Income Taxes (Notes)

6 Months Ended

Jul. 02, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision (benefit) for income taxes for the three and six months ended July 2, 2023 and July 3, 2022 was comprised of the following:

	Three Months Ended				Six Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Current	$	153	$	—	$	153	$	—
Deferred	(451)		(9,400)		2,022		(17,616)
Change in valuation allowance	902		3,279		(429)		5,486
Provision (benefit) for income taxes	$	604	$	(6,121)	$	1,746	$	(12,130)

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, 2023 was derived using an estimated effective annual income tax rate for all of 2023 of 5.6%, which is inclusive of the estimated change in the Company's valuation allowance on its deferred tax assets and excludes other discrete tax adjustments. The difference compared to the statutory rate for 2023 is primarily attributable to non-refundable business credits and also is impacted, to a lesser extent, by certain permanent non-deductible expenses, both of which are not directly related to the amount of pre-tax loss recorded in the period. This difference also includes the impact from the increase to the Company's valuation allowance on its deferred income tax assets. In periods where recorded pre-tax income (loss) is relatively small, the proportional impact of these items on the effective rate may be significant. There were no discrete adjustments for the three months ended July 2, 2023. The income tax provision for the six months ended July 2, 2023 included $0.8 million of tax expense from net discrete tax adjustments.

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 valuation allowance on its deferred tax assets 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. There were no discrete tax adjustments during the three and six months ended July 3, 2022.

The Company's federal net operating loss carryforwards generated prior to December 31, 2017 expire beginning in 2035. Federal net operating losses generated subsequent to 2017 have no expiration date. As of July 2, 2023, the Company had federal net operating loss carryforwards of approximately $124.4 million, general business credits ("GBC") carryforwards of $43.9 million and approximately $170.5 million in state net operating loss carryforwards. The Company's GBC carryforwards begin to expire in 2032 and state net operating loss carryforwards begin to expire in 2023.

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 2, 2023, 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 2, 2023 and January 1, 2023 the Company considered both positive and negative evidence and weighted the effect of such evidence based upon its objectivity. At July 2, 2023 and January 1, 2023, the Company determined that a valuation allowance was needed for certain federal income tax credits and state operating loss carryforwards in the amount of $43.7 million and $44.3 million, respectively, as they may expire prior to their utilization by the Company. 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 an income tax expense of $0.9 million in the three months ended July 2, 2023 and an income tax benefit of $0.4 million in the six months ended July 2, 2023 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 2, 2023 and January 1, 2023, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2019 - 2022 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.