Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Oct. 01, 2016

INCOME TAXES

The provision for income taxes consists of the following (in thousands):



	Period ended
	October 1, 2016		October 3, 2015		September 27, 2014
Current:
Federal	$	36	$	—	$	—
State	78		60		79
Foreign	179		186		158
Total current	$	293	$	246	$	237
Deferred:
Federal	$	1,462	$	1,320	$	(5,807	)
State	326		439		(923		)
Total deferred	1,788		1,759		(6,730		)
Provision for (benefit from) income taxes	$	2,081	$	2,005	$	(6,493	)

For financial reporting purposes our income (loss) before provision for (benefit from) income taxes includes the following components (in thousands):



	Period ended
	October 1, 2016		October 3, 2015		September 27, 2014
United States	$	3,966	$	3,434	$	(16,832	)
Foreign	7,079		6,664		9,379
	$	11,045	$	10,098	$	(7,453	)

A reconciliation between actual provision for (benefit from) income taxes and the provision for income taxes computed using the federal statutory income tax rate of 34.0% is as follows (in thousands):



	Period ended
	October 1, 2016			October 3, 2015			September 27, 2014
Income tax expense at the statutory rate	$	3,755		$	3,433		$	(2,533	)
State income tax expense, net of federal income tax effect	447			374			(893		)
Impact of state rate changes	116			—			—
Rate difference and nondeductible items in foreign jurisdictions	54			(30		)	(55		)
Impact of foreign earnings in tax-free zone	(2,319		)	(2,168		)	(3,098		)
Valuation allowance adjustments	(71		)	—			4
Nondeductible compensation	—			335			—
Nondeductible amortization and other permanent differences	96			81			76
Other	3			(20		)	6
Provision for (benefit from) income taxes	$	2,081		$	2,005		$	(6,493	)

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. We have not provided deferred taxes on the $66.3 million of undistributed earnings of our foreign subsidiaries where the earnings are considered to be permanently reinvested. The undistributed earnings would become taxable in the United States if we decided to repatriate earnings for business, tax or foreign exchange reasons. If we made that decision, U.S. income taxes would be provided for net of foreign taxes already paid. The determination of the unrecognized deferred tax liability associated with these unremitted earnings is not practical at this time.

Significant components of our deferred tax assets and liabilities are as follows (in thousands):



	October 1, 2016			October 3, 2015
Deferred tax assets:
Federal net operating loss carryforwards	$	6,256		$	7,842
State net operating loss carryforwards	1,784			2,362
Charitable donation carryforward	—			28
Derivative — interest rate contracts	70			268
Alternative minimum tax credit carryforward	135			99
Currently nondeductible accruals	7,613			6,029
Gross deferred tax assets	15,858			16,628
Less valuation allowance — state net operating loss	(131		)	(202		)
Net deferred tax assets	15,727			16,426

Deferred tax liabilities:
Depreciation	(2,868		)	(2,941		)
Goodwill and intangibles	(7,463		)	(6,024		)
Other	(150		)	(167		)
Gross deferred tax liabilities	(10,481		)	(9,132		)
Net deferred tax asset	5,246			7,294

As of October 1, 2016, and October 3, 2015, we had federal net operating loss carryforwards of approximately $18.3 million and $23.1 million, respectively. The deferred tax asset resulting from federal net operating losses for October 1, 2016, and October 3, 2015, were $6.3 million and $7.8 million, respectively. There is no carryback opportunity for these losses and the carryforwards expire at various intervals from 2033 to 2035. We determined that no valuation allowance is required, as we expect that all such carryforwards more likely than not will be realized within statutory periods of carryover and utilization.

As of October 1, 2016, and October 3, 2015, we had state net operating loss carryforwards of approximately $45.4 million and $58.5 million, respectively. These carryforwards expire at various intervals from 2019 through 2036. Our deferred tax asset related to state net operating loss carryforwards is reduced by a valuation allowance to result in deferred tax assets we consider more likely than not to be realized.

For both federal and state purposes, the ultimate realization of deferred tax assets depends upon the generation of future taxable income or tax planning strategies during the periods in which those temporary differences become deductible or when the carryforwards are available.

FASB Codification No. 740, Income Taxes (“ASC 740”) requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Accrued interest and penalties related to unrecognized tax benefits would also be recorded. We did not have any material unrecognized tax benefits as of October 1, 2016, or October 3, 2015.

The tax years 2012 to 2014 according to statute and with few exceptions, remain open to examination by various federal, state, local and foreign jurisdictions.