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Income Taxes
 12 Months Ended
Oct. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 4 - Income Taxes:

 

The benefit on or provision for income taxes includes the following:

 

    October 30, 2020     November 1, 2019  
    (52 Weeks)     (52 Weeks)  
Current:                
Federal   $ (9,517 )   $ (177 )
State     135       342  
      (9,382 )     165  
Deferred:                
Federal     7,097       1,667  
State     92       221  
      7,189       1,888  
    $ (2,193 )   $ 2,053  

 

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

 

    October 30, 2020     November 1, 2019  
    (52 Weeks)     (52 Weeks)  
Provision for federal income taxes at the applicable statutory rate   $ 1,052     $ 1,790  
Increase in provision resulting from state income taxes, net of federal income tax benefit     179       445  
Change in federal rate – NOL carryback     (2,868 )     -  
Research and development tax credit     (358 )     -  
Non-taxable life insurance gain     (190 )     (140 )
Other, net     (8 )     (42 )
    $ (2,193 )   $ 2,053  

 

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

 

    2020     2019  
Receivables allowance   $ 4     $ 8  
Returns allowance     70       160  
Inventory packaging reserve     33       90  
Inventory overhead capitalization     427       394  
Employee benefits     525       467  
Deferred payroll tax     290       -  
Other     120       25  
State taxes     (182 )     (281 )
Incentive compensation     1,387       1,794  
Pension and health care benefits     6,752       5,604  
Depreciation     (12,944 )     (6,310 )
Net operating loss carry-forward and credits     1,273       2,173  
Valuation allowance established against state NOL     (77 )     (77 )
Deferred income tax assets, net   $ (2,322 )   $ 4,047  

 

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.

 

As of October 30, 2020, the Company did not have any valuation allowance against its federal net deferred tax assets.

 

Management reevaluated the need for a valuation allowance at the end of fiscal 2020 and 2019 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 California NOL.

 

As of October 30, 2020, the Company had NOL carryforwards of approximately $2,934 for federal and $4,233 for state purposes. The federal loss will be carried forward indefinitely until it can be utilized against future taxable income. The state loss carryforwards will expire at various dates from 2023 through 2040.

 

As of October 30, 2020, we have provided a liability of $169 for 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 1, 2019, we have provided a liability of $90 for 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:

 

    October 30, 2020     November 1, 2019  
    (52 Weeks)     (52 Weeks)  
             
Balance at beginning of year   $ 90     $ 155  
Additions based on tax positions related to the current year     -       -  
Additions for tax positions of prior years     -       -  
Reductions for tax positions of prior years     79       (65 )
Settlements     -       -  
                 
Balance at end of year   $ 169     $ 90  

 

We recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of October 30, 2020, we had approximately $21 in accrued interest and penalties which is included as a component of the $169 unrecognized tax benefit noted above.

 

Our federal income tax returns are open to audit under the statute of limitations for the fiscal years 2017 through 2019.

 

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 2017 through 2019.

 

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

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before January 01, 2021. In addition, the CARES Act allows NOLs incurred in taxable years beginning after December 31, 2017 and before January 01, 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of various provisions of the CARES Act, but at present, expects that the NOL carryback provision of the CARES Act would result in a material cash benefit to us. The Company has filed a federal income tax return for tax year 2019 (fiscal year 2020) and carried back a taxable loss of $9,900 to tax years 2014 (fiscal year 2015) and 2015 (fiscal year 2016). Furthermore, the Company estimates additional taxable loss for tax year 2020 (current fiscal year 2021) which can be carried back to remaining taxable income of tax year 2015 (fiscal year 2016) and taxable income of tax years 2016 (fiscal year 2017) and 2018 (fiscal year 2019).

 

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”). Among other significant changes, the Tax Act reduced the corporate federal income tax rate from 35% to 21%. The carryback of NOLs from tax years 2019 and 2020 under the CARES Act to pre- Tax Act years will generate an income tax benefit due to the differential in income tax rates.

 

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 March 27, 2020, for the CARES Act. Thus, at the date of enactment, in the second quarter, the Company recorded an income tax benefit of $1,100 which represented the impact of the carryback of NOL related to tax year 2019 (fiscal year 2020) which could be estimated with reasonable certainty at that time. The tax benefit on account of the current year NOL carryback is recorded as a component of the annual effective tax rate per guidance provided in ASC Topic 740.

 

The effective tax rate was -47.2% and 24.0% for fiscal years 2020 and 2019, respectively. The effective tax rate for fiscal year 2020 was impacted by the rate differential on NOL carryback available under the CARES Act discussed in the paragraphs above. In addition, the effective tax rates for fiscal years 2020 and 2019 were impacted by such items as non-deductible meals and entertainment, non-taxable gains and losses on life insurance policies and state income taxes.