Taxes

9 Months Ended

Oct. 02, 2011

Taxes [Abstract]

Taxes

NOTE 13: Taxes

A reconciliation of the United States federal statutory corporate tax rate to the Company’s effective tax rate was as follows:

	Three-months Ended						Nine-months Ended
	October 2,			October 3,			October 2,			October 3,
	2011			2010			2011			2010
Income tax at federal statutory rate		35	%		35	%		35	%		35	%
State income taxes, net of federal benefit		1			1			1			1
Foreign tax rate differential		(13	)		(13	)		(13	)		(13	)
Discrete tax events		(2	)		(3	)		(1	)		(1	)
Other		—			—			—			—
Income tax provision		21	%		20	%		22	%		22	%

The Company’s effective tax rates were provisions of 21% and 22% for the three-month and nine-month periods ended in 2011, respectively, compared to provisions of 20% and 22% for the same periods in 2010.

The Company’s effective tax rate for the third quarter of 2011 included a decrease in tax expense of $808,000 due to the expiration of the statutes of limitations for certain reserves for income tax uncertainties, along with a decrease in tax expense of $155,000 resulting from the Company’s settlement of its Advanced Pricing Agreement between Japan and Ireland. These reductions in tax expense were partially offset by the final true-up of the prior year’s tax accrual upon filing the actual tax returns, which increased tax expense by $574,000. In addition, a deferred tax asset and a related valuation allowance of $2,457,000 were recognized for incremental foreign tax credits in the United States generated in 2010. These credits may be utilized in a future period and would be reversed if appropriate at that time. These discrete tax events decreased the effective tax rate from a provision of 23% to a provision of 21% for the three-month period in 2011 and decreased the effective tax rate from a provision of 23% to a provision of 22% for the nine-month period in 2011.

The Company’s effective tax rate for the third quarter of 2010 included a decrease in tax expense of $462,000 due to the settlement of the Competent Authority tax case with Japan, a decrease in tax expense of $151,000 for the final true-up of the prior year’s tax accrual upon filing the actual tax returns, and a decrease in tax expense of $105,000 upon the expiration of statutes of limitations for certain reserves for income tax uncertainties. These discrete tax events decreased the effective tax rate from a provision of 23% to a provision of 20% for the three-month period in 2010 and decreased the effective tax rate from a provision of 23% to a provision of 22% for the nine-month period in 2010.

Excluding these discrete tax events, the Company’s effective tax rate remained a provision of 23% of the Company’s pretax income for both 2011 and 2010.

During the nine-month period ended October 2, 2011, excluding the impact of discrete events, the Company recorded a $478,000 increase in liabilities, net of deferred tax benefit, for uncertain tax positions that were recorded as income tax expense, of which $179,000 was recorded in the three-month period ended October 2, 2011. Estimated interest and penalties included in these amounts totaled $61,000 for the nine-month period ended October 2, 2011, of which $20,000 was recorded in the three-month period ended October 2, 2011.

The Company’s reserve for income taxes, including gross interest and penalties of $1,158,000, was $4,849,000 as of October 2, 2011, of which $558,000 are classified as current and $4,291,000 are classified as non-current. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period, less $147,000 that would be recorded through Additional Paid in Capital. As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $250,000 to $500,000 over the next twelve months.

The Company has defined its major tax jurisdictions as the United States, Ireland, and Japan, and within the United States, Massachusetts and California. The tax years 2007 through 2010 remain open to examination by various taxing authorities in the jurisdictions in which the Company operates.