated tax return. In other major jurisdictions where the Company conducts business, the years that are under tax audit or remain open to tax audits range from 2014 and forward. The Company has included the impact of enacted legislation related to the Organization for Economic Co-operation Development’s (the “OECD”) Pillar Two Inclusive Framework (“Pillar Two”) in its provision for taxes beginning in fiscal year 2024. While the impact of currently enacted laws for Pillar Two is not significant, it is possible that further administrative guidance from the OECD or new legislation in countries where the Company operates could have a material effect on the Company’s provision for taxes in the future. In addition, in January 2025, the United States issued an executive order expressing disagreement with certain aspects of Pillar Two. In June 2025, the Group of Seven (“G7”) issued a statement supporting the exclusion of U.S. parented groups from certain aspects of Pillar Two in exchange for the United States not imposing certain retaliatory taxes. The executive order and G7 statement do not have a binding effect. The Company will continue to monitor any changes to Pillar Two and any enacted Pillar Two legislation resulting from these negotiations. On July 4, 2025, the reconciliation bill commonly referred to as the One Big Beautiful Bill Act (the “OBBBA”) was signed into law. The OBBBA made a number of changes to U.S. federal income tax law, including the permanent suspension of the requirement to capitalize and amortize domestic research and experimental expenditures, changes to certain deductions available for deemed inclusions, and a permanent extension of certain corporate international income tax provisions. The enactment of the OBBBA is not expected to have a material impact on the Company’s current fiscal year effective tax rate. Further guidance is expected with respect to the OBBBA, and the Company will continue to assess the impact on its financial statements.

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