Income Taxes

9 Months Ended

Oct. 01, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 9 — Income Taxes

The Company recorded an income tax provision (benefit) as follows (in thousands):

	Three Months Ended				Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
Provision for income taxes	$	1,356	$	1,489	$	4,751	$	887

The Company recorded income taxes of $1,356,000 and $4,751,000 for the three and nine months ended October 1, 2021, respectively, due to pre-tax income generated in certain foreign jurisdictions and, for the nine months ended October 1, 2021, a recapture of its U.S. valuation allowance of $845,000 as a result of increased tax deductions in the projection of taxable income used in its valuation assessment. The Company, from time to time may adjust the projections of taxable income as a result of current conditions.  The Company recorded income taxes of $1,489,000 for the three months ended October 2, 2020, due to pre-tax income generated in certain foreign jurisdictions, partially offset by a reversal of $154,000 of its U.S. valuation allowance, as a result of an increase in foreign income and changes in the usage and release of certain deferred tax assets.  The Company recorded an income taxes of $887,000 for the nine months ended October 2, 2020 due to pre-tax income generated in certain foreign jurisdictions, partially offset by a release of its U.S. valuation allowance of $1,215,000, as a result of the Company revising its global forecasts in response to the impacts of COVID‑19, and due to changes in the usage and release of certain deferred tax assets.  The Company’s quarterly provision for income taxes is determined by estimating an annual effective tax rate.  This estimate may fluctuate throughout the year as new information becomes available affecting its underlying assumptions.  There are no unrecognized tax benefits related to uncertain tax positions taken by the Company.  All earnings from the Company’s subsidiaries are not considered to be permanently reinvested.

Note 9 — Income Taxes (Continued)

The 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (“GILTI”) earned by certain foreign subsidiaries.  In general, GILTI is the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets.  The provision further allows a deduction of 50 percent of GILTI, however this deduction is limited by the Company’s U.S. taxable income.  The Company has elected to account for GILTI as a current period expense when incurred.

Final regulations issued on July 20, 2020 allow companies to exclude certain high-taxed income from their GILTI calculation (the GILTI high-tax exclusion).  The GILTI high-tax exclusion applies if the effective foreign tax rate is 90% or more of the rate that would apply if the income were subject to the maximum US rate of tax specified in section 11 (currently 18.9%, based on a maximum rate of 21%).  The final regulations also provide that the GILTI high-tax exclusion is an annual election made each year and is retroactive to years beginning after December 31, 2017.  The Company has made the election to exclude certain high-taxed income from its GILTI calculation for the three and nine months ended October 1, 2021 and October 2, 2020, respectively.

The ultimate realization of deferred tax assets is dependent upon future generation of income during the periods in which temporary differences representing net future deductible amounts become deductible. In evaluating the Company’s ability to recover its deferred tax assets, management considers among other things, projected future income, tax planning strategies and all other available positive and negative evidence in making this assessment. The “incremental cash tax savings approach” is further described in Notes 1 and 10 of the Company’s fiscal 2020 Form 10-K. Under the incremental cash tax savings approach, the Company’s cumulative valuation allowance recorded was $38,377,000 and $8,089,000 for federal and state, respectively, at October 1, 2021, and $34,681,000 and $7,399,000 for federal and state, respectively, at January 1, 2021.  Under the incremental cash tax savings approach, the valuation allowance recorded reflects the net operating losses and deferred tax assets which will not result in future cash tax savings and therefore provide no additional benefit.  Total U.S. net deferred tax assets were $3,026,000 and $3,870,000 as of October 1, 2021 and January 1, 2021, respectively.