(

)

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.

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

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.

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