Income Taxes

6 Months Ended

Jul. 01, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The income tax provision for interim periods is generally determined using an estimate of the Company’s annual effective tax rate adjusted for any discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if the Company’s estimated tax rate changes, a cumulative adjustment is made.

The effective tax rate for the thirteen weeks ended July 1, 2023 and July 2, 2022 was 23.9% and 23.8%, respectively, of pre-tax income. The effective tax rates differed from the federal statutory rate primarily due to changes in the valuation allowances, tax credits, withholding taxes, state income taxes, Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), and foreign rate differential.

The effective tax rate for the twenty-six weeks ended July 1, 2023 and July 2, 2022 was 23.3% and 23.2%, respectively, of pre-tax income. The effective tax rates differed from the federal statutory rate primarily due to changes in the valuation allowances, tax credits, withholding taxes, state income taxes, GILTI, FDII, and foreign rate differential.

In the normal course of business, the Company is required to make estimated tax payments throughout the year based on the expected tax liability for the full year. This results in a prepaid balance during the first half of the year, as the Company earns most of its profit in the second half of the year. As of July 1, 2023, the Company had a $19.8 million balance in prepaid income taxes, which are classified in prepaid expenses and other current assets in the unaudited interim condensed consolidated balance sheets.