Income Taxes |
6 Months Ended |
|---|---|
Jun. 28, 2026 | |
| 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 23.7% and 28.6% for the fiscal three months ended June 28, 2026 and June 29, 2025, respectively, and 26.8% and 29.1% for the fiscal six months ended June 28, 2026 and June 29, 2025, respectively. The decrease in the effective tax rate for the fiscal three months ended June 28, 2026 as compared to the fiscal three months ended June 29, 2025 was primarily the result of the release of a valuation allowance in the fiscal three months ended June 28, 2026 as well as changes to the jurisdictional mix of income and favorable impacts to U.S. tax on foreign earnings attributable to the prior year enactment of the One Big Beautiful Bill Act, which became effective in the current year. The decrease in the effective tax rate for the fiscal six months ended June 28, 2026 as compared to the fiscal six months ended June 29, 2025 was primarily the result of the quarter-to-date effective tax rate impacts discussed above, partially offset by a shortfall on stock-based compensation recorded during the fiscal six months ended June 28, 2026 as compared to a windfall on stock-based compensation recorded during the fiscal six months ended June 29, 2025. As of June 28, 2026, the Company had approximately $232 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 2015 and forward. The Company has included the impact of enacted legislation related to the Organization for Economic Co-operation and 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 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. On January 5, 2026, the OECD announced the Side-by-Side (“SbS”) package, implemented as administrative guidance and modifying the operation of the Pillar Two rules. The package introduces simplifications and new safe harbors for U.S. and other multinational companies where domestic and international tax systems meet robust requirements to coexist with Pillar Two, which would fully exempt U.S.-parented groups from the application of the Income Inclusion Rule and Undertaxed Profits Rule Pillar Two top up taxes. The SbS package also extends the current Transitional Country-by-Country Reporting Safe Harbor by one year. On May 18, 2026, the OECD released additional administrative guidance that provided additional relief in complying with the Pillar Two Global Minimum Tax and the GloBE Information Return (“GIR”) filing, including a clarification that 53-week fiscal years ending on or before January 3, 2027 qualified for the Transitional Undertaxed Profits Rule Safe Harbour exemption. Neither the SbS package nor the additional May 2026 OECD guidance is expected to have a material impact on the Company’s effective tax rate. The Company will continue to monitor any additional changes to Pillar Two.
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