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Income Taxes
 12 Months Ended
Dec. 31, 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 the 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 2017 and all significant state, local and foreign matters have been concluded for years through 2016.

 

The components of income before income taxes from continuing operations are as follows (in thousands):

 

 

 

Year Ended

 

 

 

December 31,

 

 

January 1,

 

 

December 27,

 

 

 

2021

 

 

2021

 

 

2019

 

Domestic

 

$

41,641

 

 

$

10,046

 

 

$

33,072

 

Foreign

 

 

4,740

 

 

 

(1,530

)

 

 

(2,045

)

Income from continuing operations before income

   taxes

 

$

46,381

 

 

$

8,516

 

 

$

31,027

 

 

The components of income tax expense  from continuing operations are as follows (in thousands):

 

 

 

Year Ended

 

 

 

December 31,

 

 

January 1,

 

 

December 27,

 

 

 

2021

 

 

2021

 

 

2019

 

Current tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

2,043

 

 

$

3,125

 

 

$

5,451

 

State

 

 

663

 

 

 

810

 

 

 

1,032

 

Foreign

 

 

654

 

 

 

374

 

 

 

262

 

 

 

 

3,360

 

 

 

4,309

 

 

 

6,745

 

Deferred tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

765

 

 

 

(769

)

 

 

425

 

State

 

 

303

 

 

 

(81

)

 

 

670

 

Foreign

 

 

401

 

 

 

(588

)

 

 

(96

)

 

 

 

1,469

 

 

 

(1,438

)

 

 

999

 

Income tax expense from continuing operations

 

$

4,829

 

 

$

2,871

 

 

$

7,744

 

 

 

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

 

 

December 31,

 

January 1,

 

December 27,

 

 

 

 

2021

 

2021

 

2019

 

 

U.S. statutory income tax expense rate

 

 

21.0

 

%

 

 

21.0

 

%

 

 

21.0

 

%

State income taxes, net of federal income tax

   expense

 

 

1.6

 

 

 

 

6.8

 

 

 

 

4.3

 

 

Valuation reduction

 

 

0.1

 

 

 

 

(0.6

)

 

 

 

1.2

 

 

Meals and entertainment

 

 

—

 

 

 

 

0.6

 

 

 

 

0.5

 

 

Foreign rate differential

 

 

0.3

 

 

 

 

0.9

 

 

 

 

—

 

 

Share based compensation

 

 

(13.2

)

 

 

 

2.4

 

 

 

 

(1.3

)

 

Purchase accounting

 

 

—

 

 

 

 

—

 

 

 

 

(0.8

)

 

Foreign exchange loss

 

 

(0.1

)

 

 

 

0.2

 

 

 

 

0.2

 

 

Other, net

 

 

0.7

 

 

 

 

2.4

 

 

 

 

(0.1

)

 

Effective tax rate

 

 

10.4

 

%

 

 

33.7

 

%

 

 

25.0

 

%

 

The components of the net deferred income tax asset (liability) are as follows (in thousands):

 

 

 

 

Year Ended

 

 

 

December 31,

 

 

January 1,

 

 

 

2021

 

 

2021

 

Deferred income tax assets:

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

681

 

 

$

169

 

Net operating loss and tax credits carryforward

 

 

2,562

 

 

 

3,485

 

Accrued expenses and other liabilities

 

 

5,014

 

 

 

5,575

 

 

 

 

8,257

 

 

 

9,229

 

Valuation allowance

 

 

(1,602

)

 

 

(1,558

)

 

 

 

6,655

 

 

 

7,671

 

Deferred income tax liabilities:

 

 

 

 

 

 

 

 

Depreciation

 

 

(4,015

)

 

 

(3,989

)

Tax over book amortization on goodwill and intangibles

 

 

(9,548

)

 

 

(8,966

)

Other items

 

 

(417

)

 

 

(304

)

 

 

 

(13,980

)

 

 

(13,259

)

Net deferred income tax liability

 

$

(7,325

)

 

$

(5,588

)

 

As of December 31, 2021, the Company had $0.9 million of U.S. state net operating loss carryforwards. Additionally, at December 31, 2021, the Company had $7.0 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.

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 December 31, 2021, and January 1, 2021, 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 as of December 31, 2021, was approximately $5.4 million. The Company has historically reinvested its foreign earnings abroad indefinitely and continues to reinvest future earnings abroad.  

 

Penalties and tax-related interest expense are reported as a component of income tax expense. For the years ended December 31, 2021, and January 1, 2021, the total amount of accrued income tax-related interest and penalties was $179 thousand and $167 thousand, respectively.


 

9. Income Taxes (continued)

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 December 31, 2021 and January 1, 2021 (in thousands):

 

 

 

Year Ended

 

 

 

December 31,

 

 

January 1,

 

 

 

2021

 

 

2021

 

Beginning balance

 

$

425

 

 

$

413

 

Additions based on tax positions

 

 

12

 

 

 

12

 

Ending balance

 

$

437

 

 

$

425

 

 

As of December 31, 2021, and January 1, 2021,  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 December 31, 2021 and January 1, 2021 would have a favorable impact on the effective tax rate in future period.