CROWN CRAFTS INC Income Taxes Disclosure

Note 11 – Income Taxes

 

The Company’s income tax provision for fiscal years 2025 is summarized below (in thousands):

 

		Fiscal year ended March 30, 2025
		Current				Deferred				Total
Income tax expense (benefit) on current year income:
Federal		$	950			$	(3,419	)		$	(2,469	)
State			145				(812	)			(667	)
Foreign			15				-				15
Total income tax expense (benefit) on current year income			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 Company’s income tax provision for fiscal years 2024 is summarized below (in thousands):

 

		Fiscal year ended March 31, 2024
		Current				Deferred				Total
Income tax expense (benefit) on current year income:
Federal		$	2,065			$	(883	)		$	1,182
State			346				(209	)			137
Foreign			14				-				14
Total income tax expense (benefit) on current year income			2,425				(1,092	)			1,333
Income tax expense (benefit) - discrete items:
Reserve for unrecognized tax benefits			43				-				43
Adjustment to prior year provision			(68	)			-				(68	)
Tax shortfall related to stock-based compensation			26				-				26
Income tax expense - discrete items			1				-				1
Total income tax expense (benefit)		$	2,426			$	(1,092	)		$	1,334

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of March 30, 2025 and March 31, 2024 are as follows (in thousands):

 

		March 30, 2025				March 31, 2024
Deferred income tax assets:
Employee wage and benefit accruals		$	260			$	148
Accounts receivable and inventory reserves			673				585
Operating lease liabilities			3,241				3,892
Intangible assets			3,490				243
State net operating loss carryforwards			704				704
Accrued interest and penalty on unrecognized tax liabilities			20				18
Stock-based compensation			517				469
Total gross deferred income tax assets			8,905				6,059
Less valuation allowance			(704	)			(704	)
Deferred income tax assets after valuation allowance			8,201				5,355
Deferred income tax liabilities:
Prepaid expenses			(488	)			(552	)
Operating lease right of use assets			(3,033	)			(3,700	)
Intangible assets			-				(666	)
Property, plant and equipment			(172	)			(160	)
Total deferred income tax liabilities			(3,693	)			(5,078	)
Net deferred income tax assets		$	4,508			$	277

 

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 30, 2025 and March 31, 2024 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.

 

The following table sets forth the reconciliation of the beginning and ending amounts of unrecognized tax liabilities for fiscal years ended March 30, 2025 and March 31, 2024 (in thousands):

 

		2025				2024
Balance at beginning of period		$	394			$	323
Additions related to current year positions			22				43
Additions related to prior year positions			81				28
Revaluations due to change in enacted tax rates			-				-
Reductions for tax positions of prior years			-				-
Reductions due to lapses of the statute of limitations			(86	)			-
Reductions pursuant to judgements and settlements			-				-
Balance at end of period		$	411			$	394

 

During fiscal years 2025 and 2024, the Company recorded discrete income tax charges of $34,000 and $26,000, respectively, to reflect the effect of the tax shortfall arising from the exercise of stock options and the vesting of non-vested stock during the periods.

 

The Company’s provision for income taxes is based upon effective tax rates of 24.6% and 21.4% in the fiscal years ended March 30, 2025 and March 31, 2024, 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, plus the net effect of various discrete items.

 

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 2025 and 2024 (amounts in thousands):

 

		Fiscal year ended March 30, 2025								Fiscal year ended March 31, 2024
		Amount				Percentage				Amount				Percentage
Income (loss) before income tax expense		$	(12,413	)			100.0	%		$	6,228				100.0	%
Tax expense (benefit) at federal statutory rate		$	(2,607	)			21.0	%		$	1,308				21.0	%
State income taxes, net of Federal income tax benefit			(527	)			4.2	%			108				1.7	%
Tax credits			(14	)			0.1	%			(115	)			-1.8	%
Discrete items			64				-0.5	%			1				0.0	%
Other - net, including foreign			27				-0.2	%			32				0.5	%
Income tax expense (benefit)		$	(3,057	)			24.6	%		$	1,334				21.4	%

 

State and foreign income taxes consist primarily of amounts paid to the State of California and the People’s Republic of China, respectively.