INCOME TAXES

Deferred income taxes arise from temporary difference between the tax and financial statement recognition of revenue and expenses. The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In evaluating whether it is more likely than not that some or all of the Company’s deferred tax assets will not be realized, it considers all available positive and negative evidence, including recent year’s operational results which is objectively verifiable evidence. As a result of its evaluation of the realizability of its deferred tax assets as of April 6, 2013, the Company has concluded, based upon all available evidence, that it is more likely than not that the majority of its deferred tax assets will not be realized. Accordingly, the Company has recorded a non-cash charge of $31.4 million to establish a $27.5 million valuation allowance against the majority of its deferred tax assets as well as $3.9 million to recognize the fiscal 2013 year to date impact of establishing the valuation allowance. Separately, the tax benefit related to the current quarter losses is also not recognized, due to the recording of the valuation allowance. As a result, the Company’s effective tax rate for the third quarter fiscal 2013 is not comparable to the effective tax rate for the third quarter fiscal 2012. The Company will continue to maintain a valuation allowance against its deferred tax assets until the Company believes it is more likely than not that these assets will be realized in the future. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the more likely than not standard, the valuation allowance would be reversed accordingly in the period that such determination is made.