NOTE I – INCOME TAXES

Income tax expense (benefit) is as follows:

	Fiscal year ended
	September 29,			September 30,			September 24,
	2018			2017			2016
	(in thousands)
Current
U.S. Federal	$	16,591		$	27,142		$	25,126
Foreign		2,512			2,770			2,433
State		5,836			5,227			5,622
Total current expense		24,939			35,139			33,181

Deferred
U.S. Federal	$	(14,613	)	$	6,857		$	6,444
Foreign		514			(422	)		(145	)
State		3,716			1,452			1,364
Total deferred benefit		(10,383	)		7,887			7,663
Total expense	$	14,556		$	43,026		$	40,844

The change in deferred taxes for the year ended

September 30, 2017

does

not

equal deferred tax expense in the amount of

$6,632,000

as a result of purchase accounting related to the Hill & Valley acquisition.

The provisions for income taxes differ from the amounts computed by applying the statutory federal income tax rate of approximately

35%

for the fiscal years ended

September 30, 2017

and

September 24, 2016

and

1/2%

for the fiscal year ended

September 29, 2018

to earnings before income taxes for the following reasons:

	Fiscal year ended
	September 29,			September 30,			September 24,
	2018			2017			2016
	(in thousands)

Income taxes at federal statutory rates	$	28,947		$	42,770		$	40,887
Increase (decrease)in taxes resulting from:

State income taxes, net of federal income tax benefit		7,212			4,341			4,541
Domestic production activities deduction		(1,470	)		(1,820	)		(2,100	)
Impact of rate change due to Tax Cuts and Jobs Act		(20,670	)		-			-
Impact of rate differential-current and deferred		(1,236	)		-			-
One-time repatriation tax		1,200			-			-
Increase in gross unrecognized tax benefits		20			20			20
Share based compensation		(696	)		(1,923	)		(1,109	)
Non deductible employee compensation		514			-			-
Other, net		735			(362	)		(1,395	)
Income tax expense	$	14,556		$	43,026		$	40,844

Net earnings for the year ended

September 29, 2018

benefited from an approximately

$21

million gain on the remeasurement of deferred tax liabilities and a

$8.8

million reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in

December 2017.

Net earnings for the year were impacted by a

$1.2

million provision for the

one

-time repatriation tax required under the new federal tax law and by a

$1.4

million expense on the remeasurement of deferred tax liabilities due to changes in New Jersey tax regulations effective

July 2018.

Excluding the deferred tax gain, the deferred tax expense and the

one

-time repatriation tax, our effective tax rate decreased to

27.80%

from

35.2%

in the prior year reflecting the reduction in the federal statutory rate to

21%

from

35%

January 1, 2018.

Last year’s effective tax rate benefited from an unusually high tax benefit on share based compensation of

$3,061,000

which compares to this year’s tax benefit of

$1,935,000.

Deferred tax assets and liabilities consist of the following:

	September 29,			September 30,
	2018			2017
	(in thousands)
Deferred tax assets
Vacation accrual	$	1,254		$	1,740
Capital loss carry forwards		960			1,668
Insurance accrual		2,480			3,225
Deferred income		638			927
Allowances		1,585			1,991
Inventory capitalization		1,051			1,235
Share-based compensation		1,368			1,607
Net Operating Loss		856			1,559
Total deferred tax assets		10,192			13,952
Valuation allowance		(960	)		(1,668	)
Total deferred tax assets, net		9,232			12,284

Deferred tax liabilities
Amortization of goodwill and other intangible assets		25,565			35,043
Depreciation of property and equipment		35,989			39,946
Total deferred tax liabilities		61,554			74,989
Total deferred tax liabilities, net	$	52,322		$	62,705

As of

September 29, 2018,

we have federal and state capital loss carry forwards of approximately

$4.2

million primarily from the sale of marketable securities in fiscal years

2015

and

2016.

These carry forwards will begin to expire in

2020.

Except for current year usage, we have

foreseeable capital gains that would allow us to use this asset. Accordingly, we have recorded a valuation allowance for the full amount of this deferred tax asset.

As of

September 29, 2018,

we have a federal net operating loss carry forward of approximately

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

limitations to the total use of this tax 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 our current plans do

not

demonstrate a need to repatriate them to fund our United states operations. However, if such funds were repatriated, a portion of the funds remitted

may

be subject to applicable non-U.S. income and withholding taxes. Due to the impact of the Tax Act and the deemed repatriation provisional amount of

$1.2

million recorded to the financial statements,

additional U.S. taxes are anticipated on our undistributed earnings in our Mexican and Canadian subsidiaries.