Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.1.9
Income Taxes
 12 Months Ended
Dec. 28, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Income (loss) before income taxes includes the following components for the fiscal years ended December 28, 2014, December 29, 2013, and December 30, 2012:
 
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
U.S.
 
$
42,898

 
$
41,249

 
$
36,857

Foreign
 
(1,039
)
 
—

 
—

 
 
$
41,859

 
$
41,249

 
$
36,857


The provision (benefit) for income taxes for fiscal year ended December 28, 2014, December 29, 2013, and December 30, 2012 consist of the following (in thousands):
 
 
2014
 
2013
 
2012
Current:
 
 
 
 
 
 
Federal
 
$
5,169

 
$
4,667

 
$
3,977

State
 
3,895

 
2,525

 
2,703

Foreign
 
—

 
—

 
—

Deferred:
 
 
 
 
 
 
Federal
 
1,146

 
2,755

 
2,115

State
 
(649
)
 
(937
)
 
(269
)
Foreign
 
(263
)
 
—

 
—

 
 
$
9,298

 
$
9,010

 
$
8,526


The reconciliation between the income tax provision and the amount of income tax computed by applying the U.S. federal statutory rate to income before the provision for income taxes as shown in the accompanying consolidated statements of income for fiscal years ended December 28, 2014, December 29, 2013, and December 30, 2012 is as follows:
 
 
2014
 
2013
 
2012
Tax provision at U.S. federal statutory rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes
 
5.1

 
2.5

 
4.1

FICA tip tax credits
 
(16.0
)
 
(14.8
)
 
(15.9
)
Foreign taxes versus U.S statutory rate
 
(0.1
)
 
—

 
—

Other tax credits
 
(2.3
)
 
(2.5
)
 
—

Other
 
0.5

 
1.6

 
(0.1
)
Effective tax rate
 
22.2
 %
 
21.8
 %
 
23.1
 %

The increase in the Company’s effective tax rate in fiscal year 2014 is primarily attributable to an increase in state income taxes. The decrease in the Company’s effective tax rate in fiscal year 2013 from fiscal year 2012 is primarily attributable to an increase in general business credits as well as an increase in state income tax credits.
The Company’s federal and state deferred taxes at December 28, 2014 and December 29, 2013 are as follows (in thousands):
 
 
2014
 
2013
Current deferred tax assets and (liabilities), net:
 
 
 
 
Accrued compensation and related costs
 
$
10,941

 
$
8,966

Advanced payments
 
2,764

 
1,754

General business and other tax credits
 
(275
)
 
—

Interest rate swap
 
13

 
24

Other current deferred tax assets
 
3,583

 
2,525

Other current deferred tax liabilities
 
—

 
(180
)
Prepaid expenses
 
(5,426
)
 
(3,877
)
Supplies inventory
 
(6,923
)
 
(6,260
)
Current deferred tax asset, net
 
4,677

 
2,952

Non-current deferred tax assets and (liabilities), net:
 
 
 
 
Deferred Rent
 
16,900

 
15,505

Stock-based compensation
 
6,461

 
6,034

General business and other tax credits
 
5,551

 
7,742

Alternative minimum tax credits
 
1,262

 
1,262

Accrued compensation and related costs
 
2,067

 
1,241

Advanced payments
 


 
—

Other non-current deferred tax assets
 
413

 
631

Other non-current deferred tax liabilities
 
(789
)
 
(1,056
)
Goodwill
 
(7,260
)
 
(8,876
)
Property and equipment
 
(25,369
)
 
(26,640
)
Franchise rights
 
63

 
1,440

Interest rate swap
 
—

 
(10
)
Subtotal
 
(701
)
 
(2,727
)
Valuation Allowance
 
(990
)
 
(290
)
Non-current deferred tax liability, net, included in other non-current liabilities
 
(1,691
)
 
(3,017
)
Net deferred tax asset (liability)
 
$
2,986

 
$
(65
)

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 its deferred tax assets, as of December 28, 2014, a valuation allowance of approximately $1.0 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. However, the amount of the deferred tax assets considered realizable 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.
We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration. We intend to reinvest earnings from our foreign subsidiaries, if any, in those operations for the foreseeable future. We have not, nor do we anticipate the need to, repatriate funds to the U.S. to satisfy domestic liquidity needs and, accordingly, we do not provide for U.S. federal income and foreign withholding tax on these earnings. While we do not expect to repatriate cash to the U.S., if these funds were distributed to the U.S., in the form of dividends or otherwise, we would be subject to additional US income taxes. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.
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 $5.1 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, state, and foreign 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 2010 through 2014 tax years.
The following table summarizes the Company’s unrecognized tax benefits at December 28, 2014 and December 29, 2013 (in thousands):
 
 
2014
 
2013
Beginning of year
 
$
401

 
$
335

Increase due to current year tax positions
 
96

 
140

Decrease due to current year tax positions
 
(5
)
 
—

Settlements
 
(122
)
 
(19
)
Reductions related to lapses
 
(51
)
 
(55
)
End of year
 
$
319

 
$
401


The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $0.3 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 Interest income and other, 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 2014, 2013, and 2012, and no penalties were recorded in those fiscal years.