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Note 7 - Income Taxes | 12 Months Ended
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Dec. 30, 2017
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
( 7 ) | Income Taxes
The Company ’s income before income taxes from domestic and foreign operations (which include the United Kingdom, Canada, China, Denmark and Ireland), are as follows (in thousands):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Domestic |  | $ | 13,081 |  |  | $ | 9,733 |  |  | $ | 13,854 |
Foreign |  |  | 732 |  |  |  | (4,424 | ) |  |  | 4,044 |
Total income before income taxes |  | $ | 13,813 |  |  | $ | 5,309 |  |  | $ | 17,898 |
The components of the provision for income taxes are as follows (in thousands):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 683 |  |  | $ | 1,605 |  |  | $ | - |
U.S. State |  |  | 609 |  |  |  | 237 |  |  |  | 24 |
Foreign |  |  | (313 | ) |  |  | (231 | ) |  |  | 1,189 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | 3,815 |  |  |  | 1,902 |  |  |  | (9,697 | )
U.S. State |  |  | (113 | ) |  |  | 1,230 |  |  |  | (1,308 | )
Foreign |  |  | 1,216 |  |  |  | (811 | ) |  |  | 345 |
Income tax expense (benefit) |  | $ | 5,897 |  |  | $ | 3,932 |  |  | $ | (9,447 | )
A reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows (in thousands):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Income before income taxes |  | $ | 13,813 |  |  | $ | 5,309 |  |  | $ | 17,898 |
U.S. federal statutory income tax rate |  |  | 34 | % |  |  | 34 | % |  |  | 34 | %
Income tax expense at statutory federal rate |  |  | 4,696 |  |  |  | 1,805 |  |  |  | 6,085 |
State and local income taxes, net of federal tax benefit |  |  | 327 |  |  |  | 968 |  |  |  | 371 |
Valuation allowance |  |  | 323 |  |  |  | 576 |  |  |  | (15,572 | )
Effect of lower foreign taxes |  |  | (131 | ) |  |  | 864 |  |  |  | (622 | )
Adjustment for unrecognized tax positions |  |  | (309 | ) |  |  | (77 | ) |  |  | 67 |
U.S. federal rate change to 21% |  |  | 1,448 |  |  |  | - |  |  |  | - |
Other items, net |  |  | (457 | ) |  |  | (204 | ) |  |  | 224 |
Income tax expense (benefit) |  | $ | 5,897 |  |  | $ | 3,932 |  |  | $ | (9,447 | )
Effective tax rate |  |  | 42.7 | % |  |  | 74.1 | % |  |  | (52.8 | )%
In fiscal 2017, the Company recorded an additional allowance of $0.3 million on its deferred tax assets in certain foreign jurisdictions due to cumulative losses and uncertainty about future earnings forecast. In fiscal 2016, the Company established a full valuation allowance of $0.6 million on its deferred tax assets in certain foreign jurisdictions due to cumulative losses and uncertainty about future earnings forecast. In fiscal 2011, the Company had established a full valuation allowance on its deferred tax assets in the United States due to significant losses and uncertainty about future earnings forecast. In fiscal 2015, the Company recorded an income tax benefit of $9.4 million primarily due to the reduction in the valuation allowances in the U.S. The valuation allowance in the U.S. was fully reversed because the weight of evidence regarding the future realizability of the deferred tax assets had become predominately positive and realization of the deferred tax assets was more likely than not. The positive evidence considered in our assessment of the realizability of the deferred tax assets included the generation of significant positive cumulative income in the U.S., the implementation of tax planning strategies, and projections of future taxable income. Based on its earnings performance trend, expected continued profitability and improvements in the Company’s financial condition; management determined it was more likely than not that all of our U.S. deferred tax assets would be realized. The negative evidence considered included historical losses in certain prior years; however, the positive evidence outweighed this negative evidence. The movement in the valuation allowance balance during the year is primarily attributable to the additional valuation allowance recorded in certain foreign jurisdictions, plus foreign currency fluctuations and the deferred adjustment affecting only the balance sheet. Temporary differences that gave rise to deferred tax assets and liabilities are as follows (in thousands):
|  | 2017 |  |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |
Deferred revenue |  | $ | 3,120 |  |  | $ | 5,004 |
Accrued rents |  |  | 1,625 |  |  |  | 1,907 |
Net operating loss carryforwards |  |  | 764 |  |  |  | 1,194 |
Intangible assets |  |  | 1,466 |  |  |  | 1,040 |
Deferred compensation |  |  | 1,414 |  |  |  | 1,739 |
Accrued compensation |  |  | 533 |  |  |  | 620 |
Carryforward of tax credits |  |  | 25 |  |  |  | 880 |
Receivable write-offs |  |  | 40 |  |  |  | 604 |
Inventories |  |  | 1,179 |  |  |  | 1,994 |
Other |  |  | 1,188 |  |  |  | 1,209 |
Total gross deferred tax assets |  |  | 11,354 |  |  |  | 16,191 |
Less: Valuation allowance |  |  | 1,301 |  |  |  | 576 |
Total deferred tax assets, net of valuation allowance |  |  | 10,053 |  |  |  | 15,615 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | (1,704 | ) |  |  | (3,909 | )
Deferred expense |  |  | (1,907 | ) |  |  | (3,318 | )
Other |  |  | (61 | ) |  |  | (132 | )
Total deferred tax liabilities |  |  | (3,672 | ) |  |  | (7,359 | )
Net deferred tax assets |  | $ | 6,381 |  |  | $ | 8,256 |
The Company continues to assert its investments in foreign subsidiaries are permanent in duration and it is not practical to estimate the income tax liability on the outside basis differences. On December 22, 2017, the Tax Cuts and Job Act (“Act”) was enacted, which significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Act permanently reduces the U.S. federal statutory rate to 21%, effective January 1, 2018. The Company recorded a provisional tax charge of $1.4 million for the re-measurement of its U.S. net deferred tax assets. The Act also provided for a one -time deemed repatriation of post- 1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 30, 2017. The Company does not anticipate a cost for this one -time deemed repatriation at this time. The Global Intangible Low-Taxed Income ("GILTI") provisions of the Act require a company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Base-Eroding Anti-abuse Tax (“BEAT”) provisions of the Act assess tax on certain payments made by a U.S. company to a related foreign company. The Company does not expect the impact of GILTI or BEAT will be material to the consolidated financial statements. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“ SAB 118” ) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. The Company has recognized the provisional tax impacts related to the tax charge for the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 30, 2017. The final impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions made, additional regulatory guidance that may be issued, and actions that the Company may take as a result of the Act. In accordance with SAB 118 the financial reporting impact of the Act will be completed and any adjustment will be recorded in income tax expense in fiscal 2018. As of December 30, 2017, the Company had total unrecognized tax benefits of $ 0.7 million, of which approximately $0.3 million would favorably impact the Company’s provision for income taxes if recognized. As of December 31, 2016, the Company had total unrecognized tax benefits of $1.0 million, of which approximately $0.4 million would favorably impact the Company’s provision for income taxes if recognized . The Company reviews its uncertain tax positions periodically and accrues interest and penalties accordingly. Accrued interest and penalties included in other liabilities in the Consolidated Balance Sheets were less than $0.1 million and $0.1 million as of December 30, 2017, and December 31, 2016, respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes within the Consolidated Statements of Income. For the year ended December 30, 2017, the Company recognized a benefit of less than $0.1 million for interest and penalties. For the year ended December 31, 2016, the Company recognized a benefit of $0.3 million for interest and penalties. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance as of January 2, 2016 |  | $ | 719 |
Increases for prior year tax positions |  |  | 248 |
Decreases for prior year tax positions |  |  | (25 | )
Increases for current year tax positions |  |  | 26 |
Audit settlement release |  |  | (7 | )
Balance as of December 31, 2016 |  |  | 961 |
Increases for prior year tax positions |  |  | 57 |
Decreases for prior year tax positions |  |  | (359 | )
Balance as of December 30, 2017 |  | $ | 659 |
Management estimates it is reasonably possible that the amount of unrecognized tax benefits c ould decrease by as much as $0.6 million in the next twelve months as a result of the resolution of audits currently in progress involving issues common to multinational corporations and the lapsing of the statute of limitations. The following tax years remain open in the Company ’s major taxing jurisdictions as of December 30, 2017:
United States (Federal) |  | 2016 | through | 2017
United Kingdom |  | 2009 | through | 2017

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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