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Note 8 Income Taxes
 6 Months Ended
Jun. 29, 2014
Income Tax Disclosure [Abstract]  
Note 8 Income Taxes

8.INCOME TAXES

 

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

 

For the three-month periods ended June 29, 2014 and June 30, 2013, we recorded $57 and $53, respectively, in income tax expense. For the six-month periods ended June 29, 2014 and June 30, 2013, we recorded $117 and $151, respectively, in income tax expense. The expense is primarily due to the recognition of deferred tax liabilities generated from goodwill and certain intangible assets that cannot be predicted to reverse for book purposes during our loss carryforward periods. The remaining expense in 2014 was due to state income taxes, and in 2013 was primarily due to the income reported for our China operations during the period.

 

Our effective consolidated tax rates for the three and six month periods ended June 29, 2014 and June 30, 2013 were:

   Three-month periods ended  Six-month periods ended
   June 29,  June 30,  June 29,  June 30,
   2014  2013  2014  2013
Loss from continuing operations                    
   before income taxes (a)  $(1,319)  $(1,903)  $(2,478)  $(1,641)
                     
Income tax provision (b)   57    53    117    151 
                     
Effective income tax rate (b/a)   -4.3%   -2.8%   -4.7%   -9.2%

 

The overall effective tax rate is the result of the combination of income and losses in each of our tax jurisdictions, which is particularly influenced by the fact that we have recorded a full reserve against our deferred tax assets pertaining to cumulative historical losses for our U.S. operations and our U.K. subsidiary, as management does not believe, at this time, that it is more likely than not that we will realize the benefit of these losses. We have substantial net operating loss (“NOL”) carryforwards which offset taxable income in the United States. However, we remain subject to the alternative minimum tax in the United States. The alternative minimum tax limits the amount of NOL available to offset taxable income to 90% of the current year income. We incurred $0 and $12 in alternative minimum tax for the three and six months ended June 30, 2013, respectively, and no alternative minimum tax in 2014. The payment of the alternative minimum tax normally results in the establishment of a deferred tax asset; however, we have established a valuation allowance for this related deferred tax asset.

 

As of June 29, 2014, we have foreign and domestic NOL’s totaling approximately $64,700 available to reduce future taxable income. Foreign loss carryforwards of approximately $12,600 can be carried forward indefinitely. The domestic NOL carryforward of $52,100 expires from 2019 through 2034. The domestic NOL carryforward includes approximately $2,949 for which a benefit will be recorded in capital in excess of par value when realized.

 

Our unrecognized tax benefits related to uncertain tax positions at March 30, 2014 relate to Federal and various state jurisdictions. The following table summarizes the activity related to our unrecognized tax benefits:

 

   Six month periods ended
   June 29,  June 30,
   2014  2013
Balance – beginning of period  $7,296   $7,508 
Increases related to current year tax positions   —      —   
Increases related to prior year tax positions   —      —   
Decreases related to prior year tax positions   —      —   
Expiration of statute of limitations for assessment of taxes   —      —   
Settlements   —      —   
Balance – end of period  $7,296   $7,508 

 

The unrecognized tax benefits balance has been recorded as a decrease in the deferred tax asset relating to our NOL carryforward. Because we have recorded a full valuation allowance against our deferred tax assets, the unrecognized tax benefits balance has no effect on our net (loss) income or financial position, as presented. Interest and penalties would begin to accrue in the period in which the NOL carryforwards related to the uncertain tax positions are utilized. We do not expect our unrecognized tax benefits to change significantly over the next twelve months.

 

We file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. We are routinely subject to examination by taxing authorities in these various jurisdictions. Our U.S. tax matters for the years 2000 through 2013 remain subject to examination by the Internal Revenue Service (“IRS”) and by various state and local tax jurisdictions due to our NOL carryforwards. Our tax matters for the years 2007 through 2013 remain subject to examination by the respective foreign tax jurisdiction authorities. The IRS has completed the examination of our 2009 U.S. federal income tax return, with no resulting material effect to our financial position or results of operations, and has initiated an examination of our 2011 and 2012 U.S. federal income tax returns.