Income Taxes (Notes)

6 Months Ended

Jul. 02, 2017

The provision for income taxes for the three and six months ended July 2, 2017 and July 3, 2016 was comprised of the following:



	Three Months Ended					Six Months Ended
	July 2, 2017		July 3, 2016			July 2, 2017		July 3, 2016
Current	$	—	$	—		$	—	$	—
Deferred	1,267		2,605			656		2,641
Change in valuation allowance	—		(2,605		)	—		(2,641		)
Provision for income taxes	$	1,267	$	—		$	656	$	—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

The provision for income taxes for the three and six months ended July 2, 2017 was derived using an estimated effective annual income tax rate for all of 2017 of 14.5%, which excludes any discrete tax adjustments and is below the statutory rate due to the effect of fixed employment tax credits on taxable income. The income tax provision for the six months ended July 2, 2017 contains net discrete tax adjustments of $0.6 million of income tax expense.

In 2014, the Company recorded a valuation allowance on all of its net deferred tax assets. For the six months ended July 3, 2016, the Company determined that a valuation allowance was still needed for all of its net deferred income tax assets, based on the required weight of positive and negative evidence under ASC 740, including consideration of the Company’s three-year cumulative losses at that date. Consequently, the Company recorded no provision or benefit for income taxes in the three or six months ended July 3, 2016.

During the fourth quarter of 2016, the Company evaluated evidence to consider the reversal of the valuation allowance on its net deferred income tax assets and determined in the fourth quarter of fiscal 2016 that there was sufficient positive evidence to conclude that it is more likely than not its deferred income tax assets are realizable. In determining the likelihood of future realization of the deferred income tax assets as of January 1, 2017, the Company considered both positive and negative evidence and weighted the effect of such evidence based upon its objectivity as required by ASC 740. As a result, the Company believed that the weight of the positive evidence, including the cumulative income position in the three most recent years (as adjusted for non-recurring items and permanent differences between book and tax) and forecasts for a sustained level of future taxable income, was sufficient to overcome the weight of the negative evidence, and recorded a $30.4 million tax benefit to release the full valuation allowance against the Company's deferred income tax assets in the fourth quarter of 2016.

The Company's federal net operating loss carryforwards expire beginning in 2033. As of July 2, 2017, the Company had federal net operating loss carryforwards of approximately $73.1 million. The Company's state net operating loss carryforwards expire beginning in 2017 through 2034.

The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At July 2, 2017 and January 1, 2017, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2013 - 2016 remain open to examination by the major taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to the uncertainties regarding the timing of examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.