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Income Taxes

12 Months Ended

Nov. 02, 2018

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 4 - Income Taxes:

The provision for income taxes includes the following:

		November 2, 2018				November 3, 2017
		(52 Weeks)				(53 Weeks)
Current:
Federal		$	979			$	4,039
State			377				450
			1,356				4,489
Deferred:
Federal			4,715				(321	)
State			225				(169	)
			4,940				(490	)
		$	6,296			$	3,999

The total tax provision differs from the expected amount computed by applying the statutory federal income tax rate to income before income taxes as follows:

		November 2, 2018				November 3, 2017
		(52 Weeks)				(53 Weeks)
Provision for federal income taxes at the applicable statutory rate		$	2,956			$	4,373
Increase in provision resulting from state income taxes, net of federal income tax benefit			463				108
Change in federal rate – Tax Act			3,059				-
Non-taxable life insurance gain			(99	)			(459	)
Domestic Production Activities Deduction			(106	)			(375	)
Change in valuation allowance			-				77
Other, net			23				275
		$	6,296			$	3,999

Deferred income taxes result from differences in the bases of assets and liabilities for tax and accounting purposes.

		2018				2017
Receivables allowance		$	9			$	12
Returns allowance			112				264
Inventory packaging reserve			35				129
Inventory overhead capitalization			305				480
Employee benefits			385				544
Other			-				1
State taxes			(230	)			(420	)
Incentive compensation			2,174				3,399
Pension and health care benefits			3,494				7,736
Depreciation			(2,274	)			(2,105	)
Net operating loss carry-forward and credits			77				77
Valuation allowance established against state NOL			(77	)			(77	)
Non-current tax assets, net		$	4,010			$	10,040

Management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary differences.

Management reevaluated the need for a valuation allowance at the end of 2018 and determined that some of its California net operating loss (“NOL”) may not be utilized. Therefore, a valuation allowance of $77 has been retained for such portion of the California NOL. Management has concluded that it is more likely than not that the other deferred tax assets as of November 2, 2018 will be realized.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. tax code that affected our fiscal year ended November 2, 2018, and future periods, including, but not limited to, (1) reducing the corporate federal income tax rate from 35% to 21%, (2) bonus depreciation that will allow for full expensing of qualified property in the year placed in service, and (3) the repeal of the domestic production activity deduction beginning with our fiscal year 2019. Section 15 of the Internal Revenue Code (the “Code”) stipulates that our fiscal year ended November 2, 2018 will have a blended corporate tax rate of 23.07%, which is based on the applicable tax rates before and after the Tax Act and the number of days in the year.

Under U.S. GAAP, specifically ASC Topic 740, Income Taxes, the tax effects of changes in tax laws must be recognized in the period in which the law is enacted, or December 22, 2017, for the Tax Act. ASC Topic 740 also requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the Company’s deferred taxes were re-measured based upon the new tax rates.

The Tax Act reduced the corporate tax rate from 35% to 21%, effective January 1, 2018. This results in a blended corporate tax rate of 23.07% in fiscal year 2018 and 21% thereafter. We analyzed our deferred tax balances to estimate which of those balances are expected to reverse in fiscal 2018 or thereafter, and we re-measured the deferred taxes at 23.07% or 21% accordingly. The change in deferred taxes is recorded as an adjustment to our income tax provision, which resulted in a charge totaling $3,059 in fiscal 2018.

The Company adopted ASU 2018-02, “Income Statement-Reporting Other Comprehensive Income (OCI) (Topic 220)” in year ended November 2, 2018. As a result of the remeasurement of deferred tax assets related to the Tax Act, we reclassified $2,529 from Other Comprehensive Income to Retained Earnings.

As of November 2, 2018, the Company had net operating loss carryforwards of approximately $874 for state purposes. These loss carryforwards will expire at various dates from 2018 through 2033.

As of November 2, 2018, we have provided a liability of $155 to unrecognized tax benefits related to various federal and state income tax matters. None of this liability will reduce our effective income tax rate if the asset is recognized in future reporting periods. We have not identified any new unrecognized tax benefits.

As of November 3, 2017, we have provided a liability of $135 to unrecognized tax benefits related to various federal and state income tax matters. None of this liability will reduce our effective income tax rate if the asset is recognized in future reporting periods. We have not identified any new unrecognized tax benefits.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

		November 2, 2018				November 3, 2017
		(52 Weeks)				(53 Weeks)

Balance at beginning of year		$	135			$	130
Additions based on tax positions related to the current year			10				14
Additions for tax positions of prior years			-				-
Reductions for tax positions of prior years			10				(9	)
Settlements			-				-

Balance at end of year		$	155			$	135

We recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of November 2, 2018, we had approximately $22 in accrued interest and penalties which is included as a component of the $155 unrecognized tax benefit noted above.

Our federal income tax returns are open to audit under the statute of limitations for the fiscal years 2015 through 2017.

We are subject to income tax in California and various other state taxing jurisdictions. Our state income tax returns are open to audit under the statute of limitations for the fiscal years ended 2014 through 2017.

We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.