Income Taxes

12 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

INCOME TAXES

NOTE 6 – INCOME TAXES

The provision for income tax expense (benefit) consists of:

	Years Ended September 30,
	2012		2011
Current:
Federal	$	51,000	$	87,000
State		168,000		207,000
Total current		219,000		294,000
Deferred
Federal		2,161,000		(1,328,000	)
State		—		(1,724,000	)
Total deferred		2,161,000		(3,052,000	)
Income tax expense (benefit)	$	2,380,000	$	(2,758,000	)

A reconciliation of the federal statutory tax rate to the total tax provision is as follows:

	Years Ended September 30,
	2012			2011
Federal income taxes computed at the statutory rate		34.0	%		34.0	%
State income taxes, net of federal benefit		2.5	%		(8.2	%)
Tax-exempt interest income		(2.2	%)		20.3	%
Reversal of unrecognized tax benefits		—			68.0	%
Other, net		0.4	%		(5.3	%)
		34.7	%		108.8	%

Deferred tax assets and liabilities consist of the following:

	Years Ended September 30,
	2012			2011
Deferred Tax Assets:
Accrued liabilities and reserves	$	823,000		$	636,000
Allowance for doubtful accounts		137,000			217,000
Inventory		162,000			496,000
Net operating loss carryforward		—			498,000
Unrealized loss on investments		—			1,413,000
Other		98,000			28,000
Gross Deferred Tax Assets		1,220,000			3,288,000
Deferred and Other Tax Liabilities:
Unrealized gain on investments		(310,000	)		—
Percentage of completion		(566,000	)		(768,000	)
Property, plant and equipment		(1,006,000	)		(1,021,000	)
Unrecognized tax benefits		(300,000	)		(300,000	)
Other		(12,000	)		(12,000	)
Gross Deferred and Other Tax Liabilities		(2,194,000	)		(2,101,000	)
Net Deferred Income and Other Tax Assets (Liabilities)	$	(974,000	)	$	1,187,000

Total income taxes paid in 2012 were $145,000. Total income taxes paid in 2011 were $226,000. As of September 30, 2011, the deferred tax asset of $498,000 associated with the net operating loss carryforward is included in other long-term assets on the consolidated balance sheet. The net operating loss carryforward was used in 2012.

Generally Accepted Accounting Principles (“GAAP”) prescribes a comprehensive model for the financial recognition, measurement, classification, and disclosure of uncertain tax positions. GAAP contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Significant judgment is required in evaluating the Company’s uncertain tax position and determining the Company’s provision for taxes. Although the Company believes the reserves of unrecognized tax benefits (“UTB’s”) are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provision and accruals. The Company adjusts these reserves in light of changing facts and circumstances. During the second fiscal quarter of 2011, the Company reversed $1,724,000 in unrecognized tax benefits following the conclusion of examinations by a state taxing authority. As of September 30, 2012 and 2011, the Company had UTB’s of $300,000. There were no additional accruals of UTB’s during fiscal years ended September 30, 2012 and 2011.

The Company recognizes interest and penalties accrued related to UTB’s as a component of income tax expense. There were no additional accruals of interest expense nor penalties during fiscal years ended September 30, 2012 and 2011. It is reasonably possible that the amount of the UTB’s with respect to certain unrecognized tax positions will increase or decrease during the next 12 months. The Company does not expect the change to have a material effect on its results of operations or its financial position. The only expected potential reason for change would be the normal expiration of the statute of limitations or the ultimate results stemming from any examinations by taxing authorities. If recognized, the entire amount of UTB’s would have an impact on the Company’s effective tax rate.

The Company files U.S. federal income tax returns, as well as income tax returns in various states. The Company’s U.S. federal income tax returns and most state returns, filed for tax years prior to fiscal year ended September 30, 2009 are no longer subject to examination by taxing authorities due to the expiration of the statute of limitations. The statute of limitations for the Company’s U.S. federal income tax return for the fiscal year ended September 30, 2009 has been extended and will remain open to examination through June 30, 2014.