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Income Taxes
 12 Months Ended
Dec. 29, 2023
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 2019 and all significant state, local and foreign matters have been concluded for years through 2018.

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

 

 

 

Year Ended

 

 

 

December 29,

 

 

December 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Domestic

 

$

40,259

 

 

$

48,020

 

 

$

41,641

 

Foreign

 

 

5,768

 

 

 

7,084

 

 

 

4,740

 

Income from continuing operations before income
   taxes

 

$

46,027

 

 

$

55,104

 

 

$

46,381

 

 

As a result of the tax deduction related to the exercise of the 2.9 million SARs in 2021, the Company had recorded an income tax benefit of $7.7 million, which resulted in a receivable balance of $3.4 million in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2021.

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

 

 

 

Year Ended

 

 

 

December 29,

 

 

December 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Current tax expense

 

 

 

 

 

 

 

 

 

Federal

 

$

6,823

 

 

$

9,782

 

 

$

2,043

 

State

 

 

2,214

 

 

 

3,416

 

 

 

663

 

Foreign

 

 

1,474

 

 

 

1,584

 

 

 

654

 

 

 

 

10,511

 

 

 

14,782

 

 

 

3,360

 

Deferred tax expense (benefit)

 

 

 

 

 

 

 

 

 

Federal

 

 

985

 

 

 

49

 

 

 

765

 

State

 

 

470

 

 

 

(99

)

 

 

303

 

Foreign

 

 

(90

)

 

 

(430

)

 

 

401

 

 

 

 

1,365

 

 

 

(480

)

 

 

1,469

 

Income tax expense from continuing operations

 

$

11,876

 

 

$

14,302

 

 

$

4,829

 

 

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 29,

 

December 30,

 

December 31,

 

 

 

 

2023

 

2022

 

2021

 

 

U.S. statutory income tax expense rate

 

 

21.0

 

%

 

 

21.0

 

%

 

 

21.0

 

%

State income taxes, net of federal income tax
   expense

 

 

4.6

 

 

 

 

4.8

 

 

 

 

1.6

 

 

Valuation reduction

 

 

—

 

 

 

 

(0.3

)

 

 

 

0.1

 

 

Meals and entertainment

 

 

0.2

 

 

 

 

—

 

 

 

 

—

 

 

Foreign rate differential

 

 

0.3

 

 

 

 

0.1

 

 

 

 

0.3

 

 

Share based compensation

 

 

(1.1

)

 

 

 

(1.0

)

 

 

 

(13.2

)

 

Foreign exchange loss

 

 

0.2

 

 

 

 

(0.2

)

 

 

 

(0.1

)

 

Other, net

 

 

0.6

 

 

 

 

1.6

 

 

 

 

0.7

 

 

Effective tax rate

 

 

25.8

 

%

 

 

26.0

 

%

 

 

10.4

 

%

 

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

 

 

 

 

Year Ended

 

 

 

December 29,

 

 

December 30,

 

 

 

2023

 

 

2022

 

Deferred income tax assets:

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

281

 

 

$

224

 

Net operating loss and tax credits carryforward

 

 

2,940

 

 

 

2,902

 

Accrued expenses and other liabilities

 

 

4,497

 

 

 

5,804

 

 

 

7,718

 

 

 

8,930

 

Valuation allowance

 

 

(1,461

)

 

 

(1,463

)

 

 

6,257

 

 

 

7,467

 

Deferred income tax liabilities:

 

 

 

 

 

 

Depreciation

 

 

(3,381

)

 

 

(3,847

)

Tax over book amortization on goodwill and intangibles

 

 

(10,834

)

 

 

(10,316

)

Other items

 

 

(160

)

 

 

(181

)

 

 

(14,375

)

 

 

(14,344

)

Net deferred income tax liability

 

$

(8,118

)

 

$

(6,877

)

As of December 29, 2023, the Company had $0.8 million of U.S. state net operating loss carryforwards. Additionally, as of December 29, 2023, the Company had $8.4 million of foreign net operating loss carryforwards primarily from operations in the United Kingdom, Germany, France and Australia. A portion 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. As of December 29, 2023 and December 30, 2022 the Company had a valuation allowance in both periods of $1.5 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 29, 2023, was approximately $8.1 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 29, 2023, December 30, 2022, and December 31, 2021 the total amount of accrued income tax-related interest and penalties was $50 thousand, $192 thousand and $179 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.

9. Income Taxes (continued)

The following table sets forth the detail and activity of the ASC 740 liability during the years ended December 29, 2023 and December 30, 2022 (in thousands):

 

 

Year Ended

 

 

 

December 29,

 

 

December 30,

 

 

 

2023

 

 

2022

 

Beginning balance

 

$

450

 

 

$

437

 

Additions based on tax positions

 

 

4

 

 

 

13

 

   Reduction for prior year tax deductions

 

 

(234

)

 

 

—

 

Ending balance

 

$

220

 

 

$

450

 

As of December 29, 2023 and December 30, 2022 the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of $0.2 million and $0.5 million, respectively, 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 29, 2023 and December 30, 2022 would have a favorable impact on the effective tax rate in future period.