Taxes

6 Months Ended

Jul. 04, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Taxes

A reconciliation of the United States federal statutory corporate tax rate to the Company’s income tax expense, or effective tax rate, was as follows:

	Three-months Ended				Six-months Ended
	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Income tax expense (benefit) at U.S. federal statutory corporate tax rate	21	%	(21)	%	21	%	21	%
State income taxes, net of federal benefit	2	%	(1)	%	2	%	1	%
Foreign tax rate differential	(5)	%	5	%	(5)	%	(5)	%
Tax credit	(1)	%	2	%	(1)	%	(2)	%
Discrete tax benefit related to stock options	(2)	%	(191)	%	(4)	%	(29)	%
Discrete tax expense related to tax return filings	1	%	141	%	—	%	17	%
Tax rate adjustment	—	%	18	%	—	%	—	%
Other	1	%	(4)	%	1	%	4	%
Income tax expense (benefit)	17	%	(51)	%	14	%	7	%

The Company recorded discrete tax benefits arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises that resulted in a favorable impact to the effective tax rate of 2% and 4% for the three-month and six-month periods ended July 4, 2021, respectively, and 191% and 29% for the three-month and six-month periods ended June 28, 2020, respectively. In addition to stock option exercises, other discrete adjustments recorded included the final true-up of the prior year's tax accrual upon filing the related tax return that resulted in an unfavorable impact to the effective tax rate of 1% for the three-month period ended July 4, 2021 and no impact for the six-month period ended July 4, 2021, and an unfavorable impact to the effective tax rate of 141% and 17% for the same periods in 2020.

Excluding the impact of these discrete items, the Company’s effective tax rate was an expense of 18% of pre-tax income for both the three-month and six-month periods ended July 4, 2021, compared to a benefit of 1% of pre-tax loss and an expense of 19% of pre-tax income for the same periods in 2020. The decrease in the effective tax rate for the six-month period, excluding the impact of discrete items, was due to a lower percentage of the Company's pre-tax income being earned and taxed in higher tax jurisdictions. There was an adjustment in the three-month period in 2020 to bring the year-to-date effective tax rate to 19%.

During the six-month period ended July 4, 2021, the Company recorded a $935,000 increase in reserves for income taxes, net of deferred tax benefit. Estimated interest and penalties included in these amounts totaled $370,000 for the six-month period ended July 4, 2021.

The Company’s reserve for income taxes, including gross interest and penalties, was $16,255,000 as of July 4, 2021, which included $15,227,000 classified as a non-current liability and $1,028,000 recorded as a reduction to non-current deferred tax assets. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period. As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $450,000 to $500,000 over the next twelve months.

The Company has defined its major tax jurisdictions as the United States, Ireland, China, and Korea, and within the United States, Massachusetts. The statutory tax rate is 12.5% in Ireland, 25% in China, and 25% in Korea compared to the U.S. federal statutory corporate tax rate of 21%. These differences resulted in an impact to the effective tax rate of 5% for both the three-month and six-month periods ended July 4, 2021, and an impact of 5% for the same periods in 2020.

Within the United States, the tax years 2017 through 2020 remain open to examination by the Internal Revenue Service ("IRS") and various state tax authorities. The tax years 2016 through 2020 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates. The Company is under audit by the IRS for the tax years 2017 and 2018. Additionally, the Company is under audit by the Commonwealth of Massachusetts for tax years 2017 and 2018. Management believes the Company is adequately reserved for these audits. The final determination of tax audits could result in favorable or unfavorable changes in our estimates.