Income Taxes

The benefit for income taxes for the three and nine months ended September 29, 2013 and September 30, 2012 was comprised of the following:



	Three Months Ended						Nine Months Ended
	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012
Current	$	(4,269	)	$	(310	)	$	(4,282	)	$	(386	)
Deferred	2,532			(3,537		)	(4,438		)	(5,636		)
Valuation allowance	—			1,435			—			1,435
	$	(1,737	)	$	(2,412	)	$	(8,720	)	$	(4,587	)

The benefit for income taxes for the three and nine months ended September 29, 2013 was derived using an estimated effective annual income tax rate for all of 2013 of 39.9%, which excluded any discrete tax adjustments. In January 2013, the United States Congress authorized, and the President signed into law, certain federal tax credits that were reflected in the Company's Federal tax return for 2012. However, since the law was enacted in 2013, the financial statement benefit of such credits totaling $1.0 million was recorded in the first quarter of 2013 and is included in the benefit for income taxes in the consolidated statement of operations and comprehensive loss for the nine months ended September 29, 2013. Other discrete tax adjustments increased the benefit for income taxes by $0.1 million in the three months ended September 29, 2013 and decreased the benefit for income taxes by $0.3 million in the nine months ended September 29, 2013.

The benefit for income taxes for the three and nine months ended September 30, 2012 was derived using an estimated effective annual income tax rate for all of 2012 of 41.9%, which excluded any discrete tax adjustments.

The Company is expecting it will have a federal net operating loss carryforward of approximately $23 million for 2013, which will expire in 2033. In addition, the Company has federal tax credit carryforwards of $3.4 million which expire beginning in 2031.

The Company is required to perform an assessment of positive and negative evidence regarding the realization of the net deferred income tax assets in accordance with ASC 740. As part of this process, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income and recent financial operations, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred income tax asset. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which such evidence can be objectively verified. In evaluating the objective evidence provided by historical results, the Company considers (among other things) whether the past three years of pre-tax income from continuing operations would yield a cumulative loss position, as well as forecasts of expected operating results for the future years over the carryforward period. The Company has incurred losses in the past two fiscal years and expects to incur a loss for the 2013 fiscal year. This will be considered in the assessment of the realization of the federal net deferred tax assets that the Company expects to complete in the fourth quarter 2013.

In the third quarter of 2012, based on an assessment of the available positive and negative evidence, including the Company's historical results, the Company determined that there are uncertainties relative to its ability to utilize the deferred income tax assets associated with certain state net operating loss carryforwards. In recognition of these uncertainties, the Company provided a valuation allowance of $1.4 million on all of the deferred income tax assets as of September 30, 2012 for certain state net operating loss carryforwards, representing a charge to income tax expense during the third quarter of 2012. If the Company determines that it can realize these deferred tax assets in the future, the Company will make an adjustment to the valuation allowance at that time.

Other discrete tax adjustments increased the benefit for income taxes by $0.2 million in the three months ended September 30, 2012 and decreased the benefit for income taxes by $0.1 million in the nine months ended September 30, 2012.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 29, 2013 and December 30, 2012, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions.

In September 2013, the IRS issued final regulations affecting costs to acquire, produce, or improve tangible property and re-proposed regulations affecting dispositions of tangible property. The final regulations are effective for taxable years beginning on or after January 1, 2014. The Company has evaluated the final regulations and does not expect the adoption of the regulations to have a material impact on its consolidated financial statements.

The tax years 2009-2012 remain open to examination by the major taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to the uncertainties regarding the timing of any examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.