Income Taxes

12 Months Ended

Jan. 01, 2012

Income Taxes [Abstract]

Income Taxes

12.  Income Taxes

The provision (benefit) for income taxes for fiscal 2011 and fiscal 2010 consist of the following (in thousands):

	For the Fiscal Year Ended
	2011		2010
Current:
Federal	$	(3,316)	$	(1,844)
State		82		1,093
		(3,234)		(751)
Deferred:
Federal		—		2,974
State		—		(1,069)
		—		1,905
Total:	$	(3,234)	$	1,154

Reconciliations of the statutory federal income tax rate to the Company’s actual rate based on earnings (loss) before income taxes for fiscal 2011 and fiscal 2010 are summarized as follows:

	For the Fiscal Year Ended
	2011			2010
Statutory federal tax rate		(35.0)	%		(35.0)	%
State income taxes, net of federal income taxes		1.0			(2.8)
Change in valuation allowance		(31.1)			109.8
Permanent tax differences		0.8			0.5
Net operating loss and capital loss carryforwards		—			0.3
Resolution of prior year tax matters		0.6			(0.6)
Uncertain tax position		—			(62.8)
Other, net		—			(0.3)
		(63.7)	%		9.1	%

The Company’s deferred income tax (liabilities) and assets are as follows (in thousands):

	January 1,     2012		January 2,     2011
Current deferred tax asset:
Accruals and reserves	$	221	$	334
Valuation allowances		(221)		(334)
	$	—	$	—
Non-current deferred taxes:
Development costs	$	13,146	$	11,221
Deferred interest on notes receivable		12,396		31,056
Unrealized gains on notes receivable		(857)		(25,086)
Allowance for impaired notes receivable		7,678		8,121
Stock compensation expense		1,435		1,636
Amortization and impairment of intangibles		8,754		14,156
Uncertain tax position		—		3,189
Net operating loss carryforwards		541		521
Investment in unconsolidated investee		(171)		—
Other		(109)		(10)
Valuation allowances		(42,813)		(44,804)
	$	—	$	—

As of January 1, 2012, management has evaluated all evidence and has determined that cumulative net losses generated over the past three years outweigh the current positive evidence that management believes exists surrounding its ability to generate future income. Therefore, management determined that a 100% valuation allowance against deferred tax assets was appropriate at January 1, 2012.

As of January 1, 2012, Lakes had approximately $9.5 million of state net operating loss carryforwards. Lakes’ state net operating loss will expire at various times depending on specific state laws.

On March 17, 2011, Lakes and the Louisiana Department of Revenue entered into a settlement agreement whereby Lakes agreed to pay the Louisiana Department of Revenue $9.0 million in full and final payment. In return, the Louisiana Department of Revenue agreed to dismiss the suit and forever discharge Lakes from all proceedings and liabilities relating to this matter. As of January 2, 2011, income tax payable includes $9.0 million related to this settlement agreement. This tax liability was considered an unrecognized tax benefit which affected Lakes’ effective tax rate when it was recognized. Interest related to such uncertain tax position included as a component of income tax expense, amounted to approximately $0.5 million for fiscal 2010. A tax benefit was recognized in fiscal 2010 of $8.5 million for the adjustment to the liability for uncertain tax positions. Lakes issued the payment of $9.0 million related to the settlement agreement during March 2011.

A reconciliation of the unrecognized tax benefits for fiscal 2011 and fiscal 2010 is as follows:

Balance at January 3, 2010	$	6,917
Additions for tax positions of prior years		1,083
Balance at January 2, 2011(*)	$	8,000
Payment		(8,000)
Balance at January 1, 2012	$	—

(*) Of the $9.0 million Settlement Agreement discussed above, $8.0 million relates to taxes and $1.0 million relates to fees.

Lakes files a consolidated U.S. federal income tax return, as well as income tax returns in various states. The U.S. federal income tax returns for the years 2008 – 2010 and state income tax returns in various states for the years 2007 – 2010 remain subject to examination. The Company is currently under IRS audit for the 2009 tax year and no adjustments have been made in the current period.