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Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Taxes |
Income Taxes |
14. Income Taxes The components of income (loss) before (provision) benefit for income taxes are as follows (in thousands):
|  | Fiscal Year |  | Transition Period |  | Fiscal Year |  | Fiscal Year |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | 2011 (52 weeks) |  | January 1, 2011 (5 weeks) |  | 2010 (52 weeks) |  | 2009 (52 weeks) |
Income (loss) before (provision) benefit for income taxes: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | 26,150 |  | $ | (2,674 | ) | $ | 7,456 |  | $ | 8,187 |
Foreign |  |  | 1,933 |  |  | 1,728 |  |  | (1,223 | ) |  | 4,926 |
Total |  | $ | 28,083 |  | $ | (946 | ) | $ | 6,233 |  | $ | 13,113 |
The components of income tax provision (benefit) have been recorded in the Company's financial statements as follows (in thousands):
|  | Fiscal Year |  | Transition Period |  | Fiscal Year |  | Fiscal Year |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | 2011 (52 weeks) |  | January 1, 2011 (5 weeks) |  | 2010 (52 weeks) |  | 2009 (52 weeks) |
Income tax provision (benefit) |  | $ | 11,138 |  | $ | (288 | ) | $ | 4,273 |  | $ | 7,422 |
Tax deficit on stock option exercises and restricted share vesting charged directly to common stock |  |  | 639 |  |  | 839 |  |  | 1,131 |  |  | 556 |
|  | $ | 11,777 |  | $ | 551 |  | $ | 5,404 |  | $ | 7,978 |
The provision (benefit) for income taxes consists of the following (in thousands):
|  | Fiscal Year |  | Transition Period |  | Fiscal Year |  | Fiscal Year |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | 2011 (52 weeks) |  | January 1, 2011 (5 weeks) |  | 2010 (52 weeks) |  | 2009 (52 weeks) |
Currently payable: |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 15,964 |  | $ | (70 | ) | $ | 1,225 |  | $ | 576 |
Foreign |  |  | 309 |  |  | 49 |  |  | 771 |  |  | 1,245 |
State |  |  | 3,604 |  |  | — |  |  | 99 |  |  | 158 |
|  | $ | 19,877 |  | $ | (21 | ) | $ | 2,095 |  | $ | 1,979 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (6,829 | ) |  | (217 | ) |  | 1,837 |  |  | 3,971 |
Foreign |  |  | (286 | ) |  | — |  |  | (71 | ) |  | 299 |
State |  |  | (1,624 | ) |  | (50 | ) |  | 412 |  |  | 1,173 |
|  | $ | (8,739 | ) | $ | (267 | ) | $ | 2,178 |  | $ | 5,443 |
|  | $ | 11,138 |  | $ | (288 | ) | $ | 4,273 |  | $ | 7,422 |
A reconciliation of the Company's tax rates with the federal statutory rate is as follows:
|  | Fiscal Year |  | Transition Period |  | Fiscal Year |  | Fiscal Year |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | 2011 |  | January 1, 2011 |  | 2010 |  | 2009 |
Federal statutory rate |  |  | 35.0 | % |  | (35.0 | )% |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal income tax benefit |  |  | 7.0 |  |  | (5.2 | ) |  | 8.2 |  |  | 8.0 |
Foreign losses benefited |  |  | (3.0 | ) |  | (1.5 | ) |  | (6.3 | ) |  | (8.6 | )
Losses not benefited |  |  | — |  |  | 27.0 |  |  | 17.3 |  |  | 8.6 |
Foreign rate differential |  |  | 0.9 |  |  | (40.8 | ) |  | 7.2 |  |  | 4.3 |
Foreign tax credit |  |  | (1.4 | ) |  | — |  |  | (2.4 | ) |  | — |
Disposition of foreign operations |  |  | — |  |  | 22.5 |  |  | — |  |  | 1.8 |
Impact of NeuCo's tax provision charges |  |  | 1.2 |  |  | — |  |  | 4.0 |  |  | 3.6 |
Permanently disallowed expenses |  |  | 1.5 |  |  | 2.7 |  |  | 7.8 |  |  | 1.1 |
Other |  |  | (1.5 | ) |  | (0.1 | ) |  | (2.2 | ) |  | 2.8 |
|  |  | 39.7 | % |  | (30.4 | )% |  | 68.6 | % |  | 56.6 | %
Components of the Company's deferred tax assets (liabilities) are as follows (in thousands):
|  | December 31, 2011 |  | January 1, 2011 |  | November 27, 2010 |
--- | --- | --- | --- | --- | --- | --- | ---
Deferred tax assets: |  |  |  |  |  |  |  |  |  |
Accrued compensation and related expense |  | $ | 19,340 |  | $ | 11,966 |  | $ | 12,081 |
Tax basis in excess of financial basis of net accounts receivable |  |  | 2,271 |  |  | 1,816 |  |  | 1,777 |
Net operating loss carryforwards |  |  | 4,090 |  |  | 4,159 |  |  | 4,479 |
Tax basis in excess of financial basis of fixed assets |  |  | 2,082 |  |  | 3,771 |  |  | 3,881 |
Accrued expenses and other |  |  | 2,202 |  |  | 4,816 |  |  | 4,959 |
Total gross deferred tax assets |  |  | 29,985 |  |  | 26,528 |  |  | 27,177 |
Less: valuation allowance |  |  | (5,027 | ) |  | (7,314 | ) |  | (7,613 | )
Total deferred tax assets net of valuation allowance |  |  | 24,958 |  |  | 19,214 |  |  | 19,564 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |
Financial basis in excess of tax basis of intangible assets |  |  | 6,319 |  |  | 4,859 |  |  | 4,697 |
Tax basis in excess of financial basis of debentures |  |  | 6,295 |  |  | 10,259 |  |  | 10,260 |
Total deferred tax liabilities |  |  | 12,614 |  |  | 15,118 |  |  | 14,957 |
Net deferred tax assets |  | $ | 12,344 |  | $ | 4,096 |  | $ | 4,607 |
In general, a valuation allowance is recorded against deferred tax assets because management believes, after considering the available evidence, that it is more likely than not that the assets will not be realized. Reductions in valuation allowances are a result of management's consideration of historical profitability, future expected results, and the nature of the related deferred tax assets. The net change in the total valuation allowance for the fiscal 2011 was a decrease of approximately $2.3 million compared to the five-week transition period ended January 1, 2011. The net change is related to the release of valuation allowances against certain foreign net deferred assets including foreign net operating losses of $1.7 million and a change in estimate of foreign tax credit carryforwards of $0.6 million. In fiscal 2011, as a result of improved profitability over a three-year period and anticipated future profitability in certain foreign jurisdictions, the Company determined that it is more likely than not that certain of the foreign deferred tax assets, including certain foreign net operating loss carryforwards, will be realized, and accordingly released valuation allowances of approximately $1.7 million. The ultimate realization of deferred tax assets that continue to be subject to valuation allowances is dependent upon the generation of future taxable income during the periods and in the tax jurisdictions in which those temporary differences become deductible. The net change in the total valuation allowance for the five-week transition period ended January 1, 2011 was a decrease of approximately $0.3 million compared to the year ended November 27, 2010. This net decrease resulted from the utilization of certain foreign net operating loss carryforwards, offset partially by an increase in the valuation allowance recorded against the Company's foreign operating losses. The net change in the total valuation allowance for the fiscal year ended November 27, 2010 compared to the fiscal year ended November 28, 2009 was an increase of approximately $1.8 million. This net change was primarily a result of an increase in the valuation allowance recorded against the Company's foreign operating losses, offset partially by net operating loss carryforwards utilized that were not previously benefited. At December 31, 2011, the Company has foreign net operating loss carryforwards for federal and foreign tax purposes of $4.2 million and $7.5 million, respectively. The federal operating losses were generated by NeuCo, are subject to a full valuation allowance, and begin to expire in 2021. NeuCo files a separate U.S. federal tax return and none of its losses are available to offset the Company's consolidated taxable income. The foreign operating losses have an indefinite life, except for $0.4 million that will begin to expire in 2016. At December 31, 2011, the Company has foreign tax credit carryforwards of approximately $0.1 million, which expire in 2017. ASC Topic 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The aggregate changes in the balances of gross unrecognized tax benefits were as follows (in thousands):
|  | December 31, 2011 |  | January 1, 2011 |  | November 27, 2010 |
--- | --- | --- | --- | --- | --- | --- | ---
Balance at beginning of period |  | $ | 180 |  | $ | 180 |  | $ | 64 |
Additions for tax positions taken during prior years |  |  | 833 |  |  | — |  |  | 180 |
Additions for tax positions taken in current year |  |  | 110 |  |  | — |  |  | — |
Settlements with tax authorities |  |  | (180 | ) |  | — |  |  | — |
Expiration of statutes of limitations |  |  | — |  |  | — |  |  | (64 | )
Balance at end of the period |  | $ | 943 |  | $ | 180 |  | $ | 180 |
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. A number of years may elapse before an uncertain tax position, for which the Company has unrecognized tax benefits, is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its unrecognized tax benefits reflect the most likely outcome. The Company adjusts these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. The Company reports accrued interest and penalties related to unrecognized tax benefits in income tax expense. Settlement of any particular position could require the use of cash. Favorable resolution would be recognized as a reduction to the effective income tax rate in the period of resolution. It is not reasonably possible to predict the amount of unrecognized tax benefits that will reverse within the next twelve months. The number of years with open tax audits varies depending on the tax jurisdiction. The Company's major taxing jurisdiction is the United States. The Company is no longer subject to U.S. federal examinations by the Internal Revenue Service for years before fiscal 2008. In fiscal 2011, the Internal Revenue Service began an examination of the Company's fiscal 2009 U.S. federal tax return. The examination is in its initial stages. There have not been any material adjustments proposed and the outcome of this review cannot reasonably be predicted at this time. In fiscal 2010, the Internal Revenue Service examined the Company's fiscal 2007 U.S. federal tax return. This examination was concluded with no change in taxable income. During fiscal 2011, the HM Revenue and Customs completed a review of the UK subsidiary's fiscal 2006 and fiscal 2007 corporate tax returns with no material adjustments. Also during fiscal 2011, the HM Revenue and Customs began a review of the UK subsidiary's fiscal 2009 corporate tax return. There have not been any adjustments proposed and the outcome of this review cannot reasonably be predicted at this time. The Company has not provided for deferred income taxes or foreign withholding taxes on undistributed earnings from its foreign subsidiaries of approximately $5.7 million as of December 31, 2011 because such earnings are considered to be indefinitely reinvested. The Company does not rely on these unremitted earnings as a source of funds for its domestic business as it expects to have sufficient cash flow in the U.S. to fund its U.S. operational and strategic needs. If the Company were to repatriate its foreign earnings that are indefinitely reinvested, it would accrue substantially no additional tax expense.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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