Income Taxes
The provision (benefit) for income taxes was comprised of the following:
|
| | | | | | | | | | | |
| Year ended |
| December 31, 2017 | | January 1, 2017 | | January 3, 2016 |
Current: | | | | | |
Federal | $ | — |
| | $ | — |
| | $ | — |
|
State | 30 |
| | — |
| | — |
|
| 30 |
| | — |
| | — |
|
| | | | | |
Deferred: | | | | | |
Federal | (219 | ) | | 1,297 |
| | (2,901 | ) |
State | 793 |
| | 992 |
| | (58 | ) |
| 574 |
| | 2,289 |
| | (2,959 | ) |
Change in valuation allowance | — |
| | (30,374 | ) | | 2,959 |
|
Provision (benefit) for income taxes | $ | 604 |
| | $ | (28,085 | ) | | $ | — |
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.
The components of deferred income tax assets and liabilities at December 31, 2017 and January 1, 2017 were as follows:
|
| | | | | | | |
| December 31, 2017 | | January 1, 2017 |
Deferred income tax assets: | | | |
Deferred income on sale-leaseback of certain real estate | $ | 2,848 |
| | $ | 4,714 |
|
Lease financing obligations | 173 |
| | 254 |
|
Postretirement benefit obligations | 877 |
| | 1,255 |
|
Stock-based compensation expense | 827 |
| | 599 |
|
Federal net operating loss carryforwards | 17,730 |
| | 21,351 |
|
State net operating loss carryforwards | 4,095 |
| | 3,845 |
|
Goodwill and other intangibles, net | 1,590 |
| | 2,814 |
|
Occupancy costs | 5,863 |
| | 7,460 |
|
Tax credit carryforwards | 24,982 |
| | 21,987 |
|
Accrued vacation benefits | 1,851 |
| | 2,560 |
|
Accrued workers compensation | 1,141 |
| | 1,490 |
|
Accumulated other comprehensive income-postretirement benefits | 326 |
| | 499 |
|
Other | 1,706 |
| | 2,131 |
|
Gross deferred income tax assets | 64,009 |
| | 70,959 |
|
Less: Valuation allowance | — |
| | — |
|
Net deferred income tax assets | $ | 64,009 |
| | $ | 70,959 |
|
| | | |
Deferred income tax liabilities: | | | |
|
Inventory and other reserves | (116 | ) | | (97 | ) |
Property and equipment depreciation | (15,701 | ) | | (17,599 | ) |
Franchise rights | (20,545 | ) | | (24,422 | ) |
Total deferred income tax liabilities | $ | (36,362 | ) | | $ | (42,118 | ) |
| | | |
Carrying value of net deferred income tax assets | $ | 27,647 |
| | $ | 28,841 |
|
The Company's federal net operating loss carryforwards expire beginning in 2033. As of December 31, 2017, the Company had federal net operating loss carryforwards of approximately $84.4 million. The Company's state net operating loss carryforwards expire beginning in 2018 through 2036.
In 2014, the Company recorded a valuation allowance on all of its net deferred tax assets. During the fourth quarter of 2016, the Company evaluated evidence to consider the reversal of the valuation allowance on its net deferred income tax assets and determined in the fourth quarter of fiscal 2016 that there was sufficient positive evidence to conclude that it is more likely than not its deferred income tax assets are realizable. In determining the likelihood of future realization of the deferred income tax assets as of January 1, 2017, the Company considered both positive and negative evidence and weighted the effect of such evidence based upon its objectivity as required by ASC 740. As a result, the Company believed that the weight of the positive evidence, including the cumulative income position in the three most recent years as of January 1, 2017 (as adjusted for non-recurring items and permanent differences between book and tax) and forecasts for a sustained level of future taxable income, was sufficient to overcome the weight of the negative evidence, and recorded a $30.4 million tax benefit to release the full valuation allowance against the Company's deferred income tax assets in the fourth quarter of 2016.
The Company has performed the required assessment of positive and negative evidence regarding the realization of deferred income tax assets in accordance with ASC 740 at December 31, 2017. In determining the likelihood of future realization of the deferred income tax assets as of December 31, 2017, the Company considered both positive and negative evidence and weighted the effect of such evidence based upon it's objectivity. The Company believes that the weight of the positive evidence, including the cumulative income position in the three most recent years (as adjusted for non-recurring items and permanent differences between book and tax) and forecasts for a sustained level of future taxable income, is sufficient to overcome the weight of the negative evidence and concludes that it does not need to record a valuation allowance against its deferred income tax assets.
A reconciliation of the statutory federal income tax provision to the income tax provision (benefit) for the years ended December 31, 2017, January 1, 2017, and January 3, 2016 was as follows:
|
| | | | | | | | | | | |
| Year ended |
| December 31, 2017 | | January 1, 2017 | | January 3, 2016 |
Statutory federal income tax provision | $ | 2,717 |
| | $ | 6,085 |
| | $ | 1 |
|
State income taxes, net of federal benefit | 572 |
| | 403 |
| | 6 |
|
Change in valuation allowance | — |
| | (30,374 | ) | | 2,959 |
|
Employment tax credits | (1,947 | ) | | (5,408 | ) | | (2,710 | ) |
Non-deductible expenses | 336 |
| | 965 |
| | — |
|
Federal rate change | (762 | ) | | — |
| | — |
|
Miscellaneous | (312 | ) | | 244 |
| | (256 | ) |
Provision (benefit) for income taxes | $ | 604 |
| | $ | (28,085 | ) | | $ | — |
|
The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At December 31, 2017 and January 1, 2017, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2013 - 2017 remain open to examination by the major taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act reduces the corporate tax rate to 21% from 35% while retaining the employment tax credits the Company is eligible for. In addition, the Act provides for one hundred percent expensing of certain qualified property placed in service after September 27, 2017.
The Company recorded a $0.8 million discrete tax benefit in the fourth quarter to remeasure its net deferred taxes due to the lowering of the Federal income tax statutory rate to 21% under the Act. The measurement of general business credits, which are a large component of offsetting deferred tax assets, was not affected by the Act with the exception of making a final determination on whether or not to opt out of the one hundred percent expensing provision.