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Income Taxes
 9 Months Ended
Jul. 01, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

10. Income Taxes

 

The Company’s tax provision and the resulting effective tax rate for interim periods is generally determined based upon its estimated annual effective tax rate ("AETR"), adjusted for the effect of discrete items arising in that quarter. The impact of such inclusions could result in a higher or lower effective tax rate during a quarter, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarter, the Company updates its estimate of the AETR, and if the estimated AETR changes, a cumulative adjustment is made in that quarter.

The Company recorded a provision for income taxes of $5.9 million and a benefit from income taxes of $2.1 million for the three months ended July 1, 2023, and July 2, 2022, respectively, related to U.S. and non-U.S. income taxes. The Company recorded a provision for income taxes of $16.0 million and $4.8 million for the nine months ended July 1, 2023, and July 2, 2022, respectively.

 

For the three and nine months ended July 1, 2023, the Company calculated its U.S. income tax provision using the discrete method as though the interim year-to-date period was an annual period. The application of the AETR method generally required by ASC 740 was impractical for the U.S. interim tax provision given that normal deviations in the projected pre-tax net income (loss) in the U.S. could have resulted in a disproportionate and unreliable effective tax rate under the AETR method. For the three and nine months ended July 1, 2023, the Company's U.S. tax expense was adversely impacted by the requirement to capitalize and amortize research and development expenses under Section 174 of the U.S. Internal Revenue Code ("Section 174") as the Company recorded a current U.S. tax expense with no corresponding deferred tax benefit due to the valuation allowance maintained against its U.S. deferred tax assets. For the three months ended July 2, 2022, the Company’s tax benefit includes the impact of excess U.S. share-based compensation and a benefit from the release of a non-U.S. valuation allowance.

For the three and nine months ended July 1, 2023, the Company concluded that a full valuation allowance on its deferred tax assets in the U.S. continued to be appropriate considering cumulative pre-tax losses in recent years and uncertainty with respect to future taxable income. Release of the valuation allowance in the U.S. would result in a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective earnings in the U.S.