Note 9 - Income Taxes

12 Months Ended

Sep. 29, 2012

Income Tax Disclosure [Text Block]

(9) Income Taxes

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

	Year Ended
(Dollars in thousands)	September 29, 2012			October 1, 2011			October 2, 2010
Provision for income taxes:
Current:
Federal	$	20		$	207		$	668
State		62			72			415
		82			279			1,083
Deferred:
Federal		781			(12	)		(880	)
State		54			221			(241	)
		835			209			(1,121	)
Income taxes	$	917		$	488		$	(38	)
Effective income tax rate		33.6	%		483.2	%		(9.0	%)

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)	September 29, 2012					October 1, 2011					October 2, 2010
Provision for income taxes at federal statutory rate	$	954		35.0	%	$	35		34.7	%	$	147		35.0	%
Net effect of life insurance policies		(400	)	(14.7	)		(14	)	(13.9	)		(83	)	(19.8	)
Valuation allowance		(48	)	(1.8	)		263		260.4			(142	)	(33.9	)
Nondeductible stock option expense		161		5.9			189		187.1			180		42.9
State income taxes, net of federal tax benefit		94		3.5			(20	)	(19.8	)		180		42.9
Revisions to estimates based on filing of final tax return		5		0.2			(5	)	(4.9	)		(24	)	(5.7	)
Qualified production activities deduction		-		-			-		-			(30	)	(7.1	)
Additional refund due to tax law change		-		-			-		-			(502	)	(119.5	)
Other, net		151		5.5			40		39.6			236		56.2
Provision for income taxes	$	917		33.6	%	$	488		483.2	%	$	(38	)	(9.0	%)

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

(In thousands)	September 29, 2012			October 1, 2011
Deferred tax assets:
Defined benefit plans	$	3,556		$	3,105
Stock-based compensation		1,878			1,683
Federal net operating loss carryforward		1,870			679
Accrued expenses, asset reserves and state tax credits		1,841			1,625
Goodwill, amortizable for tax purposes		1,392			1,812
State net operating loss carryforwards		1,372			1,368
Valuation allowance		(679	)		(727	)
Deferred tax assets		11,230			9,545
Deferred tax liabilities:
Plant and equipment		(10,637	)		(9,078	)
Other reserves		(722	)		(22	)
Deferred tax liabilities		(11,359	)		(9,100	)
Net deferred tax (liability) asset	$	(129	)	$	445

As of September 29, 2012, the Company recorded a current deferred tax asset (net of valuation allowance) of $4.0 million on its consolidated balance sheet in other current assets and a non-current deferred tax liability (net of valuation allowance) of $4.1 million in other liabilities. As of October 1, 2011, the Company recorded a current deferred tax asset (net of valuation allowance) of $2.1 million in other current assets and a non-current deferred tax liability (net of valuation allowance) of $1.7 million in other liabilities. The Company has $26.5 million of state operating loss carryforwards that begin to expire in 2017, but principally expire in 2017 – 2031. The Company has $5.3 million of federal operating loss carryforwards that expire in 2031. The Company has also recorded deferred tax assets for various state tax credits of $261,000, 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. Accounting principles generally accepted in the United States (“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 29, 2012, the Company had recorded a valuation allowance of $679,000 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 $48,000 decrease in the valuation allowance during fiscal 2012 is primarily due to the use of certain state NOLs that previously had a valuation allowance and a change in the Company’s expectations regarding the future realization of deferred tax assets related to certain state 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 September 29, 2012, the Company had approximately $76,000 of gross unrecognized tax benefits classified in accrued expenses, of which $61,000, if recognized, would reduce its income tax expense in future periods. 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. The Company anticipates the gross unrecognized tax benefits of $61,000 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 2012 and 2011 is as follows:

(In thousands)	2012		2011
Balance at beginning of year	$	67	$	762
Increase in tax positions of prior years		9		8
Increase in tax position for current year		-		4
Settlement of tax position in current year		-		(707	)
Balance at end of year	$	76	$	67

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 $56,000 and $50,000, as of September 29, 2012 and October 1, 2011, respectively. There was $6,000 of expense incurred during 2012 related to interest and penalties. The Company did not record any expense related to interest and penalties during 2011.

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 2008 remain subject to examination together with certain state tax returns filed by the Company subsequent to fiscal year 2003.