INCOME TAXES

Loss before income taxes is as follows (in thousands):



	Years Ended
	January 3, 2015			December 28, 2013			December 29, 2012
U.S.	$	(268,991	)	$	(37,150	)	$	(42,755	)
Canada	(51,899		)	6,164			9,993
	$	(320,890	)	$	(30,986	)	$	(32,762	)

Income tax (benefit) expense for the periods presented consists of (in thousands):



	Years Ended
	January 3, 2015			December 28, 2013			December 29, 2012
Current:
Federal	$	(14	)	$	(802	)	$	(107	)
State	16			657			328
Foreign	3,998			4,155			7,445
	4,000			4,010			7,666
Deferred:
Federal	(20,844		)	397			(240		)
State	(3,084		)	(467		)	(478		)
Foreign	(7,273		)	(1,433		)	(1,343		)
	(31,201		)	(1,503		)	(2,061		)
Income tax (benefit) expense	$	(27,201	)	$	2,507		$	5,605

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

Significant components of the Company’s deferred income taxes are as follows (in thousands):



	January 3, 2015			December 28, 2013
Deferred income tax assets:
Medical benefits	$	1,708		$	1,642
Allowance for doubtful accounts	3,278			3,420
Pension and other postretirement plans	12,430			7,413
Inventory costs	1,592			1,885
Warranty costs	33,819			34,611
Net operating loss carryforwards	162,925			133,783
Foreign tax credit carryforwards	4,455			4,455
Accrued expenses and other	11,437			11,518
Total deferred income tax assets	231,644			198,727
Valuation allowance	(111,888		)	(74,075		)
Net deferred income tax assets	119,756			124,652
Deferred income tax liabilities:
Depreciation	15,815			19,151
Intangible assets	157,546			200,481
Tax liability on unremitted foreign earnings	10,496			1,868
Gain on debt extinguishment	17,933			22,241
Other	5,149			4,871
Total deferred income tax liabilities	206,939			248,612
Net deferred income tax liabilities	$	(87,183	)	$	(123,960	)

As of January 3, 2015, the Company had U.S. federal net operating loss (“NOL”) carryforwards of $408.1 million and foreign tax credit carryforwards of $4.5 million. The U.S. NOL carryforwards expire in years 2031 through 2034 and the foreign tax credit carryforward expires in year 2017. In addition, the Company has tax benefits related to state NOL carryforwards of $20.6 million, which expire in the years 2015 through 2034.

As of January 3, 2015, the Company had total federal, state, and foreign deferred tax assets before valuation allowances of $199.6 million, $25.7 million, and $6.3 million, respectively. ASC 740 requires that a valuation allowance be recorded against deferred tax assets when it is more likely than not that some or all of a company’s deferred tax assets will not be realized based on available positive and negative evidence. To the extent the reversal of deferred tax liabilities is relied upon in the Company’s assessment of the realizability of deferred tax assets, the Company has determined that they will reverse in the same period and jurisdiction as the temporary differences giving rise to the deferred tax assets. Deferred tax liabilities related to non-amortizable intangibles or otherwise not reversing, were not offset against deferred tax assets. The Company has not identified any significant U.S. tax planning strategies to support the utilization of deferred tax assets. After reviewing all available positive and negative evidence as of January 3, 2015 and December 28, 2013, the Company recorded a full valuation allowance against its U.S. net federal deferred tax assets since the Company is in a three-year cumulative loss position in the U.S. and it was unable to identify any strong positive evidence, other than the reversal of the appropriate deferred tax liabilities. Therefore, as of January 3, 2015, $119.8 million of the total deferred tax assets of $231.6 million was considered more-likely- than-not to be realized, resulting in a valuation allowance of $111.9 million. Of this amount, $96.9 million relates to U.S. federal and $15.0 million relates to state jurisdictions. The net valuation allowance provided against these U.S. net deferred tax assets during 2014 increased by $37.8 million. Of this amount, $32.1 million was recorded as an increase in 2014 provision for income taxes with the remainder being reflected through other comprehensive income. The Company reviews its valuation allowance related to deferred tax assets and will reverse this valuation allowance, partially or totally, when, and if, appropriate under ASC 740. The Company is in a net deferred tax liability position in Canada. The future reversal of existing Canadian deferred tax liabilities are of the appropriate character and timing such that all of its Canadian deferred tax assets are considered more likely than not realizable.

The reconciliation of the statutory rate to the Company’s effective income tax rate for the periods presented is as follows:



	Years Ended
	January 3, 2015		December 28, 2013		December 29, 2012
Statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
State income tax, net of federal income tax benefit	0.5	%	(2.8	)%	(0.3	)%
Tax liability on remitted and unremitted foreign earnings	2.4	%	16.9	%	12.4	%
Goodwill impairment	15.7	%	—	%	—	%
Foreign rate differential	0.4	%	(1.8	)%	(2.8	)%
Valuation allowance	7.8	%	28.6	%	32.7	%
Foreign tax credit and withholding taxes	0.3	%	0.8	%	7.3	%
Prior year assessments	0.1	%	2.8	%	—	%
Other	(0.7	)%	(1.4	)%	2.8	%
Effective rate	(8.5	)%	8.1	%	17.1	%

It is the Company’s intent to remit all earnings from its foreign subsidiary and as of January 3, 2015, the Company had reflected all U.S. tax costs of remittance of such earnings in its financial statements.

A reconciliation of the unrecognized tax benefits for the periods presented is as follows (in thousands):



	Years Ended
	January 3, 2015			December 28, 2013			December 29, 2012
Unrecognized tax benefits, beginning of year	$	7,040		$	7,146		$	7,860
Gross increase for tax positions of prior years	—			—			707
Gross increases for tax positions of the current year	107			147			81
Gross decreases for tax positions of prior years	(6,133		)	(253		)	(142		)
Settlements	—			—			(1,360		)
Unrecognized tax benefits, end of year	$	1,014		$	7,040		$	7,146

As of January 3, 2015, the accrued interest related to uncertain tax positions is immaterial. The Company recorded $0.1 million of accrued interest related to uncertain tax positions as of December 28, 2013.

As of January 3, 2015, the Company is subject to U.S. federal income tax examinations for the tax years 2011 through 2013 and to non-U.S. income tax examinations for the tax years of 2011 through 2013. In addition, the Company is subject to state and local income tax examinations for the tax years 2009 through 2013. The Company had unrecognized tax benefits and accrued interest that would affect the Company’s effective tax rate if recognized of approximately $1.0 million and $1.2 million as of January 3, 2015 and December 28, 2013, respectively. The Company is currently undergoing examinations of certain state income tax returns. During 2012, the Company agreed to U.S. federal tax adjustments of $1.3 million related to the 2009 tax year. The final outcome of any other examinations are not yet determinable; however, management anticipates that adjustments to unrecognized tax benefits, if any, would not result in a material change to the results of operations, financial condition, or liquidity.

The Company and its U.S. subsidiaries are included in the consolidated income tax returns filed by Associated Materials Group, Inc., its indirect parent company. The Company and each of its subsidiaries entered into a tax sharing agreement under which federal income taxes are computed by the Company and each of its subsidiaries on a separate return basis. As of January 3, 2015 and December 28, 2013, there were no amounts due to or payable from Associated Materials Group, Inc. related to the tax sharing agreement.