Income Taxes

6 Months Ended

Jul. 03, 2011

Income Taxes

Income Taxes

Note C – Income Taxes

At the end of each interim period, companies are generally required to estimate their annual effective income tax rate and provide for income taxes by applying that rate to year-to-date operating results.  For the first half of 2011, the Company's income tax provision is based on an estimated effective tax rate of 21.1% for fiscal 2011. Because the Company was unable as of the end of the first six months of 2010 to make what it believed was a reliable estimate of the annual effective tax rate for 2010, income taxes for the first six months of 2010 were calculated based on the actual effective rate computed for that period. In addition, in the second quarter of 2010 the Company recorded income tax benefits of approximately $500,000 related to tax strategies which it had determined would be implemented in connection with accelerating certain tax deductions for the 2009 tax year.

In connection with the preparation of its financial statements for fiscal year 2009, the Company determined that a valuation allowance for substantially all of its deferred tax assets was necessary in order to reflect the Company's assessment of its ability to realize the benefit of those assets.  Such valuation allowance has been maintained as of July 3, 2011 and, as long as the Company maintains a valuation allowance for all, or substantially all, of its net deferred tax assets, the Company's income tax provisions will consist of income tax expense currently payable or the income tax benefit currently receivable which amounts will include the effect of differences between book and taxable income.

The Internal Revenue Service is currently conducting an examination of the Company's federal income tax returns for fiscal years 2008 and 2009.