Income Taxes

9 Months Ended

Jul. 02, 2011

Income Taxes [Abstract]

Income Taxes

(8) Income Taxes

     The Company has recorded the following amounts for deferred income taxes and accrued income taxes on its consolidated balance sheet as of July 2, 2011: a current deferred tax asset (net of valuation allowance) of $2.6 million in other current assets, a non-current deferred tax liability of $1.3 million in other liabilities, accrued non-current income taxes payable of $55,000 in other liabilities, and income taxes receivable of $1.3 million in other current assets. As of July 2, 2011, the Company has $27.3 million of gross state operating loss carryforwards (“NOLs”) that principally expire during 2017 to 2030. The Company has also recorded deferred tax assets for various state tax credits of $300,000, which principally expire during 2014 to 2019. The effective income tax rate for the three-month period ended July 2, 2011 was 32.4% compared with 50.8% in the same year-ago period as a result of changes in permanent book versus tax differences together with $150,000 of net reserves that were recorded in the prior year period for known tax exposures.

     The realization of the Company’s deferred income tax assets is entirely dependent upon the Company’s ability to generate future taxable income in applicable jurisdictions. GAAP requires that the Company periodically assess the need to establish a valuation allowance against its deferred income tax assets to the extent that it no longer believes it is more likely than not they will be fully utilized. As of July 2, 2011 and October 2, 2010, the Company recorded a valuation allowance of $708,000 and $461,000, respectively, pertaining to various state NOLs and tax credits that were not expected to be utilized. The valuation allowance established by the Company is subject to periodic review and adjustment based on changes in facts and circumstances and would be reduced should the Company utilize the state NOLs and tax credits against which an allowance had been provided or determine that such utilization is more likely than not. The increase in the valuation allowance for the nine-month period ended July 2, 2011 is primarily due to a change in the Company’s expectations regarding the future realization of deferred tax assets related to certain state NOLs and tax credits.

     The Company has established contingency reserves for material, known tax exposures, including potential tax audit adjustments. The Company’s tax reserves reflect management’s judgment as to the estimated liabilities that would be incurred in connection with the resolution of these matters. As of July 2, 2011, the Company had approximately $15,000 of gross unrecognized tax benefits classified in other current assets and $33,000 of gross unrecognized tax benefits classified as other liabilities on its consolidated balance sheet, of which $37,000, if recognized, would reduce its income tax rate in future periods. The Company anticipates the gross unrecognized tax benefit of $15,000 will be resolved within the next twelve months.

     The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of July 2, 2011, the Company had accrued interest and penalties related to unrecognized tax benefits of $91,000.

     The Company files U.S. federal income tax returns as well as state and local income tax returns in various jurisdictions. Federal and certain state tax returns filed by the Company subsequent to fiscal year 2007 remain subject to examination together with certain state tax returns filed by the Company subsequent to fiscal year 2003.