Income Taxes

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



	Fiscal Year Ended January 2, 2016			Fiscal Year Ended January 3, 2015		Fiscal Year Ended January 4, 2014
	(In thousands)
Federal income taxes:
Current	$	—		$	—	$	(492	)
Deferred	—			—		(7,385		)
State income taxes:
Current	235			160		192
Deferred	—			—		(1,343		)
Foreign income taxes:
Current	(68		)	134		19
Deferred	(14		)	18		(4		)
Provision for (benefit from) income taxes	$	153		$	312	$	(9,013	)

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 2, 2016			Fiscal Year Ended January 3, 2015			Fiscal Year Ended January 4, 2014
	(In thousands)
Benefit from income taxes computed at the federal statutory tax rate	$	(3,998	)	$	(4,746	)	$	(17,371	)
Benefit from state income taxes, net of federal benefit	(474		)	(623		)	(1,991		)
Valuation allowance change	4,318			5,656			19,445
Nondeductible items	288			232			270
Benefit from allocation of income taxes to other comprehensive income (loss)	—			—			(8,726		)
Other	19			(207		)	(640		)
Provision for (benefit from) income taxes	$	153		$	312		$	(9,013	)

The change in valuation allowance is exclusive of items that do not impact income from continuing operations, but are reflected in the balance sheet change in deferred income tax assets and liabilities as disclosed in the component of net deferred income tax assets (liabilities) table below.

In accordance with the intraperiod tax allocation provisions of GAAP, we are required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax benefit resulting from a loss from continuing operations that should be allocated to continuing operations. In fiscal 2015 and 2014, there were no intraperiod tax allocations, since there was a loss in other comprehensive income for these periods. In fiscal 2013, a non-cash tax benefit was recorded on the loss from continuing operations in the amount of $8.7 million, which was offset in full by income tax expense recorded in other comprehensive income. 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’ deficit.

Our financial statements contain certain deferred tax assets which primarily resulted from tax benefits associated with the loss before income taxes, 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 years 2015 and 2014, we weighed all available positive and negative evidence, and concluded that the weight of the negative evidence of cumulative losses over several years continued to outweigh the positive evidence. Based on the conclusions reached, we maintained a full valuation allowance during fiscal years 2015 and 2014.

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



	January 2, 2016			January 3, 2015
	(In thousands)
Deferred income tax assets:
Inventory reserves	$	3,007		$	3,333
Compensation-related accruals	4,819			5,434
Accruals and reserves	508			787
Accounts receivable	744			728
Restructuring costs	32			212
Property and equipment	778			16
Pension	11,628			13,214
Benefit from net operating loss (“NOL”) carryovers ⁽¹⁾	82,055			76,264
Other	371			685
Total gross deferred income tax assets	103,942			100,673
Less: Valuation allowances	(103,311		)	(99,979		)
Total net deferred income tax assets	631			694
Deferred income tax liabilities:
Other	(634		)	(711		)
Total deferred income tax liabilities	(634		)	(711		)
Deferred income tax liabilities, net	$	(3	)	$	(17	)


⁽¹⁾	Our federal NOL carryovers are $199.5 million and will expire in 13 to 20 years. Our state NOL carryovers are $253.1 million and will expire in 1 to 20 years.

Activity in our deferred tax asset valuation allowance for fiscal years 2015 and 2014 was as follows:



	Fiscal Year Ended January 2, 2016		Fiscal Year Ended January 3, 2015
	(In thousands)
Balance as of beginning of the year	$	99,979	$	88,279
Valuation allowance provided for taxes related to:
Loss before income taxes	3,332		11,700
Balance as of end of the year	$	103,311	$	99,979

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 as of 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 as of January 4, 2014	259
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	(75		)
Settlements	—
Balance as of January 3, 2015	184
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	—
Settlements	—
Balance as of January 2, 2016	$	184

Included in the unrecognized tax benefits as of January 2, 2016, and January 3, 2015, were $0.2 million and $0.2 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 fiscal 2015 and 2014, 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 twelve months.

We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2012 through 2015 tax years generally remain subject to examination by federal and most state and foreign tax authorities.