Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 29, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The provision (benefit) for income taxes for fiscal year ended December 29, 2013, December 30, 2012 and December 25, 2011 consist of the following (in thousands):
 
 
2013
 
2012
 
2011
Current:
 
 
 
 
 
 
Federal
 
$
4,667

 
$
3,977

 
$
2,135

State
 
2,525

 
2,703

 
1,832

Deferred:
 
 
 
 
 
 
Federal
 
2,755

 
2,115

 
(1,961
)
State
 
(937
)
 
(269
)
 
(495
)
 
 
$
9,010

 
$
8,526

 
$
1,511


The reconciliation of income tax provision that would result from applying the federal statutory rate to income tax provision as shown in the accompanying consolidated statements of income for fiscal year ended December 29, 2013, December 30, 2012 and December 25, 2011 are as follows:
 
 
2013
 
2012
 
2011
Tax provision at U.S. federal statutory rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes
 
2.5

 
4.1

 
4.0

FICA tip tax credits
 
(14.8
)
 
(15.9
)
 
(24.9
)
HIRE act tax credit
 
—

 
—

 
(7.6
)
Other tax credits
 
(2.5
)
 
—

 
—

Other
 
1.6

 
(0.1
)
 
0.3

Effective tax rate
 
21.8
 %
 
23.1
 %
 
6.8
 %

The decrease in the Company's effective tax rate in fiscal year 2013 is primarily attributable to the increase in current year general business credits as well as an increase in state income tax credits. The increase in the Company's effective tax rate in fiscal year 2012 is primarily attributable to the increase in earnings before income taxes.
The Company's federal and state deferred taxes at December 29, 2013 and December 30, 2012 are as follows (in thousands):
 
 
2013
 
2012
Current deferred tax assets and (liabilities), net:
 
 
 
 
Accrued compensation and related costs
 
$
8,966

 
$
8,865

Advanced payments
 
1,754

 
1,083

General business and other tax credits
 
—

 
361

Interest rate swap
 
24

 
(2
)
Other current deferred tax assets
 
2,525

 
1,724

Other current deferred tax liabilities
 
(180
)
 
(1,188
)
Prepaid expenses
 
(3,877
)
 
(2,823
)
Supplies inventory
 
(6,260
)
 
(5,010
)
Current deferred tax asset, net
 
2,952

 
3,010

Non-current deferred tax assets and (liabilities), net:
 
 
 
 
Deferred Rent
 
15,505

 
13,896

Stock-based compensation
 
6,034

 
6,864

General business and other tax credits
 
7,742

 
9,735

Alternative minimum tax credits
 
1,262

 
1,262

Accrued compensation and related costs
 
1,241

 
1,016

Other non-current deferred tax assets
 
631

 
666

Other non-current deferred tax liabilities
 
(1,056
)
 
(455
)
Goodwill
 
(8,876
)
 
(7,335
)
Property and equipment
 
(26,640
)
 
(31,547
)
Franchise rights
 
1,440

 
1,163

Interest rate swap
 
(10
)
 
(3
)
Subtotal
 
(2,727
)
 
(4,738
)
Valuation Allowance
 
(290
)
 
—

Non-current deferred tax liability, net, included in other non-current liabilities
 
(3,017
)
 
(4,738
)
Net deferred tax liability
 
$
(65
)
 
$
(1,728
)

Realization of net deferred tax assets is dependent upon profitable operations and future reversals of existing taxable temporary differences. Based on the Company's evaluation of it deferred tax assets, as of December 29, 2013, a valuation allowance of approximately $0.3 million has been recorded against the deferred tax asset for state income tax credits in order to measure only the portion of the deferred tax assets that more likely than not will be realized. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carry forward period are increased or reduced or if there are differences in the timing or amount of future reversals of existing taxable temporary differences.
The Company has federal alternative minimum tax credits of $1.3 million available with no expiration date. The Company also has general business and other tax credits totaling $7.7 million available to offset future taxes which expire through 2033.
Pursuant to the guidance for uncertain tax positions, a taxpayer must be able to more likely than not sustain a position to recognize a tax benefit, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The only periods subject to examination for the Company's federal and state returns are the 2009 through 2013 tax years.
The following table summarizes the Company's unrecognized tax benefits at December 29, 2013 and December 30, 2012 (in thousands):
 
 
2013
 
2012
Beginning of year
 
$
335

 
$
212

Increase due to current year tax positions
 
140

 
168

Decrease due to current year tax positions
 
—

 
(1
)
Settlements
 
(19
)
 
(1
)
Reductions related to lapses
 
(55
)
 
(43
)
End of year
 
$
401

 
$
335


The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $0.4 million. The Company does not anticipate significant changes in the aggregate amount of unrecognized tax benefits within the next twelve months, other than nominal tax settlements.
The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. Penalties are recorded in Other (gains) losses, net, and interest paid or received is recorded in interest expense in the consolidated statements of income. The Company recorded nominal interest expense on the identified tax liabilities in fiscal years 2013, 2012 and 2011, and no penalties were recorded in those fiscal years.