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Note 10 - Income Taxes

12 Months Ended

Sep. 27, 2014

(10) Income Taxes

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

	Year Ended
	September 27,			September 28,			September 29,
(Dollars in thousands)	2014			2013			2012
Provision for income taxes:
Current:
Federal	$	8,196		$	2,124		$	20
State		330			257			62
		8,526			2,381			82
Deferred:
Federal		(323	)		3,571			781
State		364			310			54
		41			3,881			835

Income taxes	$	8,567		$	6,262		$	917

Effective income tax rate		34.0	%		34.8	%		33.6	%

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

	Year Ended
(Dollars in thousands)	September 27, 2014					September 28, 2013					September 29, 2012
Provision for income taxes at federal statutory rate	$	8,823		35.0	%	$	6,299		35.0	%	$	954		35.0	%
Qualified production activities deduction		(755	)	(3.0	)		(165	)	(0.9	)		-		-
Valuation allowance		(183	)	(0.7	)		51		0.3			(48	)	(1.8	)
Net effect of life insurance policies		(150	)	(0.6	)		(191	)	(1.1	)		(400	)	(14.7	)
State income taxes, net of federal tax benefit		577		2.3			479		2.7			94		3.5
Nondeductible stock option expense		30		0.1			(51	)	(0.3	)		161		5.9
Other, net		225		0.9			(160	)	(0.9	)		156		5.7
Provision for income taxes	$	8,567		34.0	%	$	6,262		34.8	%	$	917		33.6	%

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

	September 27,			September 28,
(In thousands)	2014			2013
Deferred tax assets:
Defined benefit plans	$	3,419		$	3,245
Accrued expenses and asset reserves		2,782			2,206
Stock-based compensation		1,804			1,560
State net operating loss carryforwards and tax credits		908			1,441
Goodwill, amortizable for tax purposes		870			986
Valuation allowance		(547	)		(730	)
Deferred tax assets		9,236			8,708

Deferred tax liabilities:
Plant and equipment		(12,654	)		(12,607	)
Prepaid insurance and other reserves		(1,032	)		(650	)
Deferred tax liabilities		(13,686	)		(13,257	)
Net deferred tax liability	$	(4,450	)	$	(4,549	)

As of September 27, 2014, 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 $6.6 million in other liabilities. As of September 28, 2013, the Company recorded a current deferred tax asset (net of valuation allowance) of $2.7 million in other current assets and a non-current deferred tax liability (net of valuation allowance) of $7.3 million in other liabilities. The Company has $13.5 million of state operating loss carryforwards that begin to expire in 2017, but principally expire between 2017 and 2032. The Company has also recorded deferred tax assets for various state tax credits of $220,000, which will begin to expire in 2015 and principally expire between 2015 and 2020.

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 September 27, 2014, the Company had recorded a valuation allowance of $547,000 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 $183,000 decrease in the valuation allowance during 2014 is primarily due to the expiration of the 2014 tax credits and reduced state income tax rates.

As of September 27, 2014, the Company has no material, known tax exposures that require the establishment of contingency reserves for uncertain tax positions.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits for 2013 is as follows:

(In thousands)	2013
Balance at beginning of year	$	76
Increase in tax positions of prior years		-
Settlement of tax position in current year		(76	)
Balance at end of year	$	-

The Company classifies interest and penalties related to unrecognized tax benefits as part of income tax expense. There were no accrued interest and penalties related to unrecognized tax benefits as of September 27, 2014 and September 28, 2013. There was $6,000 of expense incurred during 2012 related to interest and penalties and no expense recorded during 2014 and 2013.

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 2009 remain subject to examination together with certain state tax returns filed by the Company subsequent to 2003.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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