Note 10 - Income Taxes

12 Months Ended

Oct. 03, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(10) Income Taxes

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

	Year Ended
	October 3,			September 28,			September 29,
(Dollars in thousands)	2020			2019			2018
Provision for income taxes:
Current:
Federal	$	5,056		$	(126	)	$	8,265
State		529			185			906
		5,585			59			9,171
Deferred:
Federal		(288	)		1,649			(2,862	)
State		(136	)		149			55
		(424	)		1,798			(2,807	)
Income taxes	$	5,161		$	1,857		$	6,364
Effective income tax rate		21.4	%		24.9	%		14.9	%

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)	October 3, 2020					September 28, 2019					September 29, 2018
Provision for income taxes at federal statutory rate	$	5,076		21.0	%	$	1,566		21.0	%	$	10,444		24.5	%
State income taxes, net of federal tax benefit		319		1.3			297		4.0			739		1.7
Stock-based compensation		128		0.5			90		1.2			(634	)	(1.5	)
Net operating loss carryback - CARES Act		(223	)	(0.9	)		-		-			-		-
Valuation allowance		(50	)	(0.2	)		24		0.3			(18	)	(0.0	)
Federal tax return true-up		-		-			(142	)	(1.9	)		(147	)	(0.3	)
Change in federal tax rate - Tax Cuts and Jobs Act		-		-			-		-			(3,307	)	(7.8	)
Qualified production activities deduction		-		-			-		-			(832	)	(2.0	)
Other, net		(89	)	(0.3	)		22		0.3			119		0.3
Provision for income taxes	$	5,161		21.4	%	$	1,857		24.9	%	$	6,364		14.9	%

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

	October 3,			September 28,
(In thousands)	2020			2019
Deferred tax assets:
Defined benefit plans	$	2,727		$	2,661
Accrued expenses and asset reserves		1,885			1,207
Stock-based compensation		1,328			1,259
Operating lease liability		568			-
State net operating loss carryforwards and tax credits		92			120
Federal net operating loss carryforward		-			363
Valuation allowance		(207	)		(257	)
Deferred tax assets		6,393			5,353
Deferred tax liabilities:
Plant and equipment		(10,766	)		(10,625	)
Prepaid insurance		(1,217	)		(1,311	)
Right of use assets		(566	)		-
Goodwill		(412	)		(317	)
Deferred tax liabilities		(12,961	)		(12,253	)
Net deferred tax liability	$	(6,568	)	$	(6,900	)

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, which, among other changes, reduced the federal statutory corporate tax rate from 35% to 21% effective January 1, 2018. Since our fiscal year ends on the Saturday closest to September 30 rather than the calendar year, we are subject to IRS rules relating to transitional income tax rates. Based on these rules, our federal statutory rate was 24.5% for 2018 and is 21% for 2019 and beyond. We remeasured our deferred tax assets and liabilities and adjusted our estimated annual federal income tax rate to incorporate the lower corporate tax rate provided for under the Act in our first quarter tax provision for 2018, which resulted in a $3.3 million reduction in income tax expense for 2018.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act includes several changes impacting business, including, but not limited to, enhanced business interest deductibility, net operating loss ("NOL") carryback provisions, payroll tax deferral provisions and employee retention tax credits. We recorded a $223,000 tax benefit in 2020 resulting from the NOL carryback provisions of the CARES Act.

As of October 3, 2020 and September 28, 2019, we recorded deferred tax liabilities (net of valuation allowances) of $6.6 million and $6.9 million, respectively, in other liabilities on our consolidated balance sheet. We have $2.5 million of state NOLs that begin to expire in 2022, but principally expire between 2022 and 2035.

The realization of our deferred tax assets is entirely dependent upon our ability to generate future taxable income in applicable jurisdictions. GAAP requires that we periodically assess the need to establish a reserve against our deferred tax assets to the extent we no longer believe it is more likely than not that they will be fully realized. As of October 3, 2020, we recorded a valuation allowance of $207,000 pertaining to various state NOLs that were not expected to be utilized. The valuation allowance is subject to periodic review and adjustment based on changes in facts and circumstances and would be reduced should we utilize the state NOLs and tax credits against which an allowance had previously been provided or determine that such utilization was more likely than not. The $50,000 decrease in the valuation allowance during 2020 is primarily due to the utilization of state NOLs for which an allowance had been recorded together with the expiration of state tax credits for which an allowance had been previously recorded.

As of October 3, 2020, we had no material, known tax exposures that required the establishment of contingency reserves for uncertain tax positions.

We classify interest and penalties related to unrecognized tax benefits as part of income tax expense. There were no interest and penalties related to unrecognized tax benefits incurred during 2020, 2019 and 2018.    

We file 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 subsequent to 2015 remain subject to examination.