Income Taxes

9 Months Ended

Jun. 25, 2011

Income Taxes

Income Taxes

17. 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 June 25, 2011, the Company had net operating loss carryforwards of $10.6 million and $21 million respectively for federal and state, as well as a $26 million combined federal and state capital loss carryforward available to be utilized against future taxable income for years through fiscal year 2029, subject to annual limitation pertaining to change in ownership rules under the Internal Revenue Code. Based upon earnings history, the Company has concluded that it is more likely than not that the net operating loss carryforwards will be utilized prior to their expiration, but 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 at June 25, 2011 and September 25, 2010 was $16.7 million and $5.5 million, respectively. The amount of unrecognized tax benefits at June 25, 2011 that would impact the effective tax rate if resolved in favor of the Company is $16.7 million. The Company is indemnified for up to $16.4 million of the total reserve balance. If resolved in favor of the Company, the associated indemnification receivable, recorded in other long-term assets, would be reduced accordingly. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.

The Company has made an election to recognize interest and penalties accrued on uncertain tax liabilities as interest expense. The Company does not expect a significant change to the amount of unrecognized tax benefits within the next twelve months.

In conjunction with acquisitions, the Company has recognized an indemnification receivable for uncertain tax positions. As of June 25, 2011 the amount of the indemnification receivable is $16.4 million. The sellers have an indemnification obligation for tax liabilities relating to periods prior to the acquisition dates. The obligations are capped at CAD $37.9 million, certain of which must be satisfied first against funds held in escrow. The indemnifications expire through June 2015. The Company currently believes the tax indemnifications provided by the sellers will be adequate for any identified income tax risk. The indemnification receivable will continue to be measured on the same basis as the related uncertain tax liabilities.