INCOME TAXES

The fiscal year income taxes consist of the following (in thousands):



	2012			2011			2010
Current:
Federal	$	32,010		$	48,265		$	55,765
State	5,248			11,042			8,420
	37,258			59,307			64,185
Deferred:
Federal	(5,553		)	(8,077		)	(24,070		)
State	(1,062		)	(4,755		)	(3,484		)
	(6,615		)	(12,832		)	(27,554		)
Income tax expense from continuing operations	$	30,643		$	46,475		$	36,631
Income tax benefit from discontinued operations	$	(3,456	)	$	(1,298	)	$	(825	)

A reconciliation of the federal statutory income tax rate to our effective tax rate of continuing operations is as follows:



	2012		2011		2010
Computed at federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.3		3.4		3.2
Benefit of jobs tax credits	(1.2	)	(1.5	)	(1.8	)
Expense/(benefit) related to COLIs	(5.0	)	0.3		(2.2	)
Others, net	0.6		(0.9	)	(0.2	)
	32.7	%	36.3	%	34.0	%

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at each year-end are presented below (in thousands):



	2012			2011
Deferred tax assets:
Accrued pension and postretirement benefits	$	109,443		$	82,706
Accrued insurance	12,096			14,263
Accrued vacation pay expense	4,611			6,605
Deferred income	1,969			2,268
Other reserves and allowances	32,504			29,127
Tax loss and tax credit carryforwards	5,093			4,025
Leasing transactions	10,893			9,348
Share-based compensation	18,722			18,853
Other, net	3,297			4,620
Total gross deferred tax assets	198,628			171,815
Valuation allowance	(5,093		)	(4,025		)
Total net deferred tax assets	193,535			167,790
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation	(27,230		)	(32,677		)
Intangible assets	(23,837		)	(24,021		)
Total gross deferred tax liabilities	(51,067		)	(56,698		)
Net deferred tax assets	$	142,468		$	111,092

Deferred tax assets at September 30, 2012 include state net operating loss carryforwards of approximately $77.5 million expiring at various times between 2012 and 2032. At September 30, 2012 and October 2, 2011, we recorded a valuation allowance related to state net operating losses of $5.1 million and $4.0 million, respectively. The current year change in the valuation allowance of $1.1 million relates to net operating losses. We believe that it is more likely than not that these loss carryforwards will not be realized and that the remaining deferred tax assets will be realized through future taxable income or alternative tax strategies.

At October 2, 2011, our gross unrecognized tax benefits associated with uncertain income tax positions were $0.6 million, and increased by $0.3 million by September 30, 2012 based on a preliminary assessment of a state income tax audit. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (in thousands):



	2012		2011
Balance beginning of year	$	629	$	629
Increases to tax positions recorded during current years	276		—
Balance at end of year	$	905	$	629

From time to time, we may take positions for filing our tax returns which may differ from the treatment of the same item for financial reporting purposes. The ultimate outcome of these items will not be known until the IRS has completed its examination or until the statute of limitations has expired.

It is reasonably possible that changes of approximately $0.4 million to the gross unrecognized tax benefits will be required within the next twelve months. These changes relate to the possible settlement of state tax audits.

The major jurisdictions in which the Company files income tax returns include the United States and states in which we operate that impose an income tax. The federal statutes of limitations have not expired for fiscal years 2009 and forward. The statutes of limitations for California and Texas, which constitute the Company’s major state tax jurisdictions, have not expired for fiscal years 2001 and 2007, respectively, and forward. Generally, the statutes of limitations for the other state jurisdictions have not expired for fiscal years 2009 and forward.