Income Taxes

The provision (benefit) for income taxes from continuing operations consists of the following for the fiscal years indicated:



	Fiscal Year
	2012			2011			2010
Current
Federal	$	—		$	52,000		$	—
State	64,000			88,000			66,000
Foreign	—			(137,000		)	(120,000		)
Total current provision	64,000			3,000			(54,000		)
Deferred
Federal	(2,878,000		)	3,977,000			3,464,000
State	(505,000		)	(30,000		)	513,000
Foreign	73,000			(898,000		)	2,161,000
Change in valuation allowance	4,345,000			(3,052,000		)	(6,138,000		)
Total deferred provision	1,035,000			(3,000		)	—
Total provision (benefit) for income taxes	$	1,099,000		$	—		$	(54,000	)

Net operating losses utilized in 2012, 2011 and 2010 to offset federal and state taxes were $0, $2,698,000 and $2,743,000, respectively.

The actual income tax provision (benefit) reported from operations are different than those which would have been computed by applying the federal statutory tax rate to loss before income tax benefit. A reconciliation of income tax (benefit) provision from continuing operations as computed at the U.S. federal statutory income tax rate to the provision for income tax benefit is as follows:



	Fiscal Year
	2012			2011			2010
Tax provision at federal statutory rates	$	(7,002,000	)	$	(2,006,000	)	$	730,000
State tax liability	42,000			57,000			43,000
Foreign deferred	734,000			611,000			2,484,000
Foreign withholding	1,170,000			—			—
Outside basis in KTC and Kowon, net	2,422,000			—			—
Goodwill	417,000			771,000			—
Nondeductible expenses	180,000			415,000			(35,000		)
Utilized/expired net state operating loss carryforwards	—			—			(28,000		)
Provision to tax return adjustments and state tax rate change	(462,000		)	888,000			544,000
Tax credits	(100,000		)	1,188,000			(312,000		)
Non-deductible equity compensation	136,000			1,542,000			2,630,000
Other, net	(783,000		)	(414,000		)	28,000
Change in valuation allowance	4,345,000			(3,052,000		)	(6,138,000		)
	$	1,099,000		$	—		$	(54,000	)

Pretax foreign (losses) earnings from continuing operations were approximately $(6,870,000), $(6,879,000) and $(121,000) for fiscal years 2012, 2011 and 2010, respectively. The Company has made the decision to close Kowon and accordingly reflected a liability for unremitted earnings.

Deferred taxes are provided to recognize the effect of temporary differences between tax and financial reporting. Deferred income tax assets and liabilities consist of the following:



	Fiscal Year
	2012			2011
Deferred tax liability:
Intangible asset	$	(636,000	)	$	(508,000	)
Foreign withholding liability	(1,170,000		)	—
Foreign unremitted earnings	(3,478,000		)	—
Deferred tax assets:
Federal net operating loss carryforwards	9,493,000			3,398,000
State net operating loss carryforwards	580,000			13,000
Foreign net operating loss carryforwards	3,028,000			5,533,000
Equity awards	1,111,000			886,000
Tax credits	5,267,000			5,599,000
Equipment	4,131,000			5,068,000
Investments	4,760,000			3,867,000
Other	3,582,000			3,903,000
Net deferred tax assets	26,668,000			27,759,000
Valuation allowance	(27,973,000		)	(23,493,000		)
	$	(1,305,000	)	$	4,266,000

As of December 29, 2012, the Company has available for tax purposes federal net operating loss carryforwards (NOLs) of $27.0 million expiring through 2032. The Company has recognized a full valuation allowance on its net deferred tax assets as the Company has concluded that such assets are not more likely than not to be realized. The $4.5 million increase in valuation allowance during fiscal year 2012 was primarily due to net operating losses generated of $6.0 million and significant equipment disposals of $2.0 million. The change in valuation allowance during fiscal year 2011 was due to the reversal of the $4.9 million KTC valuation allowance partially offset by a net decrease in deferred tax assets of approximately $1.7 million and utilization of net operating losses of $1.1 million. The Company has not historically recorded, nor does it intend to record the tax benefits from stock awards until realized. Unrecorded benefits from stock awards approximated $13.0 million at December 29, 2012.

The Company plans to suspend operations and terminate employees of their Korean subsidiary, Kowon on or about March 30, 2013. The assets, primarily buildings and land, have been put up for sale. It is more likely than not that the Company's share of the net book value of their Korean investment would be repatriated to the U.S. resulting in a Korean withholding tax of $1.17 million. As a result of the Company no longer being permanently reinvested in Korea, a deferred tax liability for the outside basis in the Korean subsidiary has been booked for $3.5 million.

The Company sold its investment in KTC in the first quarter of 2013. As a result, the Company has recorded a deferred tax asset of $1.1 million for the tax over book outside basis.

The Company’s income tax returns have not been examined by the Internal Revenue Service and are subject to examination for all years since 2002. State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

International jurisdictions have statutes of limitations generally ranging from 3 to 7 years after filing of the respective return. Years still open to examination by tax authorities in major jurisdictions include Korea (2006 onward), Japan (2006 onward), Hong Kong (2008 onward) and UK returns (2011 onward). The Company is not currently under examination in these jurisdictions.