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Income Taxes | 12 Months Ended
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Dec. 29, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Significant components of the provision for income taxes were as follows:
| Fiscal Year Ended
(In millions) | 2024 |  | 2023 |  | 2022
Current: |  |  |  |  |
Federal | $ | (1.1) |  |  | $ | (49.3) |  |  | $ | 162.2 |
State | 4.9 |  |  | (1.6) |  |  | 48.8 |
Foreign | 22.1 |  |  | 36.4 |  |  | 17.6 |
Total current provision (benefit) | 25.9 |  |  | (14.5) |  |  | 228.6 |
Deferred: |  |  |  |  |
Federal | (130.5) |  |  | 8.5 |  |  | (31.9) |
State | 0.6 |  |  | (3.6) |  |  | (9.3) |
Foreign | 24.5 |  |  | (9.4) |  |  | (0.2) |
Total deferred benefit | (105.4) |  |  | (4.5) |  |  | (41.4) |
(Benefit from) provision for income taxes | $ | (79.5) |  |  | $ | (19.0) |  |  | $ | 187.2 |
The Company’s income before income taxes was subject to taxes in the following jurisdictions for the following periods:
| Fiscal Year Ended
(In millions) | 2024 |  | 2023 |  | 2022
United States | $ | (2,167.1) |  |  | $ | (163.9) |  |  | $ | 672.1 |
Foreign | 35.6 |  |  | 134.8 |  |  | 63.8 |
(Loss) income before income taxes | $ | (2,131.5) |  |  | $ | (29.1) |  |  | $ | 735.9 |
Significant components of the Company’s deferred tax assets and deferred tax liabilities as of December 29, 2024 and December 31, 2023 are shown below:
(In millions) | December 29, 2024 |  | December 31, 2023
Deferred tax assets: |  |  |
Lease liability | $ | 46.2 |  |  | $ | 47.2 |
Allowance for returns and discounts | 38.4 |  |  | 42.3 |
Inventory reserve | 14.7 |  |  | 14.0 |
Stock-based compensation | 9.7 |  |  | 15.8 |
Tax loss, interest expense and credit carryforwards | 468.7 |  |  | 603.8 |
Research & development expenses | 95.7 |  |  | 75.9 |
Employee related obligations | 13.2 |  |  | 6.0 |
Other, net | — |  |  | 10.8 |
Total deferred tax assets | 686.6 |  |  | 815.8 |
Valuation allowance for deferred tax assets | (142.4) |  |  | (274.7) |
Total deferred tax assets, net of valuation allowance | 544.2 |  |  | 541.1 |
Deferred tax liabilities: |  |  |
Right-of-use assets | (38.9) |  |  | (38.9) |
Intangible assets | (468.6) |  |  | (554.2) |
Property, plant and equipment | (107.5) |  |  | (114.3) |
Other, net | (5.7) |  |  | — |
Total deferred tax liabilities | (620.7) |  |  | (707.4) |
Net deferred tax liabilities | $ | (76.5) |  |  | $ | (166.3) |
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. During the fiscal year ended 2024, the Company was no longer demonstrating positive worldwide cumulative pre-tax book income, driven primarily by the impairment of goodwill during 2024. Absent utilizing more subjective projections of future income, a portion of the Company’s federal net operating loss and interest expense carryforwards, a portion of certain state net operating loss, interest expense and tax credit carryforwards, and deferred tax assets related to certain foreign subsidiaries were not more likely than not to be realized. Therefore, the Company established a valuation allowance during the fiscal year ended 2024 for those U.S. and foreign deferred tax assets not more likely than not to be utilized. The valuation allowance of $142.4 million as of December 29, 2024 represents the portion of the deferred tax asset that management could not conclude was more likely than not to be realized. The Company’s valuation allowance relates primarily to the realization of recorded tax benefits on tax interest and loss carryforwards from operations in the U.S. federal and state jurisdictions as well as Luxembourg, tax credits in U.S. state jurisdictions, and foreign distributors deferred tax assets. The amount of the deferred tax assets considered realizable could be adjusted in future years based on changes in available positive and negative evidence. The Company’s overall valuation allowance recorded on deferred tax assets decreased primarily due to certain Luxembourg tax loss carryforwards for which a reserve for unrecognized tax benefits was recorded during the fiscal year ended 2024. As of December 29, 2024, the Company had U.S. federal NOL carryforwards of $856.8 million, of which $345.0 million are subject to expiration through 2037 and $511.8 million are not subject to expiration. In addition, the Company has state NOLs of approximately $623.1 million, which will expire in years 2025 through 2044. As of December 29, 2024, the Company had U.S. federal research credit carryforwards of $29.8 million and federal foreign tax credits of $2.2 million, which will begin to expire in 2034 and 2028, respectively. In addition, the Company had state research credits of $20.0 million and state business credit carryforwards of $25.6 million, of which none expire. As of December 29, 2024, the Company had $245.7 million of NOL carryforwards in certain non-U.S. jurisdictions, net of uncertain tax positions. Of these, $203.8 million have no expiration and the remaining $41.9 million will expire in years through 2040. Pursuant to Internal Revenue Code Sections 382 and 383, the Company’s use of its NOL and tax credit carryforwards may be limited as a result of cumulative changes in ownership of more than 50% over a three-year period. As a result of an ownership change that occurred in the second quarter of fiscal year ended 2022, the Company may be limited in its ability to utilize its NOL carryforwards and certain other attributes, starting on the ownership change date. The reconciliation of income tax computed at the federal statutory rate to the provision for income taxes from continuing operations was as follows:
| Fiscal Year Ended
(In millions) | 2024 |  | 2023 |  | 2022
Tax (benefit) expense at statutory tax rate | $ | (447.6) |  |  | $ | (6.1) |  |  | $ | 154.5 |
State tax (benefit) expense, net of federal tax | (7.2) |  |  | (2.8) |  |  | 29.3 |
Foreign income taxed at rates other than the applicable U.S. rate | 10.3 |  |  | (23.0) |  |  | (27.5) |
Goodwill Impairment | 316.2 |  |  | — |  |  | — |
Permanent differences | 14.8 |  |  | (4.3) |  |  | 8.2 |
Federal and state research credits—current year | (5.1) |  |  | (10.3) |  |  | (7.3) |
Stock-based compensation | 6.2 |  |  | 1.5 |  |  | 1.5 |
Change in valuation allowance | 31.3 |  |  | 10.4 |  |  | 26.2 |
Foreign Derived Intangible Income Deduction | — |  |  | — |  |  | (10.2) |
Global Intangible Low-Taxed Income | 0.1 |  |  | 20.1 |  |  | 3.8 |
Change in uncertain tax positions | (7.8) |  |  | (11.8) |  |  | — |
Other | 9.3 |  |  | 7.3 |  |  | 8.7 |
(Benefit from) provision for income taxes | $ | (79.5) |  |  | $ | (19.0) |  |  | $ | 187.2 |
The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes that it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes. The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| Fiscal Year Ended
(In millions) | 2024 |  | 2023 |  | 2022
Beginning balance | $ | 28.8 |  |  | $ | 40.0 |  |  | $ | 17.7 |
Increases related to current year tax positions | — |  |  | 2.6 |  |  | 1.8 |
Increases (decreases) related to prior year tax positions | 165.4 |  |  | (0.1) |  |  | (0.6) |
Increases due to current year acquisitions | — |  |  | — |  |  | 27.8 |
Decreases due to settlements and expirations | (10.3) |  |  | (13.7) |  |  | (6.7) |
Ending balance | $ | 183.9 |  |  | $ | 28.8 |  |  | $ | 40.0 |
As of December 29, 2024, December 31, 2023 and January 1, 2023, the Company had unrecognized tax benefits of $183.9 million, $28.8 million, and $40.0 million, respectively, of which $16.3 million, $21.6 million and $28.3 million, respectively, would reduce the Company’s annual effective tax rate, if recognized. The Company estimates that within the next 12 months, its uncertain tax positions, excluding interest, will decrease by $5.1 million related to the lapse of statutes of limitations as well as an on-going multi-state tax commission audit that is expected to be settled within the next 12 months. The Company’s policy is to recognize the interest expense and penalties related to income tax matters as a component of the income tax expense. The Company had accrued interest and penalties associated with uncertain tax positions of $1.6 million as of December 29, 2024 and $4.0 million as of December 31, 2023. The Company recognized net interest income of $2.4 million and $4.3 million for fiscal years ended 2024 and 2023, respectively, due to the reversals of prior year accrued interest; interest expense for fiscal year ended 2022 was approximately $0.3 million. The Company is subject to periodic audits by domestic and foreign tax authorities. Due to the carryforward of unutilized credits, the Company’s federal tax years from 2020 and onwards are subject to examination by the U.S. authorities. The Company’s state and foreign tax years for 2001 and onwards are subject to examination by applicable tax authorities. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. Ortho is currently under audit in certain jurisdictions for tax years under the responsibility of Johnson & Johnson. Pursuant to the stock and asset purchase agreement entered into by Ortho and Johnson & Johnson in January 2014, Johnson & Johnson retained all income tax liabilities accrued as of the date of acquisition, including reserves for unrecognized tax benefits. Accordingly, all tax liabilities related to these tax years will be indemnified by Johnson & Johnson. During the fourth quarter of fiscal year ended 2023, the federal examination for tax years 2013 through 2014 closed with no liability due. As such, the related unrecognized tax benefits and interest were released totaling $19.9 million, offset by $5.4 million of competent authority benefits reversed. As of December 29, 2024, the remaining indemnification receivable from Johnson & Johnson totaled $3.2 million and is included as a component of Prepaid expenses and other current assets on the Consolidated Balance Sheet. In 2024, the Company determined that an uncertain tax benefit was required to be established related to net operating loss and interest expense carryforwards associated with an on-going Luxembourg income tax audit for tax years 2017 through 2020. As such, Luxembourg net operating loss and interest expense carryforward deferred tax assets that were previously fully offset by a valuation allowance have been reduced by the amount of uncertain tax benefits recorded as a contra deferred tax asset. The Luxembourg income tax audit is not expected to be settled in the next 12 months. The following table summarizes the changes to the valuation allowance for balances for fiscal years ended 2024, 2023 and 2022:
| Beginning Balance |  | Additions Due to Current Year Acquisitions |  | Additions Charged to (Benefit From) Provision for Income Taxes |  | Currency Translation/Other(1) |  | Ending Balance
Deferred tax valuation allowance |  |  |  |  |  |  |  |  |
Fiscal year ended December 29, 2024 | $ | 274.7 |  |  | — |  |  | 31.3 |  |  | (163.6) |  |  | $ | 142.4 |
Fiscal year ended December 31, 2023 | $ | 251.3 |  |  | — |  |  | 10.4 |  |  | 13.0 |  |  | $ | 274.7 |
Fiscal year ended January 1, 2023 | $ | 2.3 |  |  | 223.5 |  |  | 26.2 |  |  | (0.7) |  |  | $ | 251.3 |
(1) The other decreases in valuation allowance during fiscal year ended 2024 related predominately to reserves for unrecognized tax benefits recorded on certain Luxembourg tax loss carryforwards during the period.

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