Income Taxes

3 Months Ended

Dec. 29, 2012

Income Taxes

Income Taxes

12. Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax benefits or consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

As of December 29, 2012, the Company had a $17.7 million state capital loss carryforward and an $11.5 million state net operating loss carryforward available to be utilized against future taxable income for years through fiscal 2015 and 2029, respectively, subject to annual limitation pertaining to change in ownership rules under the Internal Revenue Code of 1986, as amended.  Based upon earnings history, the Company concluded that it is more likely than not that the net operating loss carryforward will be utilized prior to its expiration, but that the capital loss carryforward will not.  The Company has recorded a valuation allowance against the entire deferred tax asset balance for the capital loss carryforward.

The total amount of unrecognized tax benefits as of December 29, 2012 and September 29, 2012 was $24.0 million.  The amount of unrecognized tax benefits at December 29, 2012 that would impact the effective tax rate if resolved in favor of the Company is $20.1 million.  As a result of prior acquisitions, the Company is indemnified for $15.7 million of the total reserve balance, and the indemnification is capped at CDN $37.9 million.  If these unrecognized tax benefits are resolved in favor of the Company, the associated indemnification receivable, recorded in other long-term assets, would be reduced accordingly.  The indemnifications have expiration dates through June 2015.

As of December 29, 2012 and September 29, 2012, accrued interest and penalties of $1.8 million and $0.6 million, respectively, were included in the Unaudited Consolidated Balance Sheets.  The Company recognizes interest and penalties in income tax expense.  The Company expects to release $3.6 million of unrecognized tax benefits during fiscal 2013 due to the expiration of the statute of limitations.

Due to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013, which retroactively extended the federal Research & Development Credit (“R&D Credit”) to January 1, 2012, the Company will recognize an R&D Credit for the period January 1, 2012 through the Company’s fiscal year end of September 29, 2012, as well as a credit for the change in the fiscal 2013 effective tax rate in the second quarter of fiscal 2013.

In the normal course of business, the Company is subject to tax examinations by taxing authorities both inside and outside of the United States.  The Company was notified on December 21, 2012 that it is currently being examined by the Internal Revenue Service for its fiscal year ended September 25, 2010.  With some exceptions, the Company is generally no longer subject to examinations with respect to returns filed for fiscal years prior to 2006.