Income Taxes

12 Months Ended

Dec. 28, 2012

Income Tax Disclosure [Abstract]

Income Taxes

Note 8: Income Taxes

Income before income taxes includes income from foreign operations of $3,423,000, $2,361,000 and $2,995,000 for fiscal 2012, 2011 and 2010, respectively.

Total income tax expense for the fiscal years ended December 28, 2012, December 30, 2011 and December 31, 2010 consisted of the following:

	Fiscal Years
(In thousands)	2012			2011			2010
Current
Federal	$	23,562		$	20,544		$	17,383
Foreign		852			656			758
State		4,304			4,587			4,275
		28,718			25,787			22,416
Deferred
Federal		(3,378	)		(3,013	)		(2,474	)
State		(816	)		(650	)		(755	)
		(4,194	)		(3,663	)		(3,229	)
Total	$	24,524		$	22,124		$	19,187

The Company’s effective tax rate differs from the statutory federal tax rate of 35% as shown in the following schedule:

	Fiscal Years
(In thousands)	2012			2011			2010
Tax at federal statutory rate	$	21,612		$	19,187		$	16,347
State taxes, net of federal benefit		2,409			2,568			2,361
Tax exempt interest income		(104	)		(74	)		(62	)
Non-deductible expenses		296			240			205
Non-deductible stock-based compensation		(40	)		12			34
Other		351			191			302
Tax expense	$	24,524		$	22,124		$	19,187
Effective tax rate		39.7	%		40.4	%		41.1	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 28, 2012 and December 30, 2011 are presented in the following schedule:

	Fiscal Years
(In thousands)	2012			2011
Deferred tax assets:
Accrued liabilities and allowances	$	14,503		$	13,288
Deferred compensation		17,252			13,916
Total deferred tax assets		31,755			27,204
Deferred tax liabilities:
State taxes		(1,099	)		(1,095	)
Deductible goodwill		(2,829	)		(2,724	)
Property, equipment and leasehold improvements		(500	)		(866	)
Other		(1,311	)		(534	)
Total deferred tax liabilities		(5,739	)		(5,219	)
Net deferred tax assets	$	26,016		$	21,985

Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

The Company is entitled to a deduction for federal and state tax purposes with respect to employees’ stock award activity. The net deduction in taxes otherwise payable arising from that deduction has been credited to additional paid-in capital. For the fiscal years ended December 28, 2012, December 30, 2011 and December 31, 2010, the net deduction in tax payable arising from employees’ stock award activity was $3,948,000, $2,378,000 and $3,972,000 respectively.

The Company and its subsidiaries file income tax returns in the United States federal jurisdiction, California and various other state and foreign jurisdictions. The Company is no longer subject to United States federal income tax examination for years prior to 2009. The Company is no longer subject to California franchise tax examinations for years prior to 2008. With few exceptions, the Company is no longer subject to state and local or non-United States income tax examination by tax authorities for years prior to 2008.

At December 28, 2012, the Company had unrecognized tax benefits of $908,000, which primarily related to uncertainty regarding the sustainability of certain deductions taken on the Company’s federal and state income tax returns. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at December 31, 2010	$	376,000
Additions based on tax positions related to the current year		83,000
Additions for tax positions of prior years		-
Reductions due to lapse of statute of limitations		(55,000	)
Reductions due to change in accounting method		(16,000	)
Settlements		-
Balance at December 30, 2011	$	388,000
Additions based on tax positions related to the current year		275,000
Additions for tax positions of prior years		317,000
Reductions due to lapse of statute of limitations		(72,000	)
Reductions due to change in accounting method		-
Settlements		-
Balance at December 28, 2012	$	908,000

Unrecognized tax benefits are included in other liabilities in the accompanying balance sheet. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate in a future period. There are no uncertain tax positions whose resolution in the next 12 months is expected to materially affect operating results.

Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries. The amount of such earnings at December 28, 2012 was $2,174,000. These earnings have been permanently reinvested and the Company does not plan to initiate any action that would precipitate the payment of income taxes thereon. The unrecognized deferred tax liability for these earnings is estimated to be approximately $108,000.