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Note 7 - Income Taxes | 12 Months Ended
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Mar. 31, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
7. Income Taxes
The Company files a consolidated federal and various state income tax returns. The provision for income taxes is as follows:
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  |  | (Restated) |  |  | (Restated) |
|  | (In thousands) |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (1,901 | ) |  | $ | 395 |  |  | $ | 24,579 |
State |  |  | 351 |  |  |  | 495 |  |  |  | 1,953 |
|  |  | (1,550 | ) |  |  | 890 |  |  |  | 26,532 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (4,475 | ) |  | $ | 8,226 |  |  | $ | 425 |
State |  |  | (447 | ) |  |  | 637 |  |  |  | 283 |
|  |  | (4,922 | ) |  |  | 8,863 |  |  |  | 708 |
Total income tax (benefit) expense |  | $ | (6,472 | ) |  | $ | 9,753 |  |  | $ | 27,240 |
A reconciliation of the expected U.S. statutory rate to the effective rate follows:
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  |  |  |  |  |  | (Restated) |  |  |  | (Restated) |
Computed (expected tax rate) |  |  | 31.5 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes (net of federal tax benefit) |  |  | 3.1 |  |  |  | 3.9 |  |  |  | 2.7 |
State tax credits |  |  | 2.4 |  |  |  | (2.0 | ) |  |  | (0.9 | )
Federal credits |  |  | 3.1 |  |  |  | (1.3 | ) |  |  | (0.3 | )
Manufacturer’s deduction |  |  | - |  |  |  | (1.3 | ) |  |  | (3.7 | )
(Reversal of) addition to uncertain tax positions |  |  | (0.8 | ) |  |  | 0.2 |  |  |  | 0.2 |
Difference between statutory and actual rate |  |  | (10.5 | ) |  |  | (0.4 | ) |  |  | - |
Other permanent differences not deductible |  |  | 1.6 |  |  |  | 1.8 |  |  |  | (0.2 | )
Change in valuation allowance |  |  | (9.7 | ) |  |  | 0.1 |  |  |  | 0.1 |
Tax rate change |  |  | 8.8 |  |  |  | - |  |  |  | - |
Other |  |  | 2.4 |  |  |  | 2.0 |  |  |  | (0.3 | )
Effective income tax rate |  |  | 31.9 | % |  |  | 38.0 | % |  |  | 32.6 | %
The effective tax rate was 31.9% in 2018 and 38.0% in 2017. Of the 6.1 percentage point decrease in the effective tax rate for the year, there are three major contributors. The change in valuation allowance related to state credits accounts for a 9.9% decrease. There are certain California state income tax credit carryovers that will likely not be realized given the closure of the Modesto plant. The change in income tax rate resulting from the Tax Cuts and Jobs Act accounts for 4.9% of this decrease. These two items were partially offset by the change in federal and state credits and incentives which accounts for an 8.8% increase. The dollar amount of these credits and incentives did not change significantly from 2017 to 2018. However, because income was reported in 2017 and a loss was reported in 2018, the credits and incentives have an inverse impact on the tax rate in 2018 compared to 2017. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant change in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of 35.0% to 31.5% for Fiscal 2018 and then down to 21% starting in Fiscal 2019. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the rate in effect during their scheduled reversal. This revaluation resulted in a benefit of $1.4 million to income tax expense and a corresponding reduction in the net deferred tax liability as of March 31, 2018. The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the fiscal 2018 consolidated financial statements. The following is a summary of the significant components of the Company's deferred income tax assets and liabilities as of March 31:
|  | 2018 |  |  | 2017 |
|  |  | (Restated) |
|  | (In thousands) |
Deferred income tax assets: |  |  |  |  |  |  |  |
Future tax credits |  | $ | 5,030 |  |  | $ | 3,827 |
Restructuring reserve |  |  | 2,374 |  |  |  | - |
Employee benefits |  |  | 2,440 |  |  |  | 3,119 |
Insurance |  |  | 361 |  |  |  | 924 |
Other comprehensive loss |  |  | 8,500 |  |  |  | 7,135 |
Interest |  |  | 31 |  |  |  | 32 |
Future federal tax credits |  |  | 443 |  |  |  | - |
Prepaid revenue |  |  | 15,422 |  |  |  | 17,729 |
Other |  |  | 715 |  |  |  | 472 |
Net operating loss carryovers |  |  | 4,512 |  |  |  | - |
|  |  | 39,828 |  |  |  | 33,238 |
Deferred income tax liabilities: |  |  |  |  |  |  |  |
Property basis and depreciation difference |  |  | 11,750 |  |  |  | 12,786 |
481(a) adjustment |  |  | - |  |  |  | 429 |
Inventory valuation |  |  | 11,270 |  |  |  | 12,766 |
Intangibles |  |  | 325 |  |  |  | 213 |
Earnings from equity investment |  |  | - |  |  |  | 193 |
Pension |  |  | 2,329 |  |  |  | 3,590 |
|  |  | 25,674 |  |  |  | 29,977 |
Valuation allowance - non-current |  |  | 3,865 |  |  |  | 1,891 |
Net deferred income tax (liability) asset |  | $ | 10,289 |  |  | $ | 1,370 |
Net non-current deferred income tax assets of $10.3 million as of March 31, 2018 and $1.4 million as of March 31, 2017 are recognized in the Consolidated Balance Sheets. The Company has State tax credit carryforwards amounting to $1.5 million (California, net of Federal impact), $1.3 million (New York, net of Federal impact), and $2.2 million (Wisconsin, net of Federal impact), which are available to reduce future taxes payable in each respective state through 2033 (Wisconsin), through 2033 (New York), and through 2028 (California). The Company has performed the required assessment regarding the realization of deferred tax assets and at March 31, 2018, the Company has recorded a valuation allowance amounting to $3.9 million, which relates primarily to tax credit carryforwards which management has concluded it is more likely than not they will not be realized in the ordinary course of operations. Although realization is not assured, management has concluded that it is more likely than not that the deferred tax assets for which a valuation allowance was determined to be unnecessary will be realized in the ordinary course of operations. The amount of net deferred tax assets considered realizable, however, could be reduced if actual future income or income taxes rates are lower than estimated or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences. Current rules on the accounting for uncertainty on income taxes prescribe a minimum recognition threshold for a tax position taken or expected to be taken in a tax return that is required to be met before being recognized in the financial statements. Those rules also provide guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company classifies the liability for uncertain tax positions in other accrued expenses or other long-term liabilities depending on their expected settlement. The change in the liability for the years ended March 31, 2018 and 2017 consists of the following:
|  | 2018 |  |  | 2017 |
|  | (In thousands) |
Beginning balance |  | $ | 715 |  |  | $ | 694 |
Tax positions related to current year: |  |  |  |  |  |  |  |
Additions |  |  | 9 |  |  |  | 67 |
Tax positions related to prior years: |  |  |  |  |  |  |  |
Additions |  |  | 154 |  |  |  | - |
Reductions |  |  | (23 | ) |  |  | (46 | )
Settlements |  |  | - |  |  |  | - |
Lapses in statues of limitations |  |  | - |  |  |  | - |
Balance as of March 31, |  | $ | 855 |  |  | $ | 715 |
Neither balances at March 31, 2018 nor 2017 include tax positions that are highly certain but for which there is uncertainty about the timing. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of these positions would not impact the annual effective tax rate but would accelerate the payment of cash to the tax authority to an earlier period. The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense. During the years ended March 31, 2018 and 2017, the Company recognized approximately $0.0 million decrease and $0.1 million decrease, respectively, in interest and penalties. As of March 31, 2018 and 2017, the Company had approximately $0.1 million and $0.1 million, respectively, of interest and penalties accrued associated with unrecognized tax benefits. Although management believes that an adequate provision has been made for uncertain tax positions, there is the possibility that the ultimate resolution could have an adverse effect on the earnings of the Company. Conversely, if resolved favorably in the future, the related provisions would be reduced, thus having a positive impact on earnings. It is anticipated that audit settlements will be reached during 2019 with federal and state taxing authorities that could have an impact on earnings. Due to the uncertainty of amounts and in accordance with its accounting policies, the Company has not recorded any potential impact of these settlements. The federal income tax returns for years after March 31, 2014 are subject to examination.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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