Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 29, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
 
For 2012, we recorded a provision for income taxes of $83.  The tax provision recorded in 2012 is primarily related to the tax effect of the cumulative undistributed earnings from our Canadian subsidiary as it was determined that our investment in Canada is no longer permanent in duration. In 2012, we recognized a net deferred tax liability of $114 consisting of a deferred liability of $994 for undistributed earnings and a deferred tax assets of $880 for foreign tax credits related to the undistributed earnings. In 2012, we recorded a valuation allowance of $1,154 primarily against the NOLs generated during the year as it was determined to be more-likely-than-not that we will not recognize the benefit of the net loss incurred in 2012.

For 2011, we recorded a provision for income taxes of $1,367. At January 1, 2011, we recorded a full valuation allowance against our U.S. net deferred tax assets due to the uncertainty of their realization. During the second quarter of 2011, we concluded, based on the assessment of all available evidence, including previous three-year cumulative income before infrequent and unusual items, a history of generating income before taxes for six consecutive quarters and estimates of future profitability, that it was more-likely-than-not that we would be able to realize a portion of our deferred tax assets in the future and recorded a $917 non-cash reversal of our deferred tax asset valuation allowance.  During 2011, we also adjusted our deferred tax assets and related valuation allowance by $219 primarily to state our remaining federal net operating loss carryforwards at the proper amounts.  This adjustment had no material impact on our recorded income tax provision for the year ended December 31, 2011.  In 2011, we recorded $2,025 and $259 tax provisions related to taxable income from our U.S. and Canadian operations, respectively, which were partially offset by the non-cash reversal of a portion of our deferred tax asset valuation allowance.  In 2011, we did not recognize a deferred tax liability related to cumulative undistributed earnings of our Canadian subsidiary because the earnings were determined to be permanent in duration. During 2011, we recognized $53 of windfall tax benefits from share-based compensation, which was recorded to Common Stock on the consolidated balance sheets.
 
The provision for income taxes for fiscal years 2012 and 2011 consisted of the following:
 
For the fiscal year ended
 
December 29, 2012
 
December 31, 2011
Current tax expense:
 

 
 

Federal
$
(248
)
 
$
266

State
26

 
140

Foreign
(62
)
 
257

Current tax expense
$
(284
)
 
$
663

Deferred tax expense — domestic
365

 
702

Deferred tax expense — foreign
2

 
2

Provision for income taxes
$
83

 
$
1,367


 
A reconciliation of our provision for income taxes with the federal statutory tax rate for fiscal years 2012 and 2011 is shown below:
 
For the fiscal year ended
 
December 29, 2012
 
December 31, 2011
Income tax expense at statutory rate
$
(1,282
)
 
$
1,981

State tax expense, net of federal tax effect
(130
)
 
303

Permanent differences
194

 
360

Change in valuation allowance
1,154

 
(15
)
Recognition of tax effect for the cumulative undistributed earnings from Canada
114

 
—

Reversal of deferred tax asset valuation allowance
—

 
(917
)
Adjustment of deferred tax assets
58

 
—

Utilization of foreign tax credit
—

 
(256
)
Foreign income tax payable true-up
(57
)
 
—

Foreign rate differential
—

 
(47
)
Other
32

 
(42
)
 
$
83

 
$
1,367



Income before provision for income taxes and noncontrolling interest was derived from the following sources for fiscal years 2012 and 2011 as shown below:
 
For the fiscal year ended
 
December 29, 2012
 
December 31, 2011
United States
$
(4,356
)
 
$
5,279

Canada
(17
)
 
810

 
$
(4,373
)
 
$
6,089


 
The components of net deferred tax assets (liabilities) as of December 29, 2012, and December 31, 2011, are as follows:
 
December 29, 2012
 
December 31, 2011
Deferred tax assets:
 
 
 
Net operating loss carryforwards
$
689

 
$
290

Federal and state tax credits
464

 
—

Reserves
414

 
191

Accrued expenses
254

 
203

Share-based compensation
286

 
227

Deferred gain
331

 
521

Investments
—

 
103

Property and equipment
25

 
201

Total deferred tax assets
2,463

 
1,736

Deferred tax liabilities:


 
 

Prepaid expenses
(146
)
 
(69
)
Property and equipment
(50
)
 
(262
)
Investments
(1,124
)
 
(1,049
)
Total deferred tax liabilities
(1,320
)
 
(1,380
)
Valuation allowance
(2,185
)
 
(1,031
)
Net deferred tax liabilities
$
(1,042
)
 
$
(675
)

 
The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows:
 
December 29, 2012
 
December 31, 2011
Current assets
$
—

 
$
173

Non-current assets
25

 
27

Current liabilities
(146
)
 
—

Non-current liabilities
(921
)
 
(875
)
 
$
(1,042
)
 
$
(675
)

 
Future utilization of net operating loss (“NOL”) and tax credit carryforwards is subject to certain limitations under provisions of Section 382 of the Internal Revenue Code.  This section relates to a 50 percent change in control over a three-year period.  We believe that the issuance of Common Stock during 1999 resulted in an “ownership change” under Section 382.  Accordingly, our ability to use NOL and tax credit carryforwards generated prior to February 1999 is limited to approximately $56 per year.

At December 29, 2012, we had federal NOL carryforwards of approximately $2,311 ($1,090 of which is subject to IRC section 382 limitations), alternative minimum tax carryforwards of $322 and a foreign tax credit carryforward of $256.  We also had state NOL carryforwards of $6,837 ($713 of which is subject to IRC section 382 limitations).  The NOL carryforwards are available to offset future taxable income or reduce taxes payable through 2029.  These loss carryforwards began expiring in 2011.  We previously wrote off NOLs related to IRC section 382 limits against the valuation allowance.  At December 29, 2012, we had $1,221 of federal NOL carryforwards not subject to IRC section 382 limitations that begin expiring in 2018.
 
We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position.  For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% percent likelihood of being realized upon ultimate settlement with the relevant tax authority.  As of December 29, 2012, and December 31, 2011, we did not have any material uncertain tax positions.
 
It is our practice to recognize interest related to income tax matters as a component of interest expense and penalties as a component of selling, general and administrative expense.  As of December 29, 2012, and December 31, 2011, we had an immaterial amount of accrued interest and penalties.
We are subject to income taxes in the U.S. federal jurisdiction, foreign jurisdictions and various state jurisdictions.  Tax regulations from each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.  With few exceptions, we are no longer subject to U.S. federal, foreign, state or local income tax examinations by tax authorities for the years before 2009.  We are not currently under examination by any taxing jurisdiction.
 
We had no significant unrecognized tax benefits as of December 29, 2012, that would reasonably be expected to affect our effective tax rate during the next twelve months.