FY2021 10-K Document - FINAL 11 15 21 - Flipbook - Page 26
Table of Contents
Income Taxes
Our annual tax rate is based on our earnings before tax by jurisdiction, applicable statutory tax rates, the impacts of
permanent differences, tax incentives and tax planning opportunities in the various jurisdictions in which we operate.
Significant judgment is required in determining our annual tax rate and in evaluating our tax positions.
An estimated annual effective tax rate is applied to our quarterly ordinary operating results. For certain significant,
unusual or infrequent events, we recognize the tax impact in the quarter in which it occurs.
We record reserves against tax benefits when it’s more likely than not that we will not sustain a position if the
appropriate taxing jurisdiction had full information and examined our position. We adjust these reserves when facts
and circumstances change, such as when progress is made by taxing authorities in their review of our position. There
is a considerable amount of judgment in making these assessments. There were no significant reserves taken in
2021.
Valuation allowances associated with deferred tax assets is another area that requires judgment. We record a
valuation allowance to reduce deferred tax assets to the amount of future tax benefit that we believe is more likely
than not to be realized. We consider recent earnings projections, allowable tax carryforward periods, tax planning
strategies and historical earnings performance to determine the amount of the valuation allowance. Changes in these
factors could cause us to adjust our valuation allowance, which would impact our income tax expense when we
determine that these factors have changed.
At October 2, 2021, we had gross deferred tax assets of $157 million and deferred tax asset valuation allowances of
$14 million. The deferred tax assets principally relate to benefit accruals, inventory obsolescence, tax benefit
carryforwards, contract reserves and lease liabilities. The deferred tax assets include $15 million related to tax benefit
carryforwards associated with net operating losses and tax credits, for which $13 million of deferred tax asset
valuation allowances are recorded. For further information, refer to Note 15, Income Taxes, of Item 8, Financial
Statements and Supplementary Data, of this report.
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