Note I - Income Taxes

12 Months Ended

Sep. 24, 2016

NOTE I – INCOME TAXES

Income tax expense (benefit) is as follows:

	Fiscal year ended
	September 24,			September 26,			September 27,
	2016			2015			2014
	(in thousands)
Current
U.S. Federal	$	25,126		$	33,348		$	31,506
Foreign		2,433			2,260			2,008
State		5,622			6,294			6,693
Total current expense		33,181			41,902			40,207

Deferred
U.S. Federal	$	6,444		$	(109	)	$	(217	)
Foreign		(145	)		(34	)		(58	)
State		1,364			(23	)		(540	)
Total deferred expense (benefit)		7,663			(166	)		(815	)
Total expense	$	40,844		$	41,736		$	39,392

The change in deferred taxes for the year ended September 27, 2014 does not equal deferred tax expense in the amount of $823,000 as a result of purchase accounting related to the Philly Swirl acquisition

The provisions for income taxes differ from the amounts computed by applying the statutory federal income tax rate of approximately 35% to earnings before income taxes for the following reasons:

	Fiscal year ended
	September 24,			September 26,			September 27,
	2016			2015			2014
	(in thousands)

Income taxes at federal statutory rates	$	40,887		$	39,172		$	38,922
Increase (decrease) in taxes resulting from:
State income taxes, net of federal income tax benefit		4,541			4,196			4,281
Domestic production activities deduction		(2,100	)		(2,100	)		(2,100	)
Increase (reduction) in gross unrecognized tax benefits		20			39			(161	)
Increase in federal valuation allowance		240			1,366			-
Share based compensation		(1,109	)		308			437
Other, net		(1,635	)		(1,245	)		(1,987	)
Income tax expense	$	40,844		$	41,736		$	39,392

Deferred tax assets and liabilities consist of the following:

	September 24,			September 26,
	2016			2015
	(in thousands)
Deferred tax assets
Vacation accrual	$	1,646		$	1,600
Capital loss carry forwards		1,674			1,434
Insurance accrual		3,317			3,385
Deferred income		112			63
Allowances		1,514			927
Inventory capitalization		954			738
Share-based compensation		1,253			1,480
Net Operating Loss		1,691			1,823
Total deferred tax assets		12,161			11,450
Valuation allowance		(1,674	)		(1,434	)
Total deferred tax assets, net		10,487			10,016

Deferred tax liabilities
Amortization of goodwill and other intangible assets		27,358			25,791
Depreciation of property and equipment		31,315			24,748
Total deferred tax liabilities		58,673			50,539
Total deferred tax liabilities, net	$	48,186		$	40,523

As of September 24, 2016, we have federal and state capital loss carry forwards of approximately $4.6 million from the sale of marketable securities in fiscal years 2015 and 2016. These carry forwards will expire in 2020, 2021 and 2022. As we have no foreseeable capital gains that would allow us to use this asset, we have recorded a valuation allowance for the full amount of this deferred asset.

As of September 24, 2016, we have a federal net operating loss carry forward of approximately $5 million from the PHILLY SWIRL acquisition. These carry forwards are subject to an annual limitation under Code Section 382 of approximately $378,000 and will expire in 2033. We have determined there are no limitations to the total use of this asset and accordingly, have not recorded a valuation allowance for this deferred tax asset.

We have undistributed earnings of our Mexican and Canadian subsidiaries that are considered to be indefinitely reinvested and accordingly no provision for US federal and state income taxes has been provided thereon.