Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The amount of the deferred tax assets considered realizable could be adjusted if estimates of future taxable income during the carryforward periods are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence, such as the Company’s projections for growth. Significant components of our deferred tax liabilities and assets as of April 28, 2017, and April 29, 2016, were as follows:
|
| | | | | | | |
(in thousands) | April 28, 2017 | | April 29, 2016 |
Deferred tax assets: | | | |
Self-insurance | $ | 2,306 |
| | $ | 5,595 |
|
Stock and deferred compensation plans | 14,034 |
| | 12,582 |
|
Deferred proceeds on Mimi’s Café sale | — |
| | 3,564 |
|
Rebates, coupons and allowances | 2,683 |
| | 1,067 |
|
Inventory | 2,234 |
| | 2,605 |
|
Wage and related liabilities | 2,511 |
| | 3,426 |
|
Deferred gain from sale leaseback | 769 |
| | 22,306 |
|
Other | 2,392 |
| | 7,619 |
|
Total deferred tax assets before valuation allowances | 26,929 |
| | 58,764 |
|
Valuation allowance | (238 | ) | | (246 | ) |
Net deferred tax assets | $ | 26,691 |
| | $ | 58,518 |
|
| | | |
Deferred tax liabilities: | | | |
Property, plant and equipment | $ | 19,988 |
| | $ | 28,111 |
|
Intangibles | 1,217 |
| | 747 |
|
Other | 405 |
| | 658 |
|
Total deferred tax liabilities | 21,610 |
| | 29,516 |
|
Net deferred tax assets (liabilities) | $ | 5,081 |
| | $ | 29,002 |
|
There are $568 of state net operating loss carry forwards that will expire at various times through 2036.
As of April 28, 2017, and April 29, 2016, the valuation allowance for net operating loss carryovers totaled $238 and $246, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income in carryback years and tax-planning strategies when making this assessment.
Significant components of the provision (benefit) for income taxes are as follows:
|
| | | | | | | | | | | |
(in thousands) | 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | (3,647 | ) | | $ | 3,714 |
| | $ | (5,679 | ) |
State | (173 | ) | | 873 |
| | (779 | ) |
Total current | (3,820 | ) | | 4,587 |
| | (6,458 | ) |
Deferred: |
| |
| |
|
Federal | 8,364 |
| | 1,704 |
| | (1,922 | ) |
State | (670 | ) | | 148 |
| | (246 | ) |
Total deferred | 7,694 |
| | 1,852 |
| | (2,168 | ) |
Total tax provision (benefit) | $ | 3,874 |
| | $ | 6,439 |
| | $ | (8,626 | ) |
Our provision for income taxes differs from the amounts computed by applying the federal statutory rate due to the following: |
| | | | | | | | |
| 2017 | | 2016 | | 2015 |
Statutory federal tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
State and local income tax — net | 0.9 |
| | 3.9 |
| | 6.8 |
|
Domestic production activity deduction | (13.5 | ) | | (11.7 | ) | | 13.4 |
|
Fixed assets | — |
| | — |
| | 2.2 |
|
Officers life insurance | (2.5 | ) | | 2.7 |
| | 4.4 |
|
Other | (1.4 | ) | | (1.5 | ) | | (0.2 | ) |
Provision for income taxes | 18.5 | % | | 28.4 | % | | 61.6 | % |
Taxes paid during fiscal 2017, fiscal 2016 and fiscal 2015 were $23,743, $7,739 and $10,543, respectively.
Uncertain Tax Positions
The following table summarizes activity of the total amounts of unrecognized tax benefits:
|
| | | | | | | | | | | |
(in thousands) | 2017 | | 2016 | | 2015 |
Balance at beginning of fiscal year | $ | 4,983 |
| | $ | 5,202 |
| | $ | 5,952 |
|
Additions based on tax positions related to the current year | (23 | ) | | 306 |
| | 63 |
|
Additions for tax positions of prior years | 308 |
| | 149 |
| | 551 |
|
Reductions for tax positions of prior years | (227 | ) | | (188 | ) | | (284 | ) |
Reductions due to settlements with taxing authorities | (126 | ) | | (113 | ) | | (672 | ) |
Reductions due to statute of limitations expiration | (903 | ) | | (373 | ) | | (408 | ) |
Balance at end of fiscal year | $ | 4,012 |
| | $ | 4,983 |
| | $ | 5,202 |
|
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of April 28, 2017, April 29, 2016, and April 24, 2015, was $4,012, $4,720 and $4,939, respectively. The remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain, but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not affect our effective tax rate.
The Company believes that it is reasonable that a decrease of up to $73 to $1,554 in unrecognized tax benefits related to state exposures may be necessary in the coming year due to settlements with taxing authorities or lapses of statutes of limitations.
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense in the Consolidated Statements of Net Income. During fiscal 2017, fiscal 2016 and fiscal 2015, we recognized $422, $50 and $166, respectively of benefits related to the adjustment of previously assessed interest and penalties. As of April 28, 2017, and April 29, 2016, we accrued approximately $368 and $790, respectively, in interest and penalties related to unrecognized tax benefits.
We file United States federal and various state and local income tax returns. Tax returns are generally subject to examination for a period of three to five years after the filing of the respective return.