Income Taxes
The following table details the categories of total income tax assets and liabilities for both continuing and discontinued operations resulting from the cumulative tax effects of temporary differences:
|
| | | | | | | |
| August 30,
2017 | | August 31,
2016 |
| (In thousands) |
Deferred income tax assets: | | | |
Workers’ compensation, employee injury, and general liability claims | $ | 486 |
| | $ | 466 |
|
Deferred compensation | 437 |
| | 552 |
|
Net operating losses | 2,140 |
| | 1,258 |
|
General business and foreign tax credits | 11,599 |
| | 11,010 |
|
Depreciation, amortization and impairments | 7,515 |
| | 1,879 |
|
Straight-line rent, dining cards, accruals, and other | 4,392 |
| | 3,812 |
|
Subtotal | 26,569 |
| | 18,977 |
|
Valuation allowance | (16,871 | ) | | (6,905 | ) |
Total deferred income tax assets | 9,698 |
| | 12,072 |
|
Deferred income tax liabilities: | | | |
Property taxes and other | 1,916 |
| | 1,828 |
|
Total deferred income tax liabilities | 1,916 |
| | 1,828 |
|
Net deferred income tax asset | $ | 7,782 |
| | $ | 10,244 |
|
The Company had deferred tax assets, excluding liabilities, at August 30, 2017 of approximately $9.7 million, the most significant of which include the Company’s general business tax credits carryovers to future years of approximately $11.1 million. This item may be carried forward up to twenty (20) years for possible utilization in the future. The carryover of general business tax credits, beginning in fiscal 2002, will begin to expire at the end of fiscal 2022 through 2037, if not utilized by then.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax net operating losses and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of taxable temporary differences, identified tax-planning strategy, the results of recent operations, and where appropriate, projected future taxable income. We have negative evidence in the form of cumulative losses in recent years, a significant source of which was due to a number of underperforming restaurant locations, principally all of which have, as of this time, been disposed of under the Company's disposal plan. The presence of a cumulative loss in recent years, generally limits our ability to consider projections of future earnings in assessing realization of our deferred tax assets.
Notwithstanding, we have objective positive evidence in the form of (i) identified tax planning strategy and (ii) an excess of appreciated asset value over the tax basis of properties within the Company's portfolio of real estate in an amount sufficient to realize certain of our deferred tax assets. Tax planning strategy includes the acceleration of unrealized gains from our owned property locations through sale or exchange, if and when necessary on a selective basis, to realize deferred tax assets including federal tax credit carryovers. We regularly evaluate our portfolio of owned properties, long-lived assets and their relative values, for many different business purposes, and have estimated the resulting unrealized net gains thereon to be of sufficient amount to realize certain of our deferred tax assets.
Collectively, the available evidence supports an assertion that our deferred tax assets will be realized, but with the exception of a certain portion of the Company's general business and foreign tax credit carryovers that are not likely at this time to be realized, and on which the Company has established a valuation allowance. The general business credits and foreign tax credit carryovers generally expire if unused within twenty (20) years and ten (10) years, respectively. We have, as a result of the foregoing assessment, increased the valuation allowance by an additional $10.0 million during fiscal 2017 to a $16.9 million valuation allowance for deferred tax assets that are not likely to be realized prior to their expiration. The resulting valuation allowance increase is principally attributable to changes for this fiscal year in appreciated asset values of real estate properties considered in the Company's identified tax planning strategy.
An analysis of the provision for income taxes for continuing operations is as follows:
|
| | | | | | | | | | | |
| August 30,
2017 | | August 31,
2016 | | August 26,
2015 |
| (In thousands) |
Current federal and state income tax expense | $ | 329 |
| | $ | 128 |
| | $ | 523 |
|
Current foreign income tax expense | 84 |
| | 82 |
| | 63 |
|
Deferred income tax expense (benefit) | 2,025 |
| | 4,665 |
| | (1,662 | ) |
Total income tax expense (benefit) | $ | 2,438 |
| | $ | 4,875 |
| | $ | (1,076 | ) |
Relative only to continuing operations, the reconciliation of the expense (benefit) for income taxes to the expected income tax expense (benefit), computed using the statutory tax rate, was as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended |
| August 30,
2017 | | August 31,
2016 | | August 26,
2015 |
| Amount | | % | | Amount | | % | | Amount | | % |
| (In thousands and as a percent of pretax loss from continuing operations) |
Income tax benefit from continuing operations at the federal rate | $ | (6,922 | ) | | 34.0 | % | | $ | (1,830 | ) | | 34.0 | % | | $ | (832 | ) | | 34.0 | % |
Permanent and other differences: | | | | | | | | | | | |
Federal jobs tax credits (wage deductions) | 200 |
| | (1.0 | ) | | 226 |
| | (4.2 | ) | | 302 |
| | (12.3 | ) |
Stock options and restricted stock | 129 |
| | (0.6 | ) | | 165 |
| | (3.1 | ) | | 74 |
| | (3.0 | ) |
Other permanent differences | 62 |
| | (0.3 | ) | | 74 |
| | (1.4 | ) | | 60 |
| | (2.5 | ) |
State income tax, net of federal benefit | (45 | ) | | 0.2 |
| | 94 |
| | (1.7 | ) | | 200 |
| | (8.2 | ) |
General Business Tax Credits | (589 | ) | | 2.9 |
| | (665 | ) | | 12.4 |
| | (888 | ) | | 36.3 |
|
Other | 84 |
| | (0.4 | ) | | (94 | ) | | 1.7 |
| | 8 |
| | (0.3 | ) |
Change in valuation allowance | 9,519 |
| | (46.8 | ) | | 6,905 |
| | (128.3 | ) | | — |
| | — |
|
Income tax expense (benefit) from continuing operations | $ | 2,438 |
| | (12.0 | )% | | $ | 4,875 |
| | (90.6 | )% | | $ | (1,076 | ) | | 44.0 | % |
For the fiscal year ended August 30, 2017, including both continuing and discontinued operations, the Company is estimated to report a federal taxable loss of approximately $3.0 million.
For the fiscal year ended August 31, 2016, including both continuing and discontinued operations, the Company generated federal taxable income of approximately $3.1 million.
For the fiscal year ended August 26, 2015, including both continuing and discontinued operations, the Company generated federal taxable income of approximately $0.4 million.
Our income tax filings are periodically examined by various federal and state jurisdictions. The State of Louisiana is currently examining tax returns for fiscal 2014 and 2015.
There were no payments of federal income taxes in fiscal 2015, 2016 or 2017. The Company has income tax filing requirements in over 30 states. State income tax payments were approximately $0.4 million, $0.4 million, and $0.7 million in fiscal 2017, 2016, and 2015, respectively.
The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal 2015, 2016 and 2017 (in thousands):
|
| | | |
Balance as of August 27, 2014 | $ | 62 |
|
Decrease based on prior year tax positions | — |
|
Interest Expense | 1 |
|
Balance as of August 26, 2015 | $ | 63 |
|
Decrease based on prior year tax positions | (18 | ) |
Interest Expense | — |
|
Balance as of August 31, 2016 | $ | 45 |
|
Decrease based on prior year tax positions | (20 | ) |
Interest Expense | — |
|
Balance as of August 30, 2017 | $ | 25 |
|
The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized. There is no interest associated with unrecognized benefits as of August 30, 2017. The Company has included interest or penalties related to income tax matters as part of income tax expense (or benefit).
It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions as of August 30, 2017.
Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements. Amounts considered probable of settlement within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.