CROWN CRAFTS INC Income Taxes Disclosure

Note 12 – Income Taxes

 

As disclosed in Note 2, the Company adopted ASU No. 2023-09 effective for the fiscal year ended March 29, 2026. The ASU requires disaggregation of information contained in the disclosures related to the reconciliation of the U.S. federal statutory corporate income tax rate to the Company’s effective tax rate, which is summarized below for the fiscal year ended March 29, 2026 (amounts in thousands):

 

		Fiscal year ended March 29, 2026
		Amount				Tax Rate
U.S. statutory rate applied to income before income taxes		$	554				21.0	%
Differences arising from:
State income taxes, net of federal income tax benefit (1)			161				6.1	%
Foreign tax effects - Peoples Republic of China			24				0.9	%
Tax credits - foreign tax credits			(24	)			(0.9%	)
Changes in unrecognized tax liabilities			(88	)			(3.4%	)
Nontaxable or nondeductible items (2)			157				6.0	%
Other - net			11				0.4	%
Income tax expense / effective tax rate		$	795				30.1	%

 

(1)	For the fiscal year ended March 29, 2026, the majority of the Company's state income taxes were incurred in California, Georgia, Michigan, Minnesota and Texas.
(2)	Primarily the effect of tax shortfalls arising from the expiration and forfeiture of stock options and performance share awards, as well as the vesting of non-vested stock during the year.

 

In accordance with the guidance in effect prior to the adoption of ASU No. 2023-09, the Company’s previously disclosed reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate for the fiscal year ended March 30, 2025 is summarized below (amounts in thousands):

 

		Amount				Tax Rate
U.S. statutory rate applied to loss before income taxes		$	(2,607	)			21.0	%
State income taxes, net of federal income tax			(527	)			4.2	%
Tax credits			(14	)			0.1	%
Discrete items			64				(0.5%	)
Other - net, including foreign			27				(0.2%	)
Income tax benefit / effective tax rate		$	(3,057	)			24.6	%

 

All income of the Company is earned domestically. The Company is required to pay foreign taxes to the Peoples Republic of China based strictly on the expenses incurred at the Company’s foreign representative offices in that country. The Company recognizes these foreign taxes paid as a component of the Company’s income tax provision.

 

The Company’s income tax provision for the fiscal years ended March 29, 2026 and March 30, 2025 is summarized below (in thousands):

 

		Fiscal year ended March 29, 2026
		Current				Deferred				Total
Income tax expense (benefit) on current year income:
Federal		$	(201	)		$	683			$	482
State			36								204
Foreign			24				-				24
Total income tax expense (benefit) on current year income			(141	)			851				710
Income tax expense (benefit) - discrete items:
Reserve for unrecognized tax benefits			(88	)			-				(88	)
Adjustment to prior year provision			13				-				13
Tax shortfall related to stock-based compensation			160				-				160
Income tax expense - discrete items			85				-				85
Total income tax expense (benefit)		$	(56	)		$	851			$	795

 

		Fiscal year ended March 30, 2025
		Current				Deferred				Total
Income tax expense (benefit) on current year loss:
Federal		$	950			$	(3,419	)		$	(2,469	)
State			145				(812	)			(667	)
Foreign			15				-				15
Total income tax expense (benefit) on current year loss			1,110				(4,231	)			(3,121	)
Income tax expense - discrete items:
Reserve for unrecognized tax benefits			6				-				6
Adjustment to prior year provision			24				-				24
Tax shortfall related to stock-based compensation			34				-				34
Income tax expense - discrete items			64				-				64
Total income tax expense (benefit)		$	1,174			$	(4,231	)		$	(3,057	)

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of March 29, 2026 and March 30, 2025 are as follows (in thousands):

 

		March 29, 2026				March 30, 2025
Deferred income tax assets:
Employee wage and benefit accruals		$	293			$	260
Accounts receivable and inventory reserves			594				673
Operating lease liabilities			2,408				3,241
Intangible assets			2,487				3,490
Net operating loss carryforwards			728				704
Accrued interest and penalty on unrecognized tax liabilities			24				20
Stock-based compensation			442				517
Total gross deferred income tax assets			6,976				8,905
Less valuation allowance			(704	)			(704	)
Deferred income tax assets after valuation allowance			6,272				8,201
Deferred income tax liabilities:
Prepaid expenses			(317	)			(488	)
Operating lease right of use assets			(2,217	)			(3,033	)
Property, plant and equipment			(81	)			(172	)
Total deferred income tax liabilities			(2,615	)			(3,693	)
Net deferred income tax assets		$	3,657			$	4,508

 

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 March 29, 2026 and March 30, 2025 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.

 

As disclosed in Note 2, the Company adopted ASU No. 2023-09 effective for the fiscal year ended March 29, 2026. The ASU requires a disaggregation of income tax payments, which is summarized below for the fiscal year ended March 29, 2026 (in thousands):

 

Federal - United States of America		$	500
State
California			100
Texas			12
Michigan			2
North Carolina			1
Total state income taxes paid			115
Foreign - Peoples Republic of China			20
Total income taxes paid		$	635

 

The following table sets forth the reconciliation of the beginning and ending amounts of unrecognized tax liabilities during the fiscal years ended March 29, 2026 and March 30, 2025 (in thousands):

 

		2026				2025
Balance at beginning of period		$	411			$	394
Additions related to current year positions			-				22
Additions related to prior year positions			28				81
Reductions due to lapses of the statute of limitations			(129	)			(86	)
Balance at end of period		$	310			$	411

 

During fiscal years 2026 and 2025, the Company recorded discrete income tax charges of $160 thousand and $34 thousand, respectively, to reflect the effect of tax shortfalls arising from the expiration and forfeiture of stock options and performance share awards, as well as the vesting of non-vested stock during the periods.  Income tax overpayments at March 29, 2026 and March 30, 2025 were $504 thousand and $76 thousand, respectively, and were recorded in other accounts receivable in the consolidated balance sheets.