Annual report pursuant to Section 13 and 15(d)

Note 9 - Income Taxes

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Note 9 - Income Taxes
 12 Months Ended
Apr. 01, 2012
Income Tax Disclosure [Text Block]
Note 9 – Income Taxes

The Company’s income tax provision for fiscal years 2012 and 2011 is summarized below (in thousands):

   
Fiscal year ended April 1, 2012
 
   
Current
   
Deferred
   
Total
 
Federal
  $ 2,224     $ 313     $ 2,537  
State
    317       18       335  
Other, including foreign
    14       -       14  
Income tax expense on continuing operations
    2,555       331       2,886  
Income tax expense/(benefit) on discontinued operations
    (12 )     6       (6 )
Adjustment to prior year provision
    -       60       60  
Income tax reported in stockholders' equity related to stock-based compensation
    9       -       9  
Total income tax provision
  $ 2,552     $ 397     $ 2,949  

   
Fiscal year ended April 3, 2011
 
   
Current
   
Deferred
   
Total
 
Federal
  $ 2,183     $ 165     $ 2,348  
State
    350       31       381  
Other, including foreign
    43       -       43  
Income tax expense on continuing operations
    2,576       196       2,772  
Income tax benefit on discontinued operations
    (18 )     (27 )     (45 )
Income tax reported in stockholders' equity related to stock-based compensation
    (137 )     -       (137 )
Total income tax provision
  $ 2,421     $ 169     $ 2,590  

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of April 1, 2012 and April 3, 2011 are as follows (in thousands):

   
2012
   
2011
 
Deferred tax assets:
           
Employee benefit accruals
  $ 240     $ 377  
Accounts receivable and inventory reserves
    287       448  
Deferred rent
    69       55  
Goodwill
    21       174  
Other intangible assets
    1,229       1,147  
State net operating loss carryforwards
    971       934  
Stock-based compensation
    621       595  
Total gross deferred tax assets
    3,438       3,730  
Less valuation allowance
    (971 )     (934 )
Deferred tax assets after valuation allowance
    2,467       2,796  
                 
Deferred tax liabilities:
               
Prepaid expenses
    (723 )     (649 )
Property, plant and equipment
    (7 )     (13 )
Total deferred tax liabilities
    (730 )     (662 )
Net deferred income tax assets
  $ 1,737     $ 2,134  

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 1, 2012 and April 3, 2011 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.

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.  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.  Based on its recent evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements.  Tax years still open to federal or state general examination or other adjustment as of April 1, 2012 were the tax years ended March 29, 2009, March 28, 2010, April 3, 2011 and April 1, 2012, as well as the tax year ended March 30, 2008 for several states.  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.

The Company previously disclosed in its quarterly reports on Form 10-Q that the Internal Revenue Service (“IRS”) had commenced an examination of the Company’s consolidated federal income tax return for the fiscal year ended March 29, 2009.  The IRS notified the Company on March 8, 2012 that it had closed the examination with no proposed adjustment to the positions taken by the Company on such tax return.

The Company's provision for income taxes on continuing operations is based upon effective tax rates of 36.4% and 38.6% in fiscal years 2012 and 2011, 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 2012 and 2011 (in thousands):

   
2012
   
2011
 
Tax expense at statutory rate (34%)
  $ 2,699     $ 2,440  
State income taxes, net of Federal income tax benefit
    210       231  
Tax credits
    (13 )     (21 )
Nondeductible expenses
    11       77  
Other
    (21 )     45  
Income tax expense on continuing operations
  $ 2,886     $ 2,772