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Income Taxes | 12 Months Ended
--- | ---
Jan. 03, 2026
Income Taxes |
Income Taxes |
(10) | Income Taxes
Our effective tax rate was 9.4%, 24.0% and 1.4% for fiscal 2025, 2024 and 2023, respectively. Our effective tax rate of 9.4% for fiscal 2025 is primarily due to a change in valuation allowance related to the realizability of our deferred tax asset associated with the carryforward of interest deduction in the U.S. along with non-deductible share-based compensation. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the U.S. Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. Among the tax law changes that impacted us in fiscal 2025 and will continue to impact us in future years relate to the timing of certain tax deductions including depreciation expense, R&D expenditures and interest expense. The OBBBA allows for 100% bonus depreciation to be taken on eligible assets, the option to immediately expense domestic R&D expenditures as well as accelerate the deduction of previously capitalized expenses, and restores the earnings before interest, taxes, depreciation and amortization (EBITDA) calculation for purposes of determining interest limitations. We implemented certain changes in fiscal 2025 related to the interest deduction limitation, bonus depreciation and the immediate expensing of R&D expenses. The OBBBA did not have a material impact on our effective income tax rate, results of operations, financial condition or liquidity for fiscal 2025. Certain provisions of the OBBBA, including the restoration of the EBITDA calculation for purposes of determining interest limitations, drove a reduction in our cash taxes for fiscal 2025. The components of loss before income tax benefit consist of the following (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ ​ ​ | Fiscal 2025 | ​ ​ ​ | Fiscal 2024 | ​ ​ ​ | Fiscal 2023
U.S. | ​ | $ | (49,624) | ​ | $ | (348,969) | ​ | $ | (67,870)
Foreign | ​ |  | 1,890 | ​ |  | 18,460 | ​ |  | 737
Total | ​ | $ | (47,734) | ​ | $ | (330,509) | ​ | $ | (67,133)
​ Income tax benefit consists of the following (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ ​ ​ | Fiscal 2025 | ​ ​ ​ | Fiscal 2024 | ​ ​ ​ | Fiscal 2023
Current: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Federal | ​ | $ | (3,375) | ​ | $ | 17,265 | ​ | $ | 16,363
State | ​ |  | 260 | ​ |  | 2,384 | ​ |  | 2,074
Foreign | ​ |  | 454 | ​ |  | 200 | ​ |  | 7,023
Current income tax | ​ |  | (2,661) | ​ |  | 19,849 | ​ |  | 25,460
Deferred: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Federal | ​ |  | (2,324) | ​ |  | (86,499) | ​ |  | (19,936)
State | ​ |  | (290) | ​ |  | (18,216) | ​ |  | (2,340)
Foreign | ​ | ​ | 798 | ​ | ​ | 5,608 | ​ | ​ | (4,119)
Deferred income tax | ​ |  | (1,816) | ​ |  | (99,107) | ​ |  | (26,395)
Income tax benefit | ​ | $ | (4,477) | ​ | $ | (79,258) | ​ | $ | (935)
​ The following table details our cash income tax payments, net of refunds, for fiscal 2025 (in thousands): ​
​ | ​ | ​ | ​
​ | ​ ​ ​ | Fiscal 2025
U.S. federal (national) cash income tax payments, net of refunds | ​ | $ | 3,000
U.S. state cash income tax payments, net of refunds: | ​ | ​ | ​
North Carolina | ​ | ​ | 527
Illinois | ​ | ​ | 360
All other states | ​ | ​ | 174
Total U.S. state cash income tax payments, net of refunds | ​ | ​ | 1,061
Foreign cash income tax payments, net of refunds: | ​ | ​ | ​
Canada | ​ | ​ | 1,002
Mexico | ​ | ​ | 704
Total foreign cash income tax payments, net of refunds | ​ | ​ | 1,706
Total cash income tax payments, net of refunds | ​ | $ | 5,767
​ The following table details the increases (decreases) in our valuation allowance for fiscal 2025 (in thousands):
​ | ​ | ​
​ | Fiscal 2025
Valuation allowance at beginning of fiscal 2025 | $ | 21,221
Federal valuation allowance | ​ | 3,973
State valuation allowance | ​ | 628
Valuation allowance at end of fiscal 2025 | $ | 25,822
​ Income tax benefit differs from the expected income tax benefit (computed by applying the U.S. federal income tax rate of 21% for fiscal 2025 to loss before income tax benefit) as a result of the following: ​
​ | ​ | ​ | ​ | ​
​ | Fiscal 2025
​ | ​ | Tax Effect | Rate Effect | ​
U.S. federal statutory rate | $ | (10,024) | 21.00 | %
Domestic, state and local income taxes, net of federal benefit(1) | ​ | (225) | 0.47 | ​
Foreign tax effects: | ​ | ​ | ​ | ​
Mexico: | ​ | ​ | ​ | ​
Return-to-provision adjustments | ​ | 578 | (1.21) | ​
Other | ​ | 226 | (0.47) | ​
Other foreign jurisdictions | ​ | 337 | (0.71) | ​
Effects of cross-border tax laws: | ​ | ​ | ​ | ​
Foreign branch income | ​ | 1,283 | (2.69) | ​
IRC Section 987 pre-transition loss amortization | ​ | (1,798) | 3.77 | ​
Global intangible low tax income | ​ | 813 | (1.70) | ​
Tax credits: | ​ | ​ | ​ | ​
Foreign tax credits | ​ | (690) | 1.44 | ​
R&D tax credits | ​ | (274) | 0.57 | ​
Changes in valuation allowances | ​ | 3,890 | (8.15) | ​
Non-taxable or non-deductible items: | ​ | ​ | ​ | ​
Non-deductible officers' compensation | ​ | 598 | (1.25) | ​
Share-based compensation shortfall | ​ | 1,551 | (3.25) | ​
Other | ​ | (293) | 0.61 | ​
Changes in unrecognized tax benefits | ​ | (206) | 0.43 | ​
Other adjustments | ​ | (243) | 0.51 | ​
Effective tax rate | $ | (4,477) | 9.38 | %
(1) | State taxes in California, Illinois, Pennsylvania, and Georgia represent 50% of the tax effect in this line item.
Income tax benefit differs from the expected income tax benefit (computed by applying the U.S. federal income tax rate of 21% for fiscal 2024 and 2023, respectively, to loss before income tax benefit) as a result of the following: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fiscal 2024 | ​ | Fiscal 2023
Federal income tax provision at statutory rate | ​ | 21.0 | % | ​ | 21.0 | %
Increase (decrease): | ​ | ​ | ​ | ​ | ​ | ​
State and local taxes, net of federal benefits | ​ | 3.6 | ​ | ​ | 3.4 | ​
Foreign income taxed at different rates, net of foreign tax credits | ​ | 0.1 | ​ | ​ | (0.8) | ​
Permanent differences | ​ | (0.6) | ​ | ​ | (0.3) | ​
Deferred tax adjustment related to Back to Nature divestiture | ​ | — | ​ | ​ | 10.4 | ​
Changes in tax rates | ​ | (0.9) | ​ | ​ | (3.7) | ​
Tax credits | ​ | 0.1 | ​ | ​ | 0.4 | ​
Valuation allowance | ​ | 0.6 | ​ | ​ | (31.4) | ​
Other | ​ | 0.1 | ​ | ​ | 2.4 | ​
Total | ​ | 24.0 | % | ​ | 1.4 | %
​ Changes in state apportionment, state filings or state tax laws impacted our deferred blended state rate, resulting in a deferred state tax benefit of $0.5 million, $0.8 million and $0.2 million in fiscal 2025, 2024 and 2023, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ ​ ​ | January 3, | ​ ​ ​ | December 28,
​ | ​ | 2026 | ​ | 2024
Deferred tax assets: | ​ | ​ | ​ | ​ | ​ | ​
Accounts receivable, principally due to allowance | ​ | $ | 220 | ​ | $ | 270
Inventories, principally due to additional costs capitalized for tax purposes | ​ |  | 6,491 | ​ |  | 986
Operating lease liabilities | ​ | ​ | 12,321 | ​ | ​ | 13,440
Accrued expenses and other liabilities | ​ |  | 2,948 | ​ |  | 10,573
Capital loss, net operating losses and tax credit carryforwards | ​ |  | 24,510 | ​ |  | 23,921
Interest expense deductions limitation | ​ | ​ | 69,608 | ​ | ​ | 72,689
Unrealized losses | ​ | ​ | 3,234 | ​ | ​ | 431
Gross deferred tax assets | ​ |  | 119,332 | ​ |  | 122,310
Valuation allowances | ​ | ​ | (25,822) | ​ | ​ | (21,221)
Deferred tax assets, net | ​ | ​ | 93,510 | ​ | ​ | 101,089
Deferred tax liabilities: | ​ | ​ | ​ | ​ | ​ | ​
Property, plant and equipment | ​ |  | (20,429) | ​ |  | (25,454)
Goodwill and other intangible assets | ​ |  | (218,522) | ​ |  | (217,335)
Prepaid expenses and other assets | ​ |  | (396) | ​ |  | (3,482)
Operating lease right-of-use assets | ​ | ​ | (12,229) | ​ | ​ | (13,525)
Gross deferred tax liabilities | ​ |  | (251,576) | ​ |  | (259,796)
Net deferred tax liabilities | ​ | $ | (158,066) | ​ | $ | (158,707)
​ As of January 3, 2026, the balance of gross federal and state net operating loss carryforwards (NOLs) available is $7.4 million and $32.8 million, respectively. The federal NOLs are subject to annual limitation under Section 382 of the Internal Revenue Code of 1986 of $0.8 million and expire in 2036. The state NOLs begin expiring in 2032. As of January 3, 2026, the balance of gross capital loss carryover is $82.3 million and will expire in 2028. As of January 3, 2026, the balance of foreign tax credit carryover is $1.5 million and will begin to expire in 2027. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income and reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, a valuation allowance of $25.8 million, $21.2 million and $23.3 million was recorded during fiscal 2025, 2024 and 2023, respectively, to record only the portion of the deferred tax asset that management believes is more likely than not that we will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during future periods are reduced. At January 3, 2026 and December 28, 2024, we had $0.0 million and $0.4 million, respectively, of reserves for uncertain tax positions, which decreased due to the settlement of state tax positions previously reserved for. Our policy is to classify interest and penalties resulting from income tax uncertainties as income tax expense. At January 3, 2026 we had intangible assets of $650.7 million for tax purposes, which are amortizable through 2038. We operate in multiple taxing jurisdictions within the United States, Canada and Mexico and from time to time face audits from various tax authorities regarding the deductibility of certain expenses, state income tax nexus, intercompany transactions, transfer pricing and other matters. We remain subject to examination in all of our tax jurisdictions until the applicable statutes of limitations expire. As of January 3, 2026, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: ​
​ | ​ | ​
United States—Federal | ​ ​ ​ | 2022 and forward
United States—States |  | 2021 and forward
Canada |  | 2021 and forward
Mexico | ​ | 2020 and forward
​

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