Income Taxes

3 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

(7) Income Taxes

Effective income tax rate. The Company’s effective income tax rate was 37.9% for the three-month period ended December 31, 2011 compared with 34.1% in the three-month period ended January 1, 2011. The year-over-year increase in the effective income tax rate is the result of changes in permanent book versus tax differences.

Deferred income taxes. As of December 31, 2011, the Company has recorded a current deferred tax asset (net of valuation allowance) of $3.0 million in other current assets and a non-current deferred tax liability of $2.5 million in other liabilities on its consolidated balance sheet. The deferred tax asset primarily relates to pre-tax losses that were incurred in prior fiscal years. The Company has $28.1 million of state net operating loss carryforwards (“NOLs”) that begin to expire in 2016, but principally expire between 2016 and 2031, and $1.9 million of federal NOLs that expire in 2031. The Company has also recorded deferred tax assets for $300,000 of various state tax credits that begin to expire in 2014, but principally expire in 2014 to 2019.

In accordance with ASC Topic 740, the Company evaluates its deferred tax assets to determine if a valuation allowance is required based on the consideration of all available evidence using a “more likely than not” standard, with significant weight being given to evidence that can be objectively verified. The realization of the Company’s deferred tax assets is entirely dependent upon the Company’s ability to generate future taxable income in applicable jurisdictions. Since the Company operates in multiple jurisdictions, it assesses the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the applicable tax laws. As of December 31, 2011 and October 1, 2011, the Company recorded a valuation allowance of $727,000 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. If the Company should utilize the state NOLs and tax credits against which an allowance has previously been provided or if it is determined that it is “more likely than not” that the Company will realize any of these state NOLs and tax credits, an income tax benefit would be recognized at that time.

Uncertainty in income taxes. The Company has established contingency reserves for material, known tax exposures, including potential tax audit adjustments based on its judgment as to the estimated liabilities that would be incurred in connection with the resolution of these matters. As of December 31, 2011, the Company had approximately $55,000 of total gross unrecognized tax benefits that would reduce its income tax rate in future periods, if recognized, of which $22,000 were classified as other current liabilities and $33,000 as other liabilities on its consolidated balance sheet. The Company anticipates the gross unrecognized tax benefit of $22,000 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 December 31, 2011, the Company had $52,000 of accrued interest and penalties related to unrecognized tax benefits.

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 subsequent to fiscal year 2003.