Income Taxes

12 Months Ended

Dec. 25, 2021

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

The components of the income tax provision (benefit) are as follows:

	For the Year Ended
(in thousands)	December 25, 2021			December 26, 2020			December 28, 2019
Current:
Federal	$	43,374		$	33,698		$	19,090
State		5,755			4,276			2,091
Foreign		1,075			491			(194	)
		50,204			38,465			20,987
Deferred:
Federal		(9,609	)		(8,475	)		2,084
State		(1,368	)		(893	)		(280	)
Foreign		(993	)		(231	)		(746	)
		(11,970	)		(9,599	)		1,058
Total	$	38,234		$	28,866		$	22,045

The following is a reconciliation of income taxes at the statutory tax rate to the Company's effective tax rate:

	For the Year Ended
	December 25, 2021			December 26, 2020			December 28, 2019
Federal taxes at statutory rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal tax benefit		2.1			2.0			1.3
Research and development tax credit		(0.4	)		(0.6	)		(0.5	)
Federal permanent items		—			(0.2	)		(0.3	)
Effect of foreign operations		(0.2	)		0.1			(1.1	)
Other		—			(1.0	)		0.4
Effective tax rate		22.5	%		21.3	%		20.8	%

At December 25, 2021, we had $1.2 million of unrecognized tax benefits, all of which would affect our effective tax rate if recognized.

The following table summarizes the change in unrecognized tax benefits for the three years ended December 25, 2021:

	For the Year Ended
(in thousands)	December 25, 2021			December 26, 2020			December 28, 2019
Balance at beginning of year	$	1,060		$	2,301		$	2,390
Reductions due to lapses in statutes of limitations		—			—			(200	)
Reductions due to tax positions settled		—			(1,308	)		—
Reductions due to reversals of prior year positions		(30	)		(202	)		(28	)
Additions based on tax positions taken during the current period		174			269			139
Balance at end of year	$	1,204		$	1,060		$	2,301

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of December 25, 2021, accrued interest and penalties related to unrecognized tax benefits were immaterial.

Deferred income taxes result from timing differences in the recognition of revenue and expense between tax and financial statement purposes. The sources of temporary differences are as follows: 

(in thousands)	December 25, 2021			December 26, 2020
Assets:
Inventories	$	13,689		$	11,346
Accounts receivable		18,589			16,452
Operating lease liability		14,526			9,352
Accrued expenses		7,515			3,671
Net operating losses		1,892			304
Foreign tax credits		469			631
State tax credits		819			625
Capital loss carryforward		467			—
Total deferred tax assets		57,966			42,381
Valuation allowance		(1,837	)		(1,256	)
Net deferred tax assets		56,129			41,125
Liabilities:
Depreciation		14,541			10,586
Goodwill and intangible assets		45,522			12,419
Operating lease right of use asset		13,733			8,560
Other		309			929
Gross deferred tax liabilities		74,105			32,494
Net deferred tax (liabilities) assets	$	(17,976	)	$	8,631

 A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carryback and carryforward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of the deferred tax asset. Management has determined it was necessary to establish a valuation allowance against the foreign tax credits, various state tax credits and a capital loss from investment.

Based on our history of taxable income and our projection of future earnings, we believe that it is more likely than not that sufficient taxable income will be generated in the foreseeable future to realize the remaining net deferred tax assets.

During the year, we adjusted the valuation allowance against the deferred tax assets noted above by $0.6 million primarily due to the increase in capital loss carryforward.

As of December 25, 2021, the Company has tax-effected net operating loss carryforwards of $1.7 million and $0.2 million for U.S federal and state jurisdictions, respectively. Tax-effected federal net operating losses of $0.1 million begin to expire in 2035. The remaining federal net operating losses do not expire. The state net operating loss carryforwards expire in various years starting in 2037.

We file income tax returns in the United States, Canada, China, India, and Mexico. All years before 2017 are closed for U.S. federal tax purposes. Tax years before 2017 are closed for the states in which we file. Tax years before 2018 are closed for tax purposes in Canada. Tax years before 2018 are closed for tax purposes in China. Tax years before 2016 are closed for tax purposes in Mexico. All tax years remain open for India.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 in response to the COVID-19 pandemic. The CARES Act, among other things, allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act also includes provisions relating to increased interest expense deductibility, refundable payroll tax credits, deferment of employer social security payments, and technical corrections to tax depreciation methods for qualified improvement property. Most significant to the Company is the accelerated depreciation on qualified improvement property. The Company continues to monitor Coronavirus-related federal and state relief opportunities.