Income Taxes

The following table details the categories of total income tax assets and liabilities for both continuing and discontinued operations resulting from the cumulative tax effects of temporary differences:



	August 29, 2018			August 30, 2017
	(In thousands)
Deferred income tax assets:
Workers’ compensation, employee injury, and general liability claims	$	507		$	486
Deferred compensation	280			437
Net operating losses	4,401			2,140
General business and foreign tax credits	12,105			11,599
Depreciation, amortization and impairments	6,796			7,515
Straight-line rent, dining cards, accruals, and other	2,917			4,392
Subtotal	27,006			26,569
Valuation allowance	(25,873		)	(16,871		)
Total deferred income tax assets	1,133			9,698
Deferred income tax liabilities:
Property taxes and other	1,133			1,916
Total deferred income tax liabilities	1,133			1,916
Net deferred income tax asset	$	—		$	7,782

On December 22, 2017, President Donald J. Trump signed into law U.S. tax reform legislation that is commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The enactment date occurred during the second quarter of fiscal 2018 and the impact on our income tax accounts of the Tax Act are accounted for in the period of enactment, in accordance with ASC 740. The Tax Act makes broad and complex changes to the U.S. tax code and most notably to the Company, the Tax Act lowered the federal statutory tax rate from 35% to 21% effective January 1, 2018. In accordance with the application of IRC Section 15, the Company's federal statutory tax rate for fiscal 2018 was 25%, representing a blended tax rate for the current fiscal year based on the number of days in the fiscal year before and after the effective date. For subsequent years, the Company's federal statutory tax rate is anticipated to be 21%. The Company was also required to remeasure its deferred tax assets and liabilities using the new federal statutory tax rate in the second quarter of fiscal 2018, upon enactment of the Tax Act. At that time, the Company's deferred tax balance was $7.8 million, and the Tax Act reduction in the federal statutory tax rate resulted in a one-time non-cash reduction to the Company's net deferred tax balance of approximately $3.2 million with a corresponding increase to the provision for income taxes in the second quarter of fiscal 2018.

The effects of the Tax Act on the Company's income tax accounts were reflected in the fiscal 2018 financial statements as determined or as reasonably estimated provisional amounts based on available information, subject to interpretation in accordance with the SEC's Staff Accounting Bulletin No. 118 ("SAB 118"). SAB 118 provides guidance on accounting for the effects of the Tax Act where such determinations are incomplete; however, the Company was able to determine a provisional estimate of the effects of the Tax Act on its income tax accounts.

The Company currently considers the deferred tax assets not to be realizable and maintains a full valuation allowance against the Company’s net deferred tax asset balance at August 29, 2018. The most significant deferred tax asset prior to valuation allowance is the Company’s general business tax credits carryovers to future years of approximately $11.6 million. This item may be carried forward up to twenty years for possible utilization in the future. The carryover of general business tax credits, beginning in fiscal 2002, will begin to expire at the end of fiscal 2022 through 2038, if not utilized by then.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax net operating losses and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies and existing business conditions, including amendment to our credit agreement(s) to avoid default and results of recent operations.

We evaluated new negative evidence during the third quarter of fiscal 2018, in connection with our response to a default in certain of the Company’s Credit Agreement financial covenants, a condition that raised substantial doubt as to the Company continuing as a going concern for a reasonable period of time. This circumstance and its added negative evidence, supported management’s conclusion that a full valuation allowance on the Company’s net deferred tax assets in the amount of $25.3 million was necessary during the third quarter of fiscal 2018. Management's conclusion for a full valuation allowance reduces fully the Company’s net deferred tax balances, net of deferred tax liabilities, through and including the fiscal year ended August 29, 2018.

An analysis of the provision for income taxes for continuing operations is as follows:



	August 29, 2018		August 30, 2017		August 31, 2016
	(In thousands)
Current federal and state income tax expense	$	405	$	329	$	128
Current foreign income tax expense	71		84		82
Deferred income tax expense	7,254		2,025		4,665
Provision for income taxes	$	7,730	$	2,438	$	4,875

Relative only to continuing operations, the reconciliation of the expense for income taxes to the expected income tax expense, computed using the statutory tax rate, was as follows:



	Fiscal Year Ended
	August 29, 2018					August 30, 2017					August 31, 2016
	Amount			%		Amount			%		Amount			%
	(In thousands and as a percent of pretax loss from continuing operations)
Income tax benefit from continuing operations at the federal rate	$	(6,405	)	25.4	%	$	(6,922	)	34.0	%	$	(1,830	)	34.0	%
Permanent and other differences:
Federal jobs tax credits (wage deductions)	129			(0.5	)	200			(1.0	)	226			(4.2	)
Stock options and restricted stock	67			(0.3	)	129			(0.6	)	165			(3.1	)
Other permanent differences	41			(0.2	)	62			(0.3	)	74			(1.4	)
State income tax, net of federal benefit	145			(0.6	)	(45		)	0.2		94			(1.7	)
General Business Tax Credits	(506		)	2.0		(589		)	2.9		(665		)	12.4
Impact of U.S. Tax Reform	3,167			(12.6	)	—			—		—			—
Other	487			(1.8	)	84			(0.4	)	(94		)	1.7
Change in valuation allowance	10,605			(42.0	)	9,519			(46.8	)	6,905			(128.3	)
Provision for income taxes from continuing operations	$	7,730		(30.6	)%	$	2,438		(12.0	)%	$	4,875		(90.6	)%

For the fiscal year ended August 29, 2018, including both continuing and discontinued operations, the Company is estimated to report a federal taxable loss of approximately $14.2 million.

For the fiscal year ended August 30, 2017, including both continuing and discontinued operations, the Company generated federal taxable loss of approximately $3.0 million.

For the fiscal year ended August 31, 2016, including both continuing and discontinued operations, the Company generated federal taxable income of approximately $3.1 million.

Our income tax filings are periodically examined by various federal and state jurisdictions. The State of Louisiana is currently examining tax returns for fiscal 2014 and 2015.

There were no payments of federal income taxes in fiscal 2016, 2017 or 2018. The Company has income tax filing requirements in over 30 states. State income tax payments were approximately $0.4 million, $0.4 million, and $0.4 million in fiscal 2018, 2017, and 2016, respectively.

The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal 2016, 2017 and 2018 (in thousands):



Balance as of August 26, 2015	$	63
Decrease based on prior year tax positions	(18		)
Interest Expense	—
Balance as of August 31, 2016	$	45
Decrease based on prior year tax positions	(20		)
Interest Expense	—
Balance as of August 30, 2017	$	25
Decrease based on prior year tax positions	—
Interest Expense	—
Balance as of August 29, 2018	$	25

The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized. There is no interest associated with unrecognized benefits as of August 29, 2018. The Company has included interest or penalties related to income tax matters as part of income tax expense.

It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions as of August 29, 2018.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements. Amounts considered probable of settlement within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.