Income Taxes

12 Months Ended

Dec. 28, 2012

Income Taxes [Abstract]

Income Taxes

6. Income Taxes

U.S. and foreign components of income (loss) before income taxes were (in thousands):

	Year Ended
	December 28, 2012			December 30, 2011		December 31, 2010
U.S. operations	$	(5,546	)	$	4,839	$	14,585
Foreign operations		12,243			17,601		10,225
Total pretax income	$	6,697		$	22,440	$	24,810

The provision for taxes on income consisted of the following (in thousands):

	Year Ended
	December 28, 2012			December 30, 2011			December 31, 2010
Current:
Federal	$	537		$	1,503		$	2,241
State		139			324			1,186
Foreign		3,608			3,157			1,766
Total current		4,284			4,984			5,193
Deferred:
Federal		(2,141	)		(4,257	)		—
State		(418	)		(2,282	)		—
Foreign		(181	)		261			(480	)
Total deferred		(2,740	)		(6,278	)		(480	)
Total provision (benefit)	$	1,544		$	(1,294	)	$	4,713

Significant components of net deferred tax assets and deferred tax liabilities for federal and state income taxes were as follows (in thousands):

	December 28, 2012			December 30, 2011
Net current deferred tax asset (liability):
Inventory valuation and basis difference	$	2,236		$	1,347
Other accrued expenses		804			742
State taxes		(119	)		(77	)
		2,921			2,012
Valuation allowance		(65	)		(20	)
Net current deferred tax asset		2,856			1,992
Net non-current deferred tax asset (liability):
Deferred rent		5			8
Other accrued expenses		4,755			3,183
Depreciation		1,187			842
Net operating losses		2,271			1,853
State taxes		(798	)		(699	)
		7,420			5,187
Valuation allowance		(786	)		(421	)
Net non-current deferred tax asset:		6,634			4,766
Net deferred tax assets	$	9,490		$	6,758

The effective tax rate differs from the federal statutory tax rate as follows:

	Year Ended
	December 28, 2012			December 30, 2011			December 31, 2010
Federal income tax provision at statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		(2.8	)%		0.8	%		3.2	%
Effect of foreign operations		(15.8	)%		(11.4	)%		(9.3	)%
Valuation allowance		6.1	%		(29.8	)%		(5.0	)%
Other		1.6	%		0.6	%		(3.9	)%
Effective income tax rate		23.1	%		(5.8	)%		19.0	%

The provision for the year ended December 28, 2012, includes an increase of $0.4 million to the valuation allowance on the deferred tax assets of one of its China subsidiaries as a result of an increase in deferred tax assets for which there is a full valuation allowance. The provision for the year ended December 30, 2011, includes a partial release of valuation allowance of $6.7 million (see discussion below). The provision for the year ended December 31, 2010, includes a reversal of $0.9 million of previously established tax liability related to the Company’s uncertain tax positions due to the finalization of the Company’s tax returns for the period 2006 through 2009 by the Internal Revenue Service, and a partial release of valuation allowance of $1.2 million (see discussion below).

Undistributed earnings of the Company’s foreign subsidiaries at December 28, 2012 are considered to be indefinitely reinvested and no provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

Balance as of January 1, 2010	$	920
Increases related to prior year tax positions		2
Expiration of the statute of limitations for the assessment of taxes		(883	)
Balance as of December 31, 2010	$	39
Increases related to prior year tax positions		108
Increases related to current year tax positions		24
Expiration of the statute of limitations for the assessment of taxes		(39	)
Balance as of December 30, 2011	$	132
Increases related to prior year tax positions		0
Increases related to current year tax positions		13
Expiration of the statute of limitations for the assessment of taxes		(36	)
Balance as of December 28, 2012	$	109

The Company’s gross liability for unrecognized tax benefits as of December 28, 2012, December 30, 2011 and December 31, 2010 was $109,000, $132,000 and $39,000, respectively. Increases or decreases to interest and penalties on uncertain tax positions are included in income tax provision (benefit) in the Consolidated Statements of Operations. Interest related to uncertain tax positions were $8,000 for the periods ended December 28, 2012, $10,000 for the periods ended December 30, 2011 and $7,000 for the periods ended December 31, 2010. Although it is possible some of the unrecognized tax benefits could be settled within the next twelve months, the Company cannot reasonably estimate the outcome at this time.

The determination of the Company’s tax provision is subject to judgments and estimates. The carrying value of our net deferred tax assets, which is made up primarily of tax deductions, assumes we will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, we make judgments with respect to whether we are likely to generate sufficient future taxable income to realize these assets. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position.

As of December 28, 2012, the Company maintained a full valuation allowance on one of its China subsidiaries in the amount of $0.9 million as the Company believes it is more likely than not that the deferred tax asset will not be realized. In order to reverse a valuation allowance, accounting principles generally accepted in the United States of America suggests that the Company review the cumulative income/loss in recent years as well as determine the Company’s ability to generate sufficient future taxable income to realize the Company’s net deferred tax assets During the fourth quarter of fiscal 2011 the Company reversed all of the valuation allowance related to the Company’s U.S. federal and state deferred tax assets in the amount of $6.7 million as the Company determined that it was more likely than not that it would generate sufficient taxable income to realize its deferred tax assets.

The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company’s 2009 through 2011 federal income tax returns are open to audit through the statute of limitations by the Internal Revenue Service. The Company’s 2008 through 2012 state income tax returns are open to audit by the California Franchise Tax Board. The Company is also subject to examination in various other jurisdictions for various periods. The Company’s federal returns are still open for fiscal years 2004 through 2007 due to the carryback of losses.

The Company is currently experiencing a tax holiday related to its Singapore subsidiary that will expire for tax years beginning January 2015. The Company’s Singapore subsidiary recorded a net profit, considered insignificant by the Company, for the year ended December 28, 2012.