v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes
10. Income Taxes

The components of income tax expense were as follows:

 

                         
    Fiscal Year Ended  
    December 31,
2011		     January 1,
2011		     January 2,
2010		  
    (In thousands)  

Current

                        

Federal

   $ 10,088     $ 14,353     $ 5,019  

State

     1,600       1,685       369  

Foreign

     196       112       42  
   

 

 

    

 

 

    

 

 

  

Total current tax provision

     11,884       16,150       5,430  

Deferred

                        

Federal

     2,166       (4,196 )      (3,404 ) 

State

     (700 )      (3,494 )      —  
   

 

 

    

 

 

    

 

 

  

Total deferred tax provision

     1,466       (7,690 )      (3,404 ) 
   

 

 

    

 

 

    

 

 

  

Total income tax provision

   $ 13,350     $ 8,460     $ 2,026  
   

 

 

    

 

 

    

 

 

  

An immaterial provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries that the Company expects to distribute in 2012. For the remaining undistributed earnings of non-U.S. subsidiaries, no provision has been made for deferred taxes as these earnings have been indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability on these undistributed earnings is not practicable. As of December 31, 2011, a deferred tax liability has not been established for approximately $0.1 million of cumulative undistributed earnings of non-U.S. subsidiaries, as the Company plans to keep these amounts permanently reinvested overseas.

During the quarter ending January 2, 2010, the Company recorded an out-of-period adjustment in the income tax provision of $0.2 million to correct an error with respect to the earnings of the Company’s India subsidiary. The Company believes that this adjustment did not have a material impact to its full year 2009 results. In addition, management does not believe the adjustment is material to the amounts reported by the Company in previous periods.

 

The components of net deferred tax assets were as follows:

 

                 
    December 31,
2011		     January 1,
2011		  
    (In thousands)  

Net deferred tax assets

                

Current deferred tax assets

                

Reserves and accruals

   $ 15,697     $ 13,253  

Tax credits

     133       —  
   

 

 

    

 

 

  

Total current deferred tax assets

     15,830       13,253  
   

 

 

    

 

 

  

Non-current deferred tax assets

                

Tax credits

     3,027       1,698  

Fixed assets

     —       754  

Stock based compensation

     5,213       5,915  
   

 

 

    

 

 

  

Total non-current deferred tax assets

     8,240       8,367  
   

 

 

    

 

 

  

Current deferred tax liabilities

                

Prepaids

     486       336  
   

 

 

    

 

 

  

Total current deferred tax liabilities

     486       336  
   

 

 

    

 

 

  

Non-current deferred tax liabilities

                

Intangible assets

     127       29  

Fixed assets

     1,986       —  
   

 

 

    

 

 

  

Total non-current deferred tax liabilities

     2,113       29  
   

 

 

    

 

 

  

Total net deferred tax assets

   $ 21,471     $ 21,255  
   

 

 

    

 

 

  

In fiscal 2010, based on recent and expected increased future profitability, the Company released its valuation allowance relating to state deferred tax assets.

The table below summarizes activity relating to the valuation allowance:

 

                                 

Fiscal Year Ended

   Balance at
beginning  of
period		     Additions
Charged to
Costs and
Expenses		     Deductions     Balance
at End
of Period		  
    (In thousands)  

January 2, 2010

   $ 3,452     $ 416       —     $ 3,868  

January 1, 2011

     3,868       —       3,868       —  

December 31, 2011

     —       —       —       —  

The net deferred tax assets as of December 31, 2011 and January 1, 2011 were $21.5 million and $21.3 million, respectively.

As of December 31, 2011, the Company has research and development credits carryforwards available to offset future state taxes of $4.4 million and investment tax credit carryforwards to offset future state taxes of $0.7 million, which expire at various dates from 2012 to 2026. As of January 1, 2011, the Company had research and development credits carryforwards available to offset future state taxes of $2.7 million and investment tax credit carryforwards to offset future state taxes of $0.4 million, which expire at various dates from 2016 to 2025. Under the Internal Revenue Code, certain substantial changes in the Company’s ownership could result in an annual limitation on the amount of these tax carryforwards which can be utilized in future years.

 

The reconciliation of the expected tax (benefit) expense (computed by applying the federal statutory rate to income before income taxes) to actual tax expense was as follows:

 

                         
    Fiscal Year Ended  
    December 31,
2011		     January 1,
2011		     January 2,
2010		  
    (In thousands)  

Expected federal income tax

   $ 18,739     $ 11,891     $ 1,991  

Miscellaneous permanent items

     (13 )      164       125  

State taxes

     543       1,545       94  

Federal and state research credits

     (3,283 )      (997 )      (367 ) 

Domestic production activities deduction

     (2,695 )      —       —  

Non deductible stock compensation

     —       —       259  

Conversion of incentive stock options(1)

     —       —       (346 ) 

Other

     59       (275 )      111  

Increase (decrease) in valuation allowance

     —       (3,868 )      159  
   

 

 

    

 

 

    

 

 

  
    $ 13,350     $ 8,460     $ 2,026  
   

 

 

    

 

 

    

 

 

  

 

 

  (1) The Company recorded a discrete benefit from the conversion of incentive stock options to non-qualified stock options as a result of its stock option exchange program which concluded in the second fiscal quarter of 2009.

Prior to January 1, 2011, the Company had no material unrecognized tax benefits recorded. A summary of the Company’s adjustments to its uncertain tax position is the current year is as follows:

 

         
    Fiscal Year Ended
December 31, 2011		  

Balance at beginning of period

   $ 0  

Increase for tax positions related to the current year

     1,218  

Increase for tax positions related to prior years

     1,221  

Decreases for settlements with applicable taxing authorities

     —  

Decreases for lapses of statute of limitations

     —  
   

 

 

  

Balance at end of period

   $ 2,439  
   

 

 

  

The Company recognizes interest and penalties related to unrecognized tax benefits in its tax provision. As of December 31, 2011, January 1, 2011 and January 2, 2010, there were no material accrued interest or penalties. We anticipate the settlement of federal tax audits may be finalized within the next twelve months and could result in a decrease in our unrecognized tax benefits of up to $1.0 million. If all of our unrecognized tax benefits as of December 31, 2011 were to become recognizable in the future, we would record a $1.9 million benefit to the income tax provision.

We follow the with and without approach for direct and indirect effects of the windfall tax deductions.