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Income Taxes
9 Months Ended
Sep. 27, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The tax expense of $0.1 million in the third quarter 2013 was calculated by applying a rate of 2.7% against income before income taxes while the tax expense of $4.5 million in the third quarter 2012 was calculated by applying a rate of 35.7% against the income before income taxes in that period.
In the first nine months of 2013, the tax expense of $5.7 million was calculated using an effective rate of 21.6%. The tax expense was $11.3 million in the first nine months of 2012 and the effective rate was 33.7% in that period.
The differences between the statutory and effective rates in the third quarter and first nine months of both years was due to the impact of percentage depletion, the production deduction, foreign source income and deductions, executive compensation, state and local taxes, discrete events and other factors. The research and experimentation credit for 2013 also reduced the effective tax rate in the third quarter and first nine months of 2013.
The tax expense in the third quarter 2013 included net favorable discrete items of $0.7 million that resulted from the finalization of the 2012 federal tax return at a lower liability than what was previously recorded in the financial statements, the reversal of tax reserves due to the lapse of the statute of limitations, the benefits from amending a prior year federal tax return and other items.
The Company recorded a discrete tax benefit of $0.6 million in the first quarter 2013 primarily for the research and experimentation credit for 2012. The research and experimentation credit was not recorded in 2012 as the U.S. Congress did not extend the credit for 2012 until the first quarter 2013 and accounting regulations require tax expense to be recorded based upon the laws that were in effect as of year end.
Discrete items were a favorable $0.5 million in the third quarter 2012 resulting from the finalization of the 2011 federal tax return during that period and the impact of the lapse of the statute of limitations. Discrete items for the first nine months of 2012 were a net favorable $0.4 million.
The effective tax rate in the third quarter 2013 prior to the impact of the discrete items was lower than the effective rate used in the first two quarters of 2013 due to revised annual projections. The impact of the lower rate reduced tax expense and increased net income by $0.7 million, or $0.03 per share, in the third quarter 2013.