Income Taxes

3 Months Ended

Sep. 25, 2011

Income Taxes [Abstract]

Income Taxes

13. Income Taxes

The Company evaluates its net deferred income tax assets quarterly to determine if valuation allowances are required. Based on the consideration of all available evidence using a “more-likely-than-not” standard, the Company determined that the valuation allowance established against its federal and California deferred tax assets in the United States (“U.S.”) may remain in place by the end of fiscal year 2012.  These valuation allowances relate to beginning of the year balances of reserves that were established during fiscal year 2009.  The Company also determined that the valuation allowance established against its deferred tax assets in the United Kingdom (“U.K.”) during fiscal year 2009, and which was partially released during fiscal year 2011, should be further reduced based on the amount of forecasted taxable income in fiscal year 2012.  This reduction of the valuation allowance that was based upon current year forecasted income was included in the effective tax rate for the quarter ended September 25, 2011.

During the three months ended September 25, 2011, the statutory tax rate in the U.K. was reduced from 27 percent to 26 percent for calendar year 2011, and further reduced to 25 percent for calendar year 2012, effective April 1, 2011 retrospectively. The Company concluded that the overall impact on the tax provision would be $0.9 million in fiscal year 2012 due to deferred tax assets without a valuation allowance being reduced as a result of the lowered statutory rate. In addition, the Company reduced the U.K. deferred tax assets with full valuation allowances by $2.6 million as a result of the reduced statutory rate in this quarter.  Both the impact on the tax provision and the reduction of the deferred tax assets with full valuation allowances were treated as discrete items in the first quarter of fiscal year 2012.

During the three months ended September 25, 2011, the Company received a $1.8 million tax refund from the Singapore tax authority as a result of its assessment of the Company’s Singapore subsidiary’s income tax return for fiscal year 2008, with the tax benefit being accounted for in a previous reporting period.  The Company does not currently expect any additional refund associated with the aforementioned assessment.

During fiscal year 2011, the Company was granted certain incentives by the Singapore Economic Development Board. As a result, the Company started to operate under a tax holiday in Singapore, effective from December 27, 2010 through December 26, 2020.  The tax holiday is conditioned upon the Company meeting certain employment and investment thresholds.

The Company's effective tax rate was an expense of 22.2 percent and a benefit of (5.7) percent for the three months ended September 25, 2011 and September 26, 2010, respectively. For the three months ended September 25, 2011, the Company's effective tax rate differed from the U.S. federal statutory tax rate of 35 percent mainly as a result of the utilization of its deferred tax assets through the reduction of the beginning-of-the-year valuation allowance recorded in the U.K. and lower tax rates in certain foreign jurisdictions, and the aforementioned impact on the tax provision due to the reduction of the U.K. statutory rate.   For the three months ended September 26, 2010, the Company’s effective tax rate differed from the U.S. federal statutory rate of 35 percent as a result of the release of contingent liabilities related to uncertain tax positions and the utilization of its deferred tax assets through the reduction of the beginning-of-the-year valuation allowances recorded in the U.S. and the U.K.

The Company operates in multiple foreign jurisdictions with lower statutory tax rates, and its operation in Singapore has the most significant impact on the effective tax rate for the fiscal year 2012, notwithstanding the impact from the utilization of its deferred tax assets through the reduction of the beginning-of-the-year valuation allowance recorded in the U.K.

As of June 26, 2011, U.S. income taxes have not been provided on approximately $79.1 million of undistributed earnings of foreign subsidiaries since those earnings are considered to be invested indefinitely. Determination of the amount of unrecognized deferred tax liabilities for temporary differences related to investments in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable.  There has been a change in the Company’s position on undistributed earnings regarding the pending liquidation of a foreign subsidiary into the U.S. consolidated group. The Company has not recorded a deferred tax liability on any potential gain as the earnings and profits of the subsidiary had been recognized as U.S. income in previous periods.

Pursuant to Sections 382 and 383 of the U.S. Internal Revenue Code, the utilization of net operating losses (“NOLs”) and other tax attributes may be subject to substantial limitations if certain ownership changes occur during a three-year testing period (as defined). The Company does not believe an ownership change has occurred that would limit the Company's utilization of any NOL, credit carry forward or other tax attributes.