Income Taxes

9 Months Ended

Oct. 02, 2011

Income Taxes [Abstract]

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 nine months of 2011, the Company's income tax provision is based on an estimated effective tax rate of 22.1% for fiscal 2011. It also includes a discrete expense item totaling $132,000 related to completion of the Internal Revenue Service's field examination of the Company's income tax returns for fiscal years 2008 and 2009 and related tax refunds for previous fiscal years and a benefit of $255,000, also recorded as a discrete item, related to the expiration of the statute of limitations associated with previously unrecognized tax benefits and related interest expense. The final results of the Internal Revenue Service's audit of the fiscal 2008 and 2009 income tax returns are subject to final approval by the U.S. Congress Joint Committee on Taxation. As of November 14, 2011, periods subject to examination for the Company's federal income tax returns are the 2008 through 2010 tax years. During the third quarter of 2011, the Internal Revenue Service commenced an employment tax audit related to 2009 and 2010.

Because the Company was unable as of the end of the first nine 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 nine 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. During the third quarter of 2010 the Company recorded additional tax benefits of approximately $2,100,000 related to other tax strategies that were implemented during that period prior to the filing of the 2009 federal tax return. The tax benefits recognized in the third quarter of 2010 included additional depreciation deductions based on an asset cost segregation study completed during the quarter. The Company filed for and received a federal tax refund of approximately $2,900,000 related to tax losses generated in fiscal 2009 and carried back to previous years in which the Company had paid taxes.

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 October 2, 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.