Income Taxes (Notes)

6 Months Ended

Jul. 03, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The benefit for income taxes for the three and six months ended July 3, 2022 and July 4, 2021 was comprised of the following:

	Three Months Ended				Six Months Ended
	July 3, 2022		July 4, 2021		July 3, 2022		July 4, 2021
Current	$	—	$	(16)	$	—	$	(16)
Deferred	(9,400)		(2,572)		(17,616)		(5,233)
Change in valuation allowance	3,279		2,556		5,486		2,556
Benefit for income taxes	$	(6,121)	$	(32)	$	(12,130)	$	(2,693)

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 benefit for income taxes for the three and six months ended July 3, 2022 was derived using an estimated effective annual income tax rate for all of 2022 of 20.3%, which is inclusive of the estimated change in the Company's deferred tax assets valuation allowance and excludes other discrete tax adjustments. The difference compared to the statutory rate for 2022 is attributed to various nondeductible tax expenses and non-refundable business credits which are not directly related to the amount of pre-tax loss recorded in the period as well as the valuation allowance charge. The three and six months ended July 3, 2022 contained no discrete tax adjustments.

The benefit for income taxes for the three and six months ended July 4, 2021 was derived using an estimated effective annual income tax rate for all of 2021 of 11.0%, which reflected a change in valuation allowance on its deferred tax assets and excluded other discrete tax adjustments. The difference compared to the statutory rate for 2021 is attributed to various nondeductible tax expenses. There were no net discrete tax adjustments during three months ended July 4, 2021. The six months ended July 4, 2021 contained $0.7 million of tax benefit from net discrete tax adjustments.

The Company performs an assessment of positive and negative evidence regarding the realization of its deferred income tax assets as required by ASC 740. Under ASC 740, the weight given to negative and positive evidence is commensurate only to the extent that such evidence can be objectively verified. ASC 740 prescribes that objective historical evidence, in particular the Company’s three-year cumulative loss position at July 3, 2022, be given greater weight than subjective evidence, including the Company’s forecast of future taxable income, which include assumptions that cannot be objectively verified. In determining the likelihood of future realization of the deferred income tax assets as of July 3, 2022 and January 2, 2022 the Company considered both positive and negative evidence and weighted the effect of such evidence based upon its objectivity. At July 3, 2022 and January 2, 2022, the Company estimated that the valuation allowance required for certain of its federal income tax credits that may expire prior to their utilization by the Company was $29.1 million and $24.4 million, respectively. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth. The Company recorded income tax expense of $3.3 million and $5.5 million in the three and six months ended July 3, 2022 relative to this valuation reserve.

The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At July 3, 2022 and January 2, 2022, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2018 - 2021 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.