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Income Taxes | 12 Months Ended
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Jan. 01, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | 9. Income Taxes The Company files federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution on any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most probable outcome. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax rate in the period of resolution. The Company is no longer subject to examinations of its federal income tax returns by the Internal Revenue Service for years through 2016 and all significant state, local and foreign matters have been concluded for years through 2015. In the first quarter of 2017, the IRS commenced an examination of the Company’s U.S. income tax return for fiscal year 2014. The examination was finalized in 2019 with no changes to the Company’s reported tax. The components of income before income taxes from continuing operations are as follows (in thousands):
|  | Year Ended |
|  | January 1, |  |  | December 27, |  |  | December 28, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
Domestic |  | $ | 10,046 |  |  | $ | 33,072 |  |  | $ | 26,040 |
Foreign |  |  | (1,530 | ) |  |  | (2,045 | ) |  |  | 6,896 |
Income from continuing operations before income taxes |  | $ | 8,516 |  |  | $ | 31,027 |  |  | $ | 32,936 |
The components of income tax expense (benefit) from continuing operations are as follows (in thousands):
|  | Year Ended |
|  | January 1, |  |  | December 27, |  |  | December 28, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
Current tax expense |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 3,125 |  |  | $ | 5,451 |  |  | $ | 3,068 |
State |  |  | 810 |  |  |  | 1,032 |  |  |  | 721 |
Foreign |  |  | 374 |  |  |  | 262 |  |  |  | 1,565 |
|  |  | 4,309 |  |  |  | 6,745 |  |  |  | 5,354 |
Deferred tax expense (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (769 | ) |  |  | 425 |  |  |  | 220 |
State |  |  | (81 | ) |  |  | 670 |  |  |  | 365 |
Foreign |  |  | (588 | ) |  |  | (96 | ) |  |  | (362 | )
|  |  | (1,438 | ) |  |  | 999 |  |  |  | 223 |
Income tax expense from continuing operations |  | $ | 2,871 |  |  | $ | 7,744 |  |  | $ | 5,577 |
9. Income Taxes (continued) A reconciliation of the federal statutory tax rate with the effective tax rate from continuing operations is as follows:
|  | Year Ended
|  | January 1, |  | December 27, |  | December 28,
|  | 2021 |  | 2019 |  | 2018
U.S statutory income tax expense rate |  |  | 21.0 |  | % |  |  | 21.0 |  | % |  |  | 21.0 |  | %
State income taxes, net of federal income tax expense |  |  | 6.8 |  |  |  |  | 4.3 |  |  |  |  | 2.6 |  |
Valuation reduction |  |  | (0.6 | ) |  |  |  | 1.2 |  |  |  |  | — |  |
Meals and entertainment |  |  | 0.6 |  |  |  |  | 0.5 |  |  |  |  | 1.0 |  |
Foreign rate differential |  |  | 0.9 |  |  |  |  | — |  |  |  |  | 0.2 |  |
Share based compensation |  |  | 2.4 |  |  |  |  | (1.3 | ) |  |  |  | (3.6 | ) |
Purchase accounting |  |  | — |  |  |  |  | (0.8 | ) |  |  |  | (3.1 | ) |
Foreign exchange loss |  |  | 0.2 |  |  |  |  | 0.2 |  |  |  |  | (0.3 | ) |
Other, net |  |  | 2.4 |  |  |  |  | (0.1 | ) |  |  |  | (0.9 | ) |
Effective tax rate |  |  | 33.7 |  | % |  |  | 25.0 |  | % |  |  | 16.9 |  | %
The components of the net deferred income tax asset (liability) are as follows (in thousands):
|  | Year Ended |
|  | January 1, |  |  | December 27, |
|  | 2021 |  |  | 2019 |
Deferred income tax assets: |  |  |  |  |  |  |  |
Allowance for doubtful accounts |  | $ | 169 |  |  | $ | 185 |
Net operating loss and tax credits carryforward |  |  | 3,485 |  |  |  | 2,912 |
Accrued expenses and other liabilities |  |  | 5,575 |  |  |  | 4,987 |
|  |  | 9,229 |  |  |  | 8,084 |
Valuation allowance |  |  | (1,558 | ) |  |  | (1,571 | )
|  |  | 7,671 |  |  |  | 6,513 |
Deferred income tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | (3,989 | ) |  |  | (5,161 | )
Tax over book amortization on goodwill and intangibles |  |  | (8,966 | ) |  |  | (8,274 | )
Other items |  |  | (304 | ) |  |  | (261 | )
|  |  | (13,259 | ) |  |  | (13,696 | )
Net deferred income tax liability |  | $ | (5,588 | ) |  | $ | (7,183 | )
The 2017 Tax Act made a significant number of changes to existing U.S. Internal Revenue Code, including a permanent reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017, and it also provides for a one-time transition tax on certain unremitted foreign earnings (the “Transition Tax”). As a result, the Company recorded a provisional income tax benefit of $4.0 million related to the re-measurement of deferred tax assets and liabilities resulting from the reduction of the federal corporate tax rate. The Company performed a preliminary analysis of its post-1986 earnings and profits of its foreign subsidiaries and estimated an overall accumulated net deficit, therefore no amounts were recorded relative to the Transition Tax. In accordance with Staff Accounting Bulletin (“SAB”) No. 118, the Company finalized the deferred tax and Transition Tax calculations during the allowed measurement period in 2018. As a result, the Company did not make any changes to the provisional tax amounts recorded in 2017. The SEC staff issued Staff Accounting Bulletin ("SAB") No. 118 in December 2017. The SAB provides guidance on accounting for the tax effects of the 2017 Tax Act where uncertainty exists and it provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the related accounting under U.S. GAAP. In accordance with this guidance, the Company recorded provisional amounts for those specific income tax effects of the 2017 Tax Act for which a reasonable estimate could be determined. As of January 1, 2021, the Company had $0.9 million of U.S. state net operating loss carryforwards. Additionally, at January 1, 2021, the Company had $11.6 million of foreign net operating loss carryforwards primarily from operations in the United Kingdom, Germany, France and Australia. A significant amount of the foreign net operating losses may be carried forward indefinitely. 9. Income Taxes (continued) The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In determining the need for valuation allowances the Company considers evidence such as history of losses and general economic conditions. At January 1, 2021 and December 27, 2019, the Company had a valuation allowance of $1.6 million to reduce deferred income tax assets, primarily related to foreign net operating loss carryforwards, to the amounts expected to be realized. The undistributed earnings in foreign subsidiaries at January 1, 2021 was approximately $3.9 million. The Company has historically reinvested its foreign earnings abroad indefinitely and continues to reinvest future earnings abroad. The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act made a significant number of changes to existing U.S. Internal Revenue Code, including a one-time transition tax on certain unremitted foreign earnings (the “Transition Tax”). The 2017 Tax Act also implements a territorial system, whereby certain foreign subsidiary earnings can be repatriated to the U.S with no federal tax. The Company finalized its Transition Tax calculation during the allowed measurement period in 2018 and computed an overall accumulated net deficit, thus no amounts were recorded relative to the Transition Tax. Penalties and tax-related interest expense are reported as a component of income tax expense. For the years ended January 1, 2021 and December 27, 2019, the total amount of accrued income tax-related interest and penalties was $167 thousand and $155 thousand, respectively. The Company prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The following table sets forth the detail and activity of the ASC 740 liability during the years ended January 1, 2021 and December 27, 2019, (in thousands):
|  | Year Ended |
|  | January 1, |  |  | December 27, |
|  | 2021 |  |  | 2019 |
Beginning balance |  | $ | 413 |  |  | $ | 402 |
Additions based on tax positions |  |  | 12 |  |  |  | 11 |
Ending balance |  | $ | 425 |  |  | $ | 413 |
9. Income Taxes (continued) As of January 1, 2021 and December 27, 2019, the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of $0.4 million for both periods was classified as a current liability and included in accrued expenses and other liabilities in the accompanying consolidated balance sheets. The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months. The reversal of ASC 740-10 tax liabilities as of January 1, 2021 and December 27, 2019 would have a favorable impact on the effective tax rate in future period.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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