Annual report pursuant to Section 13 and 15(d)

Note 8 - Income Taxes

v3.7.0.1
Note 8 - Income Taxes
12 Months Ended
Apr. 02, 2017
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
Note
8
Income Taxes
 
The Company’s income tax provisions for fiscal years
2017
and
2016
are summarized below (in thousands):
 
 
 
Fiscal year ended April 2, 2017
 
 
 
Current
 
 
Deferred
 
 
Total
 
Income tax expense on current year income:
                       
Federal
  $
2,422
    $
588
    $
3,010
 
State
   
200
     
105
     
305
 
Foreign
   
10
     
-
     
10
 
Total income tax expense on current year income
   
2,632
     
693
     
3,325
 
Income tax expense (benefit) - discrete items:
                       
Reserve for unrecognized tax benefits
   
134
     
-
     
134
 
Adjustment to prior year provision
   
9
     
4
     
13
 
Net excess tax benefit related to stock-based compensation
   
(248
)    
-
     
(248
)
Income tax expense (benefit) - discrete items
   
(105
)    
4
     
(101
)
Total income tax expense
  $
2,527
    $
697
    $
3,224
 
 
 
 
Fiscal year ended April 3, 2016
 
 
 
Current
 
 
Deferred
 
 
Total
 
Federal
  $
3,540
    $
133
    $
3,673
 
State
   
271
     
32
     
303
 
Other - net, including foreign
   
(61
)    
-
     
(61
)
Income tax expense
   
3,750
     
165
     
3,915
 
                         
Income tax reported in stockholders' equity related to stock-based compensation
   
(273
)    
-
     
(273
)
Total
  $
3,477
    $
165
    $
3,642
 
 
 
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of
April 2, 2017
and
April 3, 2016
are as follows (in thousands):
 
 
 
April 2, 2017
 
 
April 3, 2016
 
Deferred tax assets:
               
Employee wage and benefit accruals
  $
319
    $
740
 
Accounts receivable and inventory reserves
   
301
     
319
 
Deferred rent
   
67
     
67
 
Intangible assets
   
590
     
647
 
State net operating loss carryforwards
   
829
     
775
 
Stock-based compensation
   
299
     
478
 
Total gross deferred tax assets
   
2,405
     
3,026
 
Less valuation allowance
   
(829
)    
(775
)
Deferred tax assets after valuation allowance
   
1,576
     
2,251
 
                 
Deferred tax liabilities:
               
Prepaid expenses
   
(265
)    
(234
)
Property, plant and equipment
   
(71
)    
(80
)
Total deferred tax liabilities
   
(336
)    
(314
)
Net deferred income tax assets
  $
1,240
    $
1,937
 
 
In assessing the probability that the Company’s deferred tax assets will be realized, management of the Company has considered whether it is more likely than
not
that some portion or all of the deferred tax assets will
not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the future periods in which the temporary differences giving rise to the deferred tax assets will become deductible. The Company has also considered the scheduled inclusion into taxable income in future periods of the temporary differences giving rise to the Company’s deferred tax liabilities. The valuation allowance as of
April 2, 2017
and
April 3, 2016
was related to state net operating loss carryforwards that the Company does
not
expect to be realized. Based upon the Company’s expectations of the generation of sufficient taxable income during future periods, the Company believes that it is more likely than
not
that the Company will realize its deferred tax assets, net of the valuation allowance and the deferred tax liabilities.
 
The following table sets forth the reconciliation of the beginning and ending amounts of unrecognized tax benefits for fiscal years
2017
and
2016
(in thousands):
 
 
 
2017
 
 
2016
 
Balance at beginning of period
  $
211
    $
-
 
Additions related to current year positions
   
134
     
195
 
Additions related to prior year positions
   
343
     
16
 
Reductions for tax positions of prior years
   
-
     
-
 
Reductions due to the lapse of the statute of limitations
   
-
     
-
 
Payments pursuant to judgements and settlements
   
-
     
-
 
Balance at end of period
  $
688
    $
211
 
 
Management evaluates items of income, deductions and credits reported on the Company’s various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than
not
to be sustained. The Company applies the provisions of FASB ASC Sub-topic
740
-
10
-
25,
which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. Recognized income tax positions are measured at the largest amount that has a greater than
50%
likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. During fiscal year
2016,
an evaluation was made of the Company’s process regarding the calculation of the state portion of its income tax provision. This evaluation resulted in a tax position that reflects opportunities for the application of more favorable state apportionment percentages for several prior fiscal years. After considering all relevant information, the Company believes that the technical merits of this tax position would more likely than
not
be sustained. However, the Company also believes that the ultimate resolution of the tax position will result in a tax benefit that is less than the full amount being sought. Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording during fiscal year
2017
a reserve for unrecognized tax benefits of
$134,000
in the accompanying consolidated financial statements. During fiscal year
2016,
the Company recorded a gross reserve for unrecognized tax benefits of
$773,000,
less an offset of
$573,000
to reflect state income tax overpayments net of the federal income tax impact, for a net reserve for unrecognized tax benefits of
$200,000.
 
The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax benefits as a charge to interest expense in the Company’s consolidated statements of income. During fiscal years
2017
and
2016,
the Company had accrued
$65,000
and
$11,000,
respectively, for interest expense and penalties on the portion of the unrecognized tax benefit that has been refunded to the Company but for which the relevant statute of limitations remained unexpired.
No
interest expense or penalties is accrued with respect to estimated unrecognized tax benefits that are associated with state income tax overpayments that remain receivable.
 
The Company's provision for income taxes is based upon effective tax rates of
36.7%
and
36.4%
in fiscal years
2017
and
2016,
respectively. These effective tax rates are the sum of the top U.S. statutory federal income tax rate and a composite rate for state income taxes, net of federal tax benefit, in the various states in which the Company operates.
 
The following table reconciles income tax expense on income from continuing operations at the U.S. federal income tax statutory rate to the net income tax provision reported for fiscal years
2017
and
2016
(in thousands):
 
 
 
2017
 
 
2016
 
Tax expense at statutory rate (34%)
  $
2,991
    $
3,653
 
State income taxes, net of Federal income tax benefit
   
201
     
200
 
Tax credits
   
(10
)    
(13
)
Discrete items
   
(105
)    
-
 
Net tax effect of book expenses not deductible for tax purposes
   
143
     
132
 
Other - net, including foreign
   
4
     
(57
)
Income tax expense
  $
3,224
    $
3,915