8. Income Taxes

Our Company applies FASB ASC topic 740, “Income Taxes” or ASC 740 which addresses the determination of whether tax benefits claimed, or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, our Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

Our Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Changes in unrecognized benefits in any given year are recorded as a component of deferred tax expense. Interest accrued on unrecognized tax benefits at December 28, 2013 and December 29, 2012 was $771 and $522, respectively. At December 28, 2013 and December 29, 2012, there were $2,874 and $3,123 of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

A reconciliation of the total gross amount of unrecognized tax benefits at December 28, 2013 and December 29, 2012 is as follows:

	2013			2012
Beginning balance	$	3,374		$	3,357
Changes for tax positions of the current year		(383	)		—
Changes for tax positions of the prior year		28			17
Ending balance	$	3,019		$	3,374

Our Company is generally subject to tax examination for a period of three years after tax returns are filed. Therefore, the statute of limitations remains open for tax years 2010 and forward. However, when a company has net operating loss carryovers, those tax years remain open until three years after the net operating losses are utilized. Therefore, the tax years for Bell Sports, Inc. remain open back to 2001. The tax years for Riddell remain open back to 2004.

Income tax expense (benefit) consisted of the following for December 28, 2013, December 29, 2012 and December 31, 2011:

	2013			2012			2011
Current tax expense (benefit):
Federal	$	—		$	(415	)	$	413
State		628			1,228			1,560
Foreign		1,286			1,576			627
		1,914			2,389			2,600
Deferred tax (benefit) expense:
Federal		(3,773	)		1,454			6,215
State		128			(490	)		934
Foreign		(100	)		(251	)		(52	)
		(3,745	)		713			7,097
Income tax (benefit) expense	$	(1,831	)	$	3,102		$	9,697

A reconciliation of income taxes computed at the United States federal statutory income tax rate (35%) to the provision for income taxes reflected in the Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 28, 2013, December 29, 2012 and December 31, 2011 is as follows:

	2013			2012			2011
Provision for income taxes at United States federal statutory rate of 35%	$	(5,924	)	$	(111	)	$	6,904
State and local income taxes, net of federal income tax effect		204			402			1,631
Taxes on foreign income which differ from the United States statutory rate		1,383			1,290			(339	)
Non-deductible equity compensation expense		3,244			1,767			1,227
Tax effect of other permanent items		(147	)		(860	)		56
Unrecognized tax benefits activity		(249	)		5			29
Change in valuation allowance		510			160			660
Foreign tax credits		(573	)		—			—
Other		(279	)		449			(471	)
	$	(1,831	)	$	3,102		$	9,697

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities. The significant components of deferred income tax assets and liabilities consist of the following at December 28, 2013 and December 29, 2012:

	2013			2012
Deferred income tax assets:
Receivable reserves	$	3,183		$	3,518
Inventory		5,575			6,803
Accrued expenses and reserves		16,475			12,122
Net operating loss carryforwards		32,965			29,596
Foreign tax credits		3,871			—
Other		2,399			5,526
Total deferred tax assets		64,468			57,565
Deferred income tax liabilities:
Property, plant and equipment		6,372			6,873
Intangible assets		90,413			85,208
Total deferred tax liabilities		96,785			92,081
Valuation allowance		(8,005	)		(7,333	)
Total net deferred income tax liability	$	(40,322	)	$	(41,849	)

At December 28, 2013, our Company had estimated net operating loss carryforwards available for U.S. federal, state and foreign income tax purposes of approximately $90,687, $60,566 and $2,103, respectively. Based on Internal Revenue Code Section 382 relating to changes in ownership of our Company, utilization of the federal net operating loss carryforwards is limited to $72,141, which is the primary reason for a valuation allowance of $6,513. Also included in the 2013 deferred tax asset for the net operating losses of $32,965 are unrecognized tax benefits of $2,901. These net operating loss carryforwards will begin to expire in 2021 through 2029. An additional valuation allowance of $142 was established in the current year relating to net operating losses and capital loss carryforwards in foreign jurisdictions, including Canada and Sweden, resulting in a total valuation allowance of $972 for these jurisdictions. A valuation allowance of $520 was established against the separate company state NOLs of Riddell, Inc. and Easton Sports, Inc.

Our Company files a U.S. federal income tax return as a member of a U.S. consolidated group with EB Sports as the common parent. We record our provision for income taxes on a separate return basis which excludes any impact of EB Sports. As a result of filing our tax returns on a consolidated basis with EB Sports, there are additional net operating loss carryforwards that would be available to offset future income of our Company and EB Sports. To the extent these net operating losses are utilized to offset future income of our Company, a tax sharing agreement would be entered into providing that the tax benefit received by our Company ascribed to those net operating losses be recorded as either a payable to EB Sports or a contribution of capital by EB Sports to our Company.

(Loss) income before income taxes, consisted of the following:

	2013			2012			2011
Domestic	$	(10,247	)	$	(3,106	)	$	16,475
Foreign		(6,725	)		2,788			3,250
(Loss) income before income taxes	$	(16,972	)	$	(318	)	$	19,725

Our Company has cumulative undistributed earnings of non-U.S. subsidiaries of $15,912 for which U.S. taxes have not been provided. These earnings are intended to be permanently reinvested outside the U.S. If future events necessitate that these earnings should be repatriated to the U.S., an additional tax expense and related liability may be required.

Cash paid for income taxes was $2,078, $2,066 and $3,465 for 2013, 2012 and 2011, respectively.