Income Taxes
Income tax expense (benefit) on income (loss) from continuing operations for the periods shown below consisted of:
|
| | | | | | | | | | | |
| Current | | Deferred | | Total |
Year Ended December 31, 2017: | | | | | |
U.S. Federal | $ | — |
| | $ | (617 | ) | | $ | (617 | ) |
State and local | 1,003 |
| | 95 |
| | 1,098 |
|
| $ | 1,003 |
| | $ | (522 | ) | | $ | 481 |
|
Year Ended December 25, 2016: | | | | | |
U.S. Federal | $ | — |
| | $ | (2,913 | ) | | $ | (2,913 | ) |
State and local | 543 |
| | 51 |
| | 594 |
|
| $ | 543 |
| | (2,862 | ) | | $ | (2,319 | ) |
Year Ended December 27, 2015: | | | | | |
U.S. Federal | $ | 857 |
| | $ | 933 |
| | $ | 1,790 |
|
State and local | 1,380 |
| | 234 |
| | 1,614 |
|
| $ | 2,237 |
| | 1,167 |
| | $ | 3,404 |
|
Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 34% to income (loss) from continuing operations before income taxes as a result of the following:
|
| | | | | | | | | | | | |
| Year Ended
December 31, 2017 | | Year Ended
December 25, 2016 | | Year Ended
December 27,
2015 | |
Computed “expected” tax expense (benefit) | $ | (148 | ) | | $ | 9,969 |
| | $ | 24,307 |
| |
Increase (decrease) in income tax benefit resulting from: | | | | | | |
State and local income taxes, net of federal benefit | 1,139 |
| | 873 |
| | 902 |
| |
Net nondeductible meals, entertainment, and other expenses | 1,027 |
| | 796 |
| | 890 |
| |
Tax Effects- 2017 Legislation
| (4,200 | ) | | — |
| | — |
| |
Change in valuation allowance | 2,663 |
| | (13,922 | ) | | (23,952 | ) | |
Increase (decrease) to provision for unrecognized tax benefits | — |
| | — |
| | 249 |
| |
Alternative minimum tax | — |
| | — |
| | 920 |
| |
Other | — |
| | (35 | ) | | 88 |
| |
| $ | 481 |
| | $ | (2,319 | ) | | $ | 3,404 |
| |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of December 31, 2017 and December 25, 2016 are presented below:
|
| | | | | | | |
| December 31, 2017 | | December 25, 2016 |
Non-current deferred tax assets/(liabilities): | | | |
Accounts receivable | $ | 1,328 |
| | $ | 1,560 |
|
Accrued expenses | 6,768 |
| | 10,945 |
|
Inventory capitalization | 1,055 |
| | 1,508 |
|
Alternative minimum tax credit | — |
| | 818 |
|
Pension and other postretirement benefit obligation | 3,365 |
| | 4,635 |
|
Definite and indefinite lived intangible assets | 4,076 |
| | 19,266 |
|
Net operating losses | 60,360 |
| | 79,991 |
|
Fixed assets | (15,156 | ) | | (28,550 | ) |
Gross non-current deferred tax assets/liabilities | 61,796 |
| | 90,173 |
|
Less valuation allowance | (69,876 | ) | | (97,959 | ) |
Net deferred tax liabilities | $ | (8,080 | ) | | $ | (7,786 | ) |
In assessing the realizability of deferred tax assets, management considers 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 future taxable income during the periods in which those temporary differences become deductible.
On December 22, 2017, the TCJA was signed into legislation. The Company has recorded a tax benefit of $4,200 which is primarily attributable to a re-measurement of deferred tax assets and deferred tax liabilities. The tax benefit is also attributable to a valuation allowance release of $800 related to an alternative minimum tax credit that is refundable in 2021 or earlier. As of December 31, 2017, we have made a reasonable estimate of the effects on the change in deferred tax balances under the TCJA. These amounts are provisional and subject to change as the determination of the impact of the income tax effects will require additional analysis and further interpretation of the TCJA from yet to be issued FASB guidance and U.S. Treasury regulations.
In addition, the TCJA imposes a new limit on interest expense deductions with respect to any debt outstanding on January 1, 2018. We have evaluated the effect of this rule and do not expect that the Company will be limited in its ability to claim interest expense deductions at this time although limitations may apply after 2021.
As a result of the restructuring in 2013, we recognized cancellation of indebtedness income, which is not subject to tax provided we reduce certain tax attributes. The final determination of the reduction in tax attributes was made in 2014. At that time, final calculations were made as to the manner in which we would reduce our tax attributes. For the year ended December 27, 2015, the valuation allowance decrease was primarily attributable to finalization of tax attribute reduction adjustments from the cancellation of indebtedness. During the year ended December 27, 2015, the valuation allowance decreased by $27,172 of which $26,660 was a benefit to earnings and $512 was recorded as an increase to accumulated other comprehensive income. During the year ended December 25, 2016, the valuation allowance decreased by $14,805 of which $15,126 was a benefit to earnings and $321 was recorded as a decrease to accumulated other comprehensive income. During the year ended December 31, 2017, the valuation allowance decreased by $28,083 of which $27,957 was a benefit to earnings and $126 was recorded as an increase to accumulated other comprehensive income. The primary reason for the decline in the valuation allowance for 2017 was attributable to the remeasurement of deferred taxes under the TCJA.
At December 31, 2017, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $222,663 after tax attribute reductions, which are available to offset future taxable income, if any. State net operating loss carryforwards may differ significantly from federal net operating loss carryforwards due to state tax attribute reduction requirements that differ from federal tax law. These federal and state net operating loss carryforwards begin to expire on various dates from 2019 through 2037. The majority of the operating losses are subject to the limitations of Internal Revenue Code (the “Code”) Section 382. This section provides limitations on the availability of net operating losses to offset current taxable income if significant ownership changes have occurred for federal tax purposes.
A reconciliation of the beginning and ending amount of uncertain tax positions for the years ended December 31, 2017, December 25, 2016 and December 27, 2015 are as follows:
|
| | | |
Balance as of December 28, 2014 | $ | 1,040 |
|
Increases based on tax positions in 2015 and tax attribute reductions | 249 |
|
Uncertain tax positions as of December 27, 2015 | $ | 1,289 |
|
Decreases based on tax positions prior to 2016 | (113 | ) |
Uncertain tax positions as of December 25, 2016 | $ | 1,176 |
|
Decreases based on tax positions prior to 2017 | (16 | ) |
Uncertain tax positions as of December 31, 2017 | $ | 1,160 |
|
At December 31, 2017, the Company had uncertain tax positions of $1,160, which, if recognized, would impact the effective tax rate. The Company did not record significant amounts of interest and penalties related to uncertain tax positions for the year ended December 31, 2017. The Company does not anticipate significant increases or decreases in our uncertain tax positions within the next twelve months. The Company recognizes penalties and interest relating to uncertain tax positions in the provision for income taxes. At December 31, 2017 and December 25, 2016, the accrual for uncertain tax positions, included $199 and $175 of interest and penalties, respectively.
The Company recorded an income tax benefit of $6,184 during 2016 related to its acquisition of certain legal entities during the year. In accordance with ASC 805, the Company released a portion of its valuation allowance, since it is able to utilize deferred tax assets against the deferred tax liabilities reflected in purchase accounting for the acquired entities.
The Company files a U.S. federal consolidated income tax return for which the statute of limitations remains open for the 2013 tax year and beyond. U.S. state jurisdictions have statute of limitations generally ranging from 3 to 6 years. The Company’s 2013 short tax year federal returns were examined by the Internal Revenue Service with no changes made to the returns filed.