Income Taxes

The provision (benefit) for income taxes on income from continuing operations was comprised of the following:



	Year ended
	December 28, 2014			December 29, 2013			December 30, 2012
Current:
Federal	$	—		$	(4,325	)	$	(772	)
State	217			212			78
	217			(4,113		)	(694		)

Deferred:
Federal	(11,330		)	(5,561		)	(10,055		)
State	(1,448		)	(1,347		)	(1,407		)
	(12,778		)	(6,908		)	(11,462		)
Valuation allowance	24,326			624			2,063
Provision (benefit) for income taxes	$	11,765		$	(10,397	)	$	(10,093	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

The components of deferred income tax assets and liabilities at December 28, 2014 and December 29, 2013 were as follows:



	December 28, 2014			December 29, 2013
Deferred income tax assets:
Deferred income on sale-leaseback of certain real estate	$	5,857		$	6,523
Lease financing obligations	227			212
Postretirement benefit obligations	1,244			1,363
Stock-based compensation expense	273			290
Property and equipment depreciation	4,080			1,348
Federal net operating loss carryforwards	11,091			5,735
State net operating loss carryforwards	3,077			2,686
Goodwill and other intangibles, net	2,641			2,748
Occupancy costs	6,819			5,038
Tax credit carryforwards	9,498			5,721
Other	2,241			1,890
Accrued vacation benefits	2,020			1,939
Accrued workers compensation	992			1,013
Other accruals	1,059			785
Gross deferred income tax assets	51,119			37,291
Less: Valuation allowance	(27,423		)	(2,687		)
Net deferred income tax assets	$	23,696		$	34,604

Deferred income tax liabilities:
Accumulated other comprehensive income-postretirement benefits	$	(34	)	$	(444	)
Inventory and other reserves	(246		)	(272		)
Franchise rights	(23,416		)	(23,868		)
Total deferred income tax liabilities	$	(23,696	)	$	(24,584	)

Reported in Consolidated Balance Sheets as:
Deferred income taxes - current asset	$	1,642		$	3,196
Deferred income taxes - noncurrent asset (liability)	(1,642		)	6,824
Carrying value of net deferred income tax assets	$	—		$	10,020

The Company has performed an assessment of positive and negative evidence regarding the realization of its deferred income tax assets at December 28, 2014 as required by ASC 740. Under ASC 740, the weight given to negative and positive evidence is commensurate only to the extent that such evidence can be objectively verified. ASC 740 also prescribes that objective historical evidence, in particular the Company’s three-year cumulative loss position at December 28, 2014, be given greater weight than subjective evidence, including the Company’s forecasts of future taxable income, which include assumptions that cannot be objectively verified. The Company considered all available positive and negative evidence and determined, based on the required weight of that evidence under ASC 740, that a valuation allowance was needed for all of its net deferred income tax assets at December 28, 2014. As a result, the Company recorded income tax expense of $24.3 million in the fourth quarter of 2014 relative to this valuation reserve.

The Company's federal net operating loss carryforwards expire beginning in 2033. As of December 28, 2014, the Company had federal net operating loss carryforwards of approximately $31.7 million.

The Company determined in 2012 that there were 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 $2.1 million in 2012 and $0.6 million in 2013. The Company’s state net operating loss carryforwards expire beginning in 2017 through 2034. At December 28, 2014, the Company had a valuation allowance of $3.1 million related to state net operating loss carryforwards.

The estimation of future taxable income for federal and state purposes and the Company's ability to realize deferred tax assets can significantly change based on future events and operating results. Thus, recorded valuation allowances may be subject to future changes that could have a material impact on the consolidated financial statements. If the Company determines that it is more likely than not that it will realize these deferred tax assets in the future, the Company will make an adjustment to the valuation allowance at that time.

A reconciliation of the statutory federal income tax benefit to the tax provision (benefit) applied to income from continuing operations for the years ended December 28, 2014, December 29, 2013, and December 30, 2012 was as follows:



	Year ended
	December 28, 2014			December 29, 2013			December 30, 2012
Statutory federal income tax benefit	$	(9,223	)	$	(8,371	)	$	(10,118	)
State income taxes (benefit), net of federal benefit	(749		)	(656		)	(688		)
Stock-based compensation expense	—			—			(657		)
Change in valuation allowances	24,326			624			2,063
Employment tax credits	(2,291		)	(2,298		)	(353		)
Miscellaneous	(298		)	304			(340		)
Provision (benefit) for income taxes	$	11,765		$	(10,397	)	$	(10,093	)

The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At December 28, 2014 and December 29, 2013, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2009 - 2014 remain open to examination by the major taxing jurisdictions to which the Company is subject. In 2014, the Company concluded an examination of its consolidated federal income tax return for the tax years 2009 through 2012. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.