Income Taxes

12 Months Ended

Oct. 30, 2011

Income Taxes [Abstract]

INCOME TAXES

17. INCOME TAXES

Income tax expense is based on pretax financial accounting income. Deferred income taxes are recognized for the temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and such amounts for income tax purposes. The income tax benefit for the fiscal years ended 2011, 2010 and 2009, consisted of the following (in thousands):

	Fiscal Year Ended
	October 30, 2011			October 31, 2010			November 1, 2009
Current:
Federal	$	207		$	(15,506	)	$	(28,706	)
State		(312	)		2,133			(1,366	)
Total current		(105	)		(13,373	)		(30,072	)
Deferred:
Federal		(6,183	)		123			(23,545	)
State		(109	)		(80	)		(3,296	)
Total deferred		(6,292	)		43			(26,841	)
Total benefit	$	(6,397	)	$	(13,330	)	$	(56,913	)

The reconciliation of income tax computed at the United States federal statutory tax rate to the effective income tax rate is as follows:

	Fiscal Year Ended
	October 30, 2011			October 31, 2010			November 1, 2009
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes		4.0	%		1.5	%		3.3	%
Non-deductible goodwill impairment		—			—			(27.0	)%
Canadian valuation allowance		1.2	%		0.1	%		(0.1	)%
Non-deductible interest expense		—			—			(0.2	)%
Production activities deduction		––			(2.5	)%		—
Premium on Convertible Notes exchange offer		—			—			(4.1	)%
Recognition of tax benefit previously deemed to be uncertain
Other		(1.1	)%		(0.9	)%		0.1	%
Effective tax rate		39.1	%		33.2	%		7.0	%

Deferred income taxes reflect the net impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. The tax effects of the temporary differences for fiscal 2011 and 2010 are as follows (in thousands):

	As of October 30, 2011			As of October 31, 2010
Deferred tax assets:
Inventory obsolescence	$	968		$	969
Bad debt reserve		1,665			1,128
Accrued and deferred compensation		13,677			11,755
Accrued insurance reserves		1,820			1,446
Deferred revenue		7,453			7,340
Net operating loss carryover		11,166			6,936
Depreciation and amortization		266			530
Deferred financing costs		1,380			1,924
Pension		3,777			1,574
Other reserves		163			41
Total deferred tax assets		42,335			33,643
Less valuation allowance		(5,417	)		(5,192	)
Net deferred tax assets		36,918			28,451
Deferred tax liabilities:
Depreciation and amortization		(22,482	)		(23,022	)
Pension		—			—
Other		(1,344	)		(1,275	)
Total deferred tax liabilities		(23,826	)		(24,297	)
Total deferred tax asset	$	13,092		$	4,154

We carry out our business operations through legal entities in the U.S., Canada and Mexico. These operations require that we file corporate income tax returns that are subject to U.S., state and foreign tax laws. We are subject to income tax audits in these multiple jurisdictions.

As of October 30, 2011, the $11.2 million net operating loss carryforward consisted of $5.1 million for foreign loss carryforward, $4.0 million for U.S. federal loss carryforward and $2.1 million for U.S. state loss carryforward. The U.S. federal net operating loss carried forward is the fiscal 2011 taxable loss which is approximately $10.3 million and represents $4.0 million of deferred tax asset. This loss will expire, if unused, by fiscal 2031. As of October 30, 2011, we have deferred tax assets of $2.1 million related to state net operating loss carryforwards which will expire in 3 to 20 years, if unused.

We expect to generate sufficient operating profits in future periods to fully utilize our net deferred tax assets of $13.1 million. In evaluating our expectations, we have evaluated a variety of factors including multiple industry sources citing continued growth in the nonresidential construction market into 2012 and 2013, our continued market strength in the commercial and industrial subsectors of the nonresidential market that are experiencing growth above that of the overall nonresidential construction market and our internal forecast projections which we believe will continue the profitable trends experienced in the third and fourth quarters of fiscal 2011. Our expectations could change in the near term if nonresidential construction fails to continue its projected recovery. In the event our operating results or expectations of future operating results change, a valuation allowance may be required on our existing unreserved net U.S. deferred tax assets.

As of October 30, 2011, our foreign operations have a net operating loss carryforward of approximately $17.6 million, representing $5.1 million of the $11.2 million deferred tax asset related to net operating loss carryovers, that will start to expire in fiscal 2025, if unused. The utilization of these foreign losses is uncertain and we currently have a full valuation allowance against the deferred tax asset related to this loss carryforward. The following table represents the rollforward of the valuation allowance on deferred taxes activity for the fiscal years ended October 30, 2011, October 31, 2010 and November 1, 2009 (in thousands):

	October 30, 2011		October 31, 2010		November 1, 2009
Beginning balance	$	5,192	$	5,018	$	4,972
Additions		225		174		46
Ending balance	$	5,417	$	5,192	$	5,018

Uncertain tax positions

The total amount of unrecognized tax benefits at October 30, 2011 was $0.3 million, of which $0.3 million would impact the Company’s effective tax rate, if recognized. The total amount of unrecognized tax benefit at October 31, 2010 was $0.5 million, of which $0.5 million would impact the Company’s effective tax rate if recognized. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.

The following table summarizes the activity related to the Company’s unrecognized tax benefits during fiscal 2011 and 2010 (in thousands):

	October 30, 2011			October 31, 2010
Unrecognized tax benefits at beginning of year	$	462		$	685
Additions for tax positions related to prior years		19			29
Reductions due to lapse of applicable statute of limitations		(209	)		(252	)
Unrecognized tax benefits at end of year	$	272		$	462

We recognize interest and penalties related to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. We did not have a material amount of accrued interest and penalties related to uncertain tax positions as of October 30, 2011.

We file income tax returns in the U.S. federal jurisdiction and multiple state and foreign jurisdictions. The Internal Revenue Service is currently auditing our income tax returns for the 2008, 2009 and 2010 fiscal years. Our tax years are closed with the IRS through the year ended October 28, 2007 as the statute of limitations related to these tax years has closed. In addition, open tax years related to state and foreign jurisdictions remain subject to examination but are not considered material.