Note 6 - Income Taxes

3 Months Ended

Dec. 29, 2012

Income Tax Disclosure [Text Block]

(6) Income Taxes

 Effective income tax rate. The Company’s effective income tax rate was 34.7% for the three-month period ended December 29, 2012 compared with 37.9% for the three-month period ended December 31, 2011.  The year-over-year reduction in the effective rate was primarily due to an increase in permanent book versus tax differences resulting from higher tax benefits attributable to domestic production activities in the current year period. The effective income tax rates for both periods were based upon the estimated effective income tax rate applicable for the entire fiscal year after giving effect to any significant items related specifically to interim periods.

 Deferred income taxes. As of December 29, 2012, the Company has recorded a current deferred tax asset (net of valuation allowance) of $2.9 million in other current assets and a non-current deferred tax liability of $4.2 million in other liabilities on its consolidated balance sheet. The deferred tax asset primarily relates to pre-tax losses that were incurred in prior fiscal years. The Company has $27.5 million of state net operating loss carryforwards (“NOLs”) that begin to expire in 2016, but principally expire between 2016 and 2032, and $5.3 million of federal NOLs that expire in 2031 and 2032. The Company has also recorded $262,000 of deferred tax assets for various state tax credits that begin to expire in 2014, but principally expire between 2014 and 2019.

In accordance with Accounting Standards Codification (“ASC”) Topic 740, the Company evaluates its deferred tax assets to determine if a valuation allowance is required based on the consideration of all available evidence using a “more likely than not” standard, with significant weight being given to evidence that can be objectively verified. 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. Since the Company operates in multiple jurisdictions, it assesses the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the applicable tax laws. The Company recorded a valuation allowance of $679,000 as of December 29, 2012 and September 29, 2012 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. If the Company should utilize the state NOLs and tax credits against which an allowance has previously been provided or if it is determined that it is “more likely than not” that the Company will realize any of these state NOLs and tax credits, an income tax benefit would be recognized at that time.

Uncertainty in income taxes. 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 December 29, 2012, the Company had approximately $43,000 of gross unrecognized tax benefits classified in accrued expenses, of which $28,000, if recognized, would reduce its income tax expense in future periods. The Company anticipates the gross unrecognized tax benefits of $28,000 will be resolved during the next twelve months and otherwise does not expect its unrecognized tax benefits to change significantly over that time.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 29, 2012, the Company had $35,000 of accrued interest and penalties related to unrecognized tax benefits.

The Company files U.S. federal income tax returns as well as state and local income tax returns in various jurisdictions. Federal and certain state tax returns filed by the Company subsequent to fiscal year 2007 remain subject to examination together with certain state tax returns subsequent to fiscal year 2003.