Income Taxes

6 Months Ended

Jul. 02, 2021

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

The Company’s effective tax rate (“ETR”) is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The 2021 second quarter and year-to-date ETR was 28.0% and 25.6%, respectively, and the 2020 second quarter and year-to-date ETR was 43.7% and 41.9%, respectively.

The ETR was lower in the 2021 second quarter and year-to-date period as compared with the corresponding 2020 periods primarily resulting from the reversal of certain items that were previously non-deductible due to the full valuation allowance against the U.S. deferred tax assets.

The Company elected to use the incremental cash tax savings approach when considering Global Intangible Low Taxed Income (GILTI) in its assessment of the realizability of its U.S. deferred tax assets. The Company generated US book and tax income during 2019 and 2020 but incurred significant losses in 2018 resulting in a cumulative 3-year loss for the three years ended July 2, 2021. The Company believes its financial outlook remains positive; however, the COVID-19 pandemic has created a high level of uncertainty concerning future levels of income. Given difficulties with forecasting financial results historically, and due to the uncertainties associated with the COVID-19 pandemic, the Company maintained a full valuation allowance on its US deferred tax assets at July 2, 2021.

The Company has not recorded a U.S. deferred tax liability for the excess book basis over the tax basis of its investments in foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations. The Company does not anticipate repatriating any funds from its foreign operations, as they are needed in the local operations to meet working capital demands.