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INCOME TAXES
 9 Months Ended
Sep. 28, 2012
INCOME TAXES  
INCOME TAXES

9.                    INCOME TAXES

 

Income taxes are accounted for under the asset and liability method and are determined using an estimated annual effective tax rate. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities, subject to a judgmental assessment of recoverability of deferred tax assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets may not be realized.

 

The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.

 

The Company recorded an income tax expense of $0.6 million and an income tax benefit of $3.0 million for the three and nine months ended September 28, 2012, respectively, as compared to income tax expense of $0.2 million and $0.4 million, respectively, for the three and nine months ended September 30, 2011. The tax benefit is attributable to the $15.2 million of goodwill impairment included in the Company’s pretax loss for the nine month period of $20.5 million, offset by a valuation allowance of $5.3 million due to the uncertainty of realization of net deferred tax assets after the reduction of deferred tax liabilities associated with the goodwill impairment. The effective tax rates for the nine months ended September 28, 2012 differ from the U.S. federal statutory rate of 35% primarily due to state income tax rates, permanent items that are not deductible for U.S. tax purposes, and the establishment of the valuation allowance during the nine months ended September 28, 2012.