NOTE 11 – INCOME TAXES

The income tax expense (benefit) consists of the following:

	2011			2010		2009
Current:
Federal	$	-		$	192	$	(700	)
Foreign		629			111		-
State and local		(264	)		640		(116	)
		-			-		-
		365			943		(816	)
Deferred:
Federal	$	75,068		$	51	$	(8,012	)
Foreign		(104	)		-		-
State and local		16,366			11		(1,850	)
		91,330			62		(9,862	)
Total	$	91,695		$	1,005	$	(10,678	)

Consolidated pretax income (loss) is comprised of the following sources:

	2011		2010		2009

U.S. pretax income (loss)	$	2,197	$	263	$	(25,797	)
Non-U.S. pretax income (loss)		1,800		1,110		(245	)
Total	$	3,997	$	1,373	$	(26,042	)

The significant components of the deferred tax expense (benefit) consist of the following:


	2011			2010			2009

Depreciation	$	(1,859	)	$	(2,271	)	$	(2,332	)
Goodwill and intangible assets		1,276			1,608			1,486
Restructuring		(1,562	)		1,459			(652	)
Pension		(5,080	)		6,867			182
Net operating loss carryforward		1,166			(7,220	)		(8,118	)
Retiree healthcare benefits		9,622			1,870			1,983
Capital loss carryforward		461			177			(962	)
Inventory		(2,468	)		(982	)		(2,194	)
Valuation allowance		89,478			(445	)		-
Other		296			(1,001	)		745
Total	$	91,330		$	62		$	(9,862	)

The Worker, Homeownership, and Business Assistance Act of 2009 allowed the carry back of certain federal net operating losses for up to five years. Under this Act, in 2010 we recovered $625 of alternative minimum tax paid in 2007 and 2008. There are no other recoverable taxes within the five year carryback period.

The components of the current net deferred tax (liability) asset and long-term net deferred tax asset consist of the following:

	January 1,			January 2,
	2012			2011
Deferred tax (liability) asset:
Allowance for doubtful accounts	$	1,162		$	1,038
Inventories		(6,620	)		(9,094	)
Compensation and benefits		5,824			5,863
Other		4,909			4,332
Total current tax asset		5,275			2,139
Less: valuation allowance		(8,162	)		-
Net current (liability) asset	$	(2,887	)	$	2,139

Deferred tax asset:
Depreciation	$	(4,268	)	$	(6,127	)
Goodwill and intangible assets		2,475			3,484
Pension		91,177			56,566
Retiree healthcare benefits		-			9,622
Capital loss carryforwards		14,536			14,997
Net operating loss carryforward		29,875			31,042
Federal tax credit		1,600			1,584
Other		6,184			5,862

Total long-term tax asset		141,579			117,030
Less: valuation allowance		(117,583	)		(14,034	)
Net long-term asset	$	23,996		$	102,996
Net deferred tax asset	$	21,109		$	105,135

At January 1, 2012, the Company has unused U.S. federal and state net operating loss carryforwards of $77,679 and $61,070, generally expiring from 2012 through 2030. In addition, we have a U.S. capital loss carryforward of $1,272 that expires in 2014.

We review the potential future tax benefits of all deferred tax assets on an ongoing basis. The Company concluded after evaluating all positive and negative evidence regarding the potential realization of the Company’s deferred tax assets, a valuation allowance is necessary primarily based on cumulative losses in recent years, (defined as the current and two preceding years) and current year actuarial pension losses. A valuation allowance is being recorded against the entire U.S. net deferred tax asset except for $21,000 related to the pension liability. We are forecasting that the pension liability will be reduced by future actuarial gains prior to funding the related liability; therefore, the deferred tax asset will be realized without the need for future taxable income. Because of the cumulative losses in recent years, the Company is not relying on forecasts of future taxable income to realize any U.S. deferred tax assets.

We also have a Canadian capital loss carryforward of $80,194 that has an indefinite carryforward period. A full valuation allowance has been provided for the tax benefit associated with this capital loss as it is more likely than not that this capital loss will not be utilized.

The reconciliation of the statutory federal income tax rate and the effective tax rate follows:

	2011			2010			2009

Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes		1.7			15.3			4.7
Change in cash surrender value		5.0			(12.5	)		2.2
Meals and entertainment		4.9			12.3			(0.7	)
Change in unrecognized tax benefits		(9.8	)		14.0			-
Adjustment to prior year tax accruals		1.4			20.8			(0.3	)
Foreign statutory rate differential		(2.3	)		(0.4	)		(0.4	)
Rate adjustment to deferred taxes		17.5			-			-
Deficiencies on equity awards		3.6			6.9			(0.7	)
Valuation allowance		2,238.6			(19.8	)		-
Permanent and other items		(1.6	)		1.6			1.2
Effective tax rate		2,294.0	%		73.2	%		41.0	%

State tax expense reflects state tax liabilities derived from a tax base other than net income.

The Company and its subsidiaries file income tax returns in the U.S. federal, various state, and Mexican jurisdictions. With few exceptions, based on expiration of statutes of limitation, the Company is no longer subject to federal income tax examinations by tax authorities for years before 2008 or state, local, or non-U.S. income tax examinations by tax authorities for years before 2007. However, federal and state net operating and capital loss carryforwards generated from 2001 through 2010 are subject to review by taxing authorities in the year utilized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2011			2010		2009

Balance at January 2, 2011	$	1,912		$	1,755	$	1,755
Adjustments for tax positions of prior years		-			157		-
Reductions from lapse of applicable statute of limitations		(486	)		-		-
Settlements		(51	)		-		-
Balance at January 1, 2012	$	1,375		$	1,912	$	1,755

These unrecognized tax benefits, if recognized, would favorably affect the effective income tax rate of a future period or periods unless the benefits are in deferred taxes and reserved with a valuation allowance. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next 12 months.

Our continuing policy is to recognize interest and penalties related to income tax matters in tax expense. The amount of interest and penalty expense recorded in 2011, 2010, and 2009 was not material.

Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries as the Company considers such earnings to be permanently reinvested outside of the United States. The additional U.S. taxable income and tax that would arise on repatriation of the remaining undistributed earnings could be wholly or partially offset by net operating loss carryforwards and foreign tax credits on repatriation. However, it is impractical to estimate the amount of net income and withholding tax that might be payable.