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Income Taxes
12 Months Ended
Oct. 01, 2011
Income Taxes [Abstract] 
Income Taxes

(9) Income Taxes

The components of the provision for income taxes on continuing operations are as follows:

 

                         
    Year Ended  
(Dollars in thousands)   October 1,
2011		     October 2,
2010		     October 3,
2009		  

Provision for income taxes:

                        

Current:

                        

Federal

   $ 207     $ 668     $ (12,708 ) 

State

     72       415       (47 ) 
   

 

 

    

 

 

    

 

 

  
      279       1,083       (12,755 ) 
       

Deferred:

                        

Federal

     (12 )      (880 )      1,686  

State

     221       (241 )      (689 ) 
   

 

 

    

 

 

    

 

 

  
      209       (1,121 )      997  
   

 

 

    

 

 

    

 

 

  
       

Income taxes

   $ 488     $ (38 )    $ (11,758 ) 
   

 

 

    

 

 

    

 

 

  
       

Effective income tax rate

     483.2 %      (9.0 %)      36.0 % 
   

 

 

    

 

 

    

 

 

  

The reconciliation between income taxes computed at the federal statutory rate and the provision for income taxes on continuing operations is as follows:

 

                                                 
    Year Ended  
(Dollars in thousands)       October 1, 2011             October 2, 2010             October 3, 2009      

Provision for income taxes at federal statutory rate

   $ 35       34.7 %    $ 147       35.0 %    $ (11,444 )      35.0 % 

State income taxes, net of federal tax benefit

     (20 )      (19.8 )      180       42.9       (479 )      1.5  

Valuation allowance

     263       260.4       (142 )      (33.9 )      —       —  

Stock option expense benefit

     189       187.1       180       42.9       203       (0.6 ) 

Revisions to estimates based on filing of final tax return

     (5 )      (4.9 )      (24 )      (5.7 )      33       (0.1 ) 

Qualified production activities deduction

     —       —       (30 )      (7.1 )      —       —  

Additional refund due to tax law change

     —       —       (502 )      (119.5 )      —       —  

Other, net

     26       25.7       153       36.4       (71 )      0.2  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Provision for income taxes

   $ 488       483.2 %    $ (38 )      (9.0 %)    $ (11,758 )      36.0 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The components of deferred tax assets and liabilities are as follows:

 

                 
(In thousands)   October 1,
2011		     October 2,
2010		  

Deferred tax assets:

                

Accrued expenses, asset reserves and state tax credits

   $ 3,495     $ 4,005  

Goodwill, amortizable for tax purposes

     1,812       1,963  

Stock-based compensation

     1,683       628  

State net operating loss carryforwards

     1,368       1,336  

Defined benefit plans

     1,235       1,415  

Federal net operating loss carryforward

     679       —  

Valuation allowance

     (727 )      (461 ) 
   

 

 

    

 

 

  

Gross deferred tax assets

     9,545       8,886  
     

Deferred tax liabilities:

                

Plant and equipment

     (9,078 )      (7,769 ) 

Other reserves

     (22 )      (283 ) 
   

 

 

    

 

 

  

Gross deferred tax liabilities

     (9,100 )      (8,052 ) 
   

 

 

    

 

 

  

Net deferred tax asset

   $ 445     $ 834  
   

 

 

    

 

 

  

As of October 1, 2011, the Company recorded a current deferred tax asset (net of valuation allowance) of $2.1 million on its consolidated balance sheet in other current assets and a non-current deferred tax liability (net of valuation allowance) of $1.7 million in other liabilities. As of October 2, 2010, the Company recorded a current deferred tax asset (net of valuation allowance) of $2.6 million in other current assets and a non-current deferred tax liability (net of valuation allowance) of $1.8 million in other liabilities. The Company has $27.7 million of state operating loss carryforwards that begin to expire in 2017, but principally expire in 2017 — 2031. The Company has $1.9 million of federal operating loss carryforwards that expire in 2031. The Company has also recorded deferred tax assets for various state tax credits of $300,000, which will begin to expire in 2014 and principally expire between 2014 and 2019.

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. GAAP requires that the Company periodically assess the need to establish a valuation allowance against its deferred tax assets to the extent the Company no longer believes it is more likely than not that they will be fully utilized. As of October 1, 2011, the Company had 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 and would be reduced should the Company utilize the state net operating loss carryforwards against which an allowance had previously been provided or determine that such utilization is more likely than not. The increase in the valuation allowance during fiscal 2011 is primarily due to a change in the Company’s expectations regarding the future realization of deferred tax assets related to certain state NOL carryforwards and tax credits.

The Company has established contingency reserves for material, known tax exposures based on management’s judgment as to the estimated liabilities that would be incurred in connection with the resolution of these matters. As of October 1, 2011, the Company had approximately $34,000 of gross unrecognized tax benefits classified in accrued expenses and $33,000 of gross unrecognized tax benefits classified as other liabilities on its consolidated balance sheet, of which $55,000, if recognized, would reduce its income tax expense in future periods. As of October 2, 2010, the Company had approximately $728,000 of gross unrecognized tax benefits which reduce income taxes receivable and are classified as other current assets on its consolidated balance sheet, and $34,000 of gross unrecognized tax benefits classified as other liabilities, of which $61,000, if recognized, would reduce its income tax expense in future periods. The Company anticipates the gross unrecognized tax benefits of $34,000 will be resolved during the next twelve months and otherwise does not expect its unrecognized tax benefits to change significantly over that time.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits for 2011 is as follows:

 

                 
(Dollars in thousands)       2011             2010      

Balance at beginning of year

   $ 762     $ —  

Increase in tax positions of prior years

     8       760  

Increase in tax position for current year

     4       2  

Settlement of tax position in current year

     (707 )      —  
   

 

 

    

 

 

  

Balance at end of year

   $ 67     $ 762  
   

 

 

    

 

 

  

The Company classifies interest and penalties related to unrecognized tax benefits as part of income tax expense. The accrued interest and penalties related to unrecognized tax benefits was $50,000 and $208,000, respectively, as of October 1, 2011 and October 2, 2010. The decrease in accrued interest and penalties during 2011 is due to the settlement of a U.S. Internal Revenue Service audit and various outstanding federal and state tax issues. There was no expense incurred during 2011 related to interest and penalties. During 2010, the Company recorded $213,000 of expense related to interest and penalties.

The Company files U.S. federal income tax returns as well as state and local income tax returns in various jurisdictions. Federal and various state tax returns filed by the Company subsequent to fiscal year 2007 remain subject to examination together with certain state tax returns filed by the Company subsequent to fiscal year 2003.