Annual report pursuant to Section 13 and 15(d)

Note 15 - Income Taxes

v3.7.0.1
Note 15 - Income Taxes
12 Months Ended
Dec. 25, 2016
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
(15)
Income Taxes
 
Total income tax expense (benefit) for fiscal years
2016,
2015
and
2014
was (in thousands):
 
 
 
2016
 
 
2015
 
 
2014
 
Income from continuing operations
  $
15,660
    $
14,168
    $
11,830
 
Loss from discontinued operations
   
(186
)    
(869
)    
(7,472
)
Total consolidated income tax expense
  $
15,474
    $
13,299
    $
4,358
 
 
Income tax expense from continuing operations consists of the following:
 
 
 
Current
 
 
Deferred
 
 
Total
 
Year ended December 25, 2016
                       
U.S. Federal
  $
3,987
    $
8,165
    $
12,152
 
State
   
1,951
     
1,231
     
3,182
 
Foreign
   
326
     
-
     
326
 
    $
6,264
    $
9,396
    $
15,660
 
                         
Year ended December 27, 2015
                       
U.S. Federal
  $
14,692
    $
(3,445
)   $
11,247
 
State
   
2,697
     
(120
)    
2,577
 
Foreign
   
344
     
-
     
344
 
    $
17,733
    $
(3,565
)   $
14,168
 
                         
Year ended December 28, 2014
                       
U.S. Federal
  $
3,475
    $
6,447
    $
9,922
 
State
   
562
     
961
     
1,523
 
Foreign
   
385
     
-
     
385
 
    $
4,422
    $
7,408
    $
11,830
 
 
Income tax expense differs from amounts computed by applying the federal statutory income tax rate to income from continuing operations before income taxes as follows (in thousands):
 
 
 
2016
 
 
2015
 
 
2014
 
                         
Income tax expense at statutory rates
  $
16,245
    $
15,517
    $
13,489
 
Increase (decrease) in income taxes resulting from:
                       
State income taxes, net of federal benefit
   
2,193
     
1,787
     
1,609
 
Federal FICA tip credit net benefit
   
(3,179
)    
(3,124
)    
(2,814
)
Other
   
401
     
(12
)    
(454
)
    $
15,660
    $
14,168
    $
11,830
 
                         
Effective tax rate
   
33.7
%    
32.0
%    
30.7
%
 
 
The Company utilizes the federal FICA tip credit to reduce its periodic federal income tax expense. A restaurant company employer
may
claim a credit against the company’s federal income taxes for FICA taxes paid on certain tip wages (the FICA tip credit). The credit against income tax liability is for the full amount of eligible FICA taxes. Employers cannot deduct from taxable income the amount of FICA taxes taken into account in determining the credit. The Other line in the effective tax rate schedule above primarily represents non-deductible compensation in fiscal year
2016
and state employment tax credits in fiscal year
2014.
 
Income taxes applicable to discontinued operations are comprised of (a) taxes calculated at the composite federal and state statutory tax rate times the pre-tax loss plus (b) the FICA tip credit benefit attributable to the restaurant sales of the Mitchell’s Restaurants. A reconciliation of the U.S. statutory tax rate to the effective tax rate applicable to discontinued operations for fiscal years
2016,
2015
and
2014
follows (in thousands):
 
 
 
2016
 
 
2015
 
 
2014
 
Income tax benefit at statutory rates
  $
(167
)   $
(361
)   $
(6,204
)
Increase (decrease) in income taxes resulting from:
                       
State income taxes at state statutory rate, net of federal impact
   
(19
)    
(411
)    
(701
)
Other, primarily federal FICA tip credit net benefit
   
-
     
(97
)    
(567
)
    $
(186
)   $
(869
)   $
(7,472
)
Effective tax rate
   
39.0
%    
84.3
%    
42.2
%
 
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below (in thousands):
 
 
 
2016
 
 
2015
 
Deferred tax assets:                
Accounts payable and accrued expenses
  $
8,699
    $
8,222
 
Deferred rent
   
8,953
     
8,655
 
Net state operating loss carryforwards
   
2,317
     
3,281
 
Tax credit carryforwards
   
1,889
     
9,339
 
Property and equipment
   
4,080
     
5,098
 
Other
   
199
     
209
 
Total gross deferred tax assets
   
26,137
     
34,804
 
Less valuation allowance
   
(762
)    
(979
)
Net deferred tax assets
   
25,375
     
33,825
 
Deferred tax liabilities:
               
Intangible assets
   
(15,451
)    
(14,516
)
Total gross deferred tax liabilities
   
(15,451
)    
(14,516
)
Net deferred tax assets
  $
9,924
    $
19,309
 
 
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. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Gross deferred assets were reduced by a valuation allowance of
$762
thousand and
$979
thousand in
2016
and
2015,
respectively, related to certain state net operating loss carryforwards that are not likely to be offset by future state taxable income. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of the net deferred tax assets.
 
As of
December
25,
2016,
the Company has state net operating loss carry-forwards of
$59.8
million and federal and state tax credit carry-forwards of
$1.9
million, which are available to offset federal and state taxable income with the last of such benefit expiring in
2036
.
 
As of
December
25,
2016,
the Company’s gross unrecognized tax benefits totaled approximately
$579
thousand, of which
$380
thousand, if recognized, would impact the effective tax rate. The Company does not anticipate there will be any material changes in the unrecognized tax benefits within the next
12
months. Our continuing practice is to recognize interest and penalties related to uncertain tax positions in income tax expense.
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (amounts in thousands):
 
Unrecognized tax benefits balance at December 27, 2015
  $
607
 
Gross increases for tax positions of prior years
   
91
 
Reductions due to settlements with taxing authorities
   
(108
)
Reductions to tax positions due to statute expiration
   
(11
)
Unrecognized tax benefits balance at December 25, 2016
  $
579
 
 
The Company files consolidated and separate income tax returns in the United States Federal jurisdiction and many state jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal or state and local income tax examinations for fiscal years before
2012.