Income Taxes

12 Months Ended

Jan. 04, 2014

5. Income Taxes

Our (benefit from) provision for income taxes consists of the following:


	Fiscal Year Ended January 4, 2014			Fiscal Year Ended December 29, 2012			Fiscal Year Ended December 31, 2011
	(In thousands)
Federal income taxes:
Current	$	(492	)	$	16		$	(89	)
Deferred		(7,385	)		—			—
State income taxes:
Current		192			334			759
Deferred		(1,343	)		—			—
Foreign income taxes:
Current		19			56			317
Deferred		(4	)		(20	)		(25	)
(Benefit from) provision for income taxes	$	(9,013	)	$	386		$	962

The federal statutory income tax rate was 35%. Our provision for (benefit from) income taxes is reconciled to the federal statutory amount as follows:


	Fiscal Year Ended January 4, 2014			Fiscal Year Ended December 29, 2012			Fiscal Year Ended December 31, 2011
	(In thousands)
Benefit from income taxes computed at the federal statutory tax rate	$	(17,371	)	$	(7,924	)	$	(13,162	)
Benefit from state income taxes, net of federal benefit		(1,991	)		(866	)		(1,296	)
Valuation allowance change		19,445			8,820			14,498
Nondeductible items		270			484			806
Benefit from allocation of income taxes to other comprehensive income (loss)		(8,726	)		—			—

Other		(640	)		(128	)		116
(Benefit from) provision for income taxes	$	(9,013	)	$	386		$	962

Our income before provision for income taxes for our Canadian operations was $0.1 million, $0.1 million and $0.9 million for fiscal 2013, fiscal 2012, and fiscal 2011, respectively.

For fiscal 2013, we recognized tax benefit of $9.0 million. The benefit recognized for the year is primarily comprised of $8.7 million of deferred income tax benefit resulting from the allocation of income tax expense to other comprehensive income (loss). In addition, we recognized an income tax benefit related to the reversal of a $0.6 million reserve for an uncertain tax position due to the expiration of the statue of limitations. Finally, we recognized current state income tax expense of $0.3 million related to earnings generated on a separate company basis.

For fiscal 2012, we recognized tax expense of $0.4 million. The expense recognized for the year is primarily comprised of $0.3 million for current state income tax expense related to earnings generated on a separate company basis.

For fiscal 2011, we recognized tax expense of $1.0 million. The expense recognized for the year is primarily comprised of $0.8 million for current state income tax expense related to earnings generated on a separate company basis and $0.3 million of current income tax expense resulting from foreign income taxes.

In accordance with the intraperiod tax allocation provisions of U.S. GAAP, we are required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax benefit that results from a loss from continuing operations that should be allocated to continuing operations. In fiscal 2013, a non-cash tax benefit on the loss from continuing operations of $8.7 million, which was offset in full by income tax expense, was recorded in other comprehensive income. In fiscal 2012 and fiscal 2011, there was no intraperiod tax allocation due to the fact that there was a loss in other comprehensive income for the period. While the income tax benefit from continuing operations is reported in our Consolidated Statements of Operations and Comprehensive Loss, the income tax expense on other comprehensive income is recorded directly to accumulated other comprehensive loss, which is a component of stockholders’ equity.

Our financial statements contain certain deferred tax assets which have arisen primarily as a result of tax benefits associated with the loss before income taxes incurred, as well as net deferred income tax assets resulting from other temporary differences related to certain reserves, pension obligations and differences between book and tax depreciation and amortization. We record a valuation allowance against our net deferred tax assets when we determine that based on the weight of available evidence, it is more likely than not that our net deferred tax assets will not be realized.

In our evaluation of the weight of available evidence, we considered recent reported losses as negative evidence which carried substantial weight. Therefore, we considered evidence related to the four sources of taxable income, to determine whether such positive evidence outweighed the negative evidence associated with the losses incurred. The positive evidence considered included:

●

taxable income in prior carryback years, if carryback is permitted under the tax law;

●

future reversals of existing taxable temporary differences;

●

tax planning strategies; and

●

future taxable income exclusive of reversing temporary differences and carryforwards.

During fiscal 2013 and 2012, we weighed all available positive and negative evidence and concluded the weight of the negative evidence of a three year cumulative loss continued to outweigh the positive evidence. Based on the conclusions reached, we maintained a full valuation allowance during 2013 and 2012.

The components of our net deferred income tax assets (liabilities) are as follows:


	January 4, 2014			December 29, 2012
	(In thousands)
Deferred income tax assets:
Inventory reserves	$	2,832		$	2,816
Compensation-related accruals		4,893			5,838
Accruals and reserves		1,030			92
Accounts receivable		1,291			1,327
Restructuring costs		488			118
Pension		8,245			16,936
Benefit from NOL carryovers(1)		70,169			52,088
Other		703			695
Total gross deferred income tax assets		89,651			79,910
Less: Valuation allowances		(88,279	)		(78,050	)
Total net deferred income tax assets	$	1,372		$	1,860
Deferred income tax liabilities:
Intangible assets		—			(60	)
Property and equipment		(365	)		(1,065	)
Other		(1,006	)		(739	)
Total deferred income tax liabilities		(1,371	)		(1,864	)
Deferred income tax assets (liabilities), net	$	1		$	(4	)

(1)	Our federal NOL carryovers are $168.1 million and will expire in 15 to 20 years. Our state NOL carryovers are $232.2 million and will expire in 1 to 20 years.

Activity in our deferred tax asset valuation allowance for fiscal 2013 and fiscal 2012 was as follows (in thousands):


	Fiscal Year Ended January 4, 2014		Fiscal Year Ended December 29, 2012
Balance at beginning of the year	$	78,050	$	66,793
Valuation allowance removed for taxes related to:
Income before income taxes		—		—
Valuation allowance provided for taxes related to:
Loss before income taxes		10,229		11,257
Effect of a change in judgment		—		—
Balance at end of the year	$	88,279	$	78,050

We have recorded income tax and related interest liabilities where we believe certain of our tax positions are not more likely than not to be sustained if challenged. The following table summarizes the activity related to our unrecognized tax benefits:


	(In thousands)
Balance at January 1, 2011	$	677
Increases related to current year tax positions		—
Additions for tax positions in prior years		196
Reductions for tax positions in prior years		—
Settlements		—
Balance at December 31, 2011		873
Increases related to current year tax positions		—
Additions for tax positions in prior years		—
Reductions for tax positions in prior years		—
Reductions due to lapse of applicable statue of limitations		(47	)
Settlements		—
Balance at December 29, 2012		826
Increases related to current year tax positions		—
Additions for tax positions in prior years		—
Reductions for tax positions in prior years		—
Reductions due to lapse of applicable statute of limitations		(567	)
Settlements		—
Balance at January 4, 2014	$	259

Included in the unrecognized tax benefits at January 4, 2014 and December 29, 2012 were $0.3 million and $0.8 million, respectively, of tax benefits that, if recognized, would reduce our annual effective tax rate. We also accrued an immaterial amount of interest related to these unrecognized tax benefits during 2013 and 2012, and this amount is reported in “Interest expense” in our Consolidated Statements of Operations and Comprehensive Loss. We do not expect our unrecognized tax benefits to change materially over the next 12 months.

We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2010 through 2013 tax years generally remain subject to examination by federal and most state and foreign tax authorities.

- 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.

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