Note 6 - Income Taxes

12 Months Ended

Aug. 28, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 6. 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 28, 2013		August 29, 2012
	(In thousands)
Deferred income tax assets:
Workers’ compensation, employee injury, and general liability claims	$	261	$	8
Deferred compensation		196		895
Net operating losses		650		1,100
General business and foreign tax credits		7,630		6,445
Straight-line rent, dining cards, accruals, and other		3,580		3,253
Total deferred income tax assets		12,317		11,701
Deferred income tax liabilities:
Depreciation, amortization and impairments		1,323		100
Property taxes and other		1,591		1,611
Total deferred income tax liabilities		2,914		1,711
Net deferred income tax asset	$	9,403	$	9,990

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

	August 28, 2013		August 29, 2012			August 31, 2011
	(In thousands)
Current federal and state income tax expense	$	611	$	1,650		$	536
Current foreign income tax expense		89		74			79
Deferred income tax expense (benefit)		1,139		(18	)		(67	)
Total income tax expense	$	1,839	$	1,706		$	548

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

	Year Ended
	August 28, 2013						August 29, 2012						August 31, 2011
	Amount			%			Amount			%			Amount			%
	(In thousands and as a percent of pretax income from continuing operations)
Income tax expense (benefit) from continuing operations at the federal rate	$	2,060			34.0	%	$	3,150			34.0	%	$	1,063			34.0	%
Permanent and other differences:
Federal jobs tax credits (wage deductions)		355			5.8			217			2.3			332			10.6
Stock options and restricted stock		50			0.8			141			1.5			160			5.1
Other permanent differences		68			1.1			128			1.4			51			1.6
State income tax, net of federal benefit		338			5.6			1,411			15.2			349			11.2
General Business Tax Credits		(1,043	)		(17.2	)		(639	)		(6.9	)		(977	)		(31.2	)
Other		11			0.2			(63	)		(0.7	)		48			1.5
Change in valuation allowance		—			—			(2,639	)		(28.4	)		(478	)		(15.3	)
Income tax expense from continuing operations	$	1,839			30.3	%	$	1,706			18.4	%	$	548			17.5	%

For the fiscal year ended August 28, 2013, including both continuing and discontinued operations, the Company is estimated to report federal taxable income of approximately $2.7 million, before net operating loss (“NOL”). The Company will be able to utilize NOL carryovers from prior years to reduce the current year federal income tax liability to zero. The remaining NOL carryover of approximately $1.9 million can be carried forward to reduce taxable income in the future. The NOL carryover will expire at the end of fiscal year 2030, if it is not utilized by then. The Company was not able to currently benefit from the use of available general business tax credits. The unused general business and foreign tax credits are comprised of approximately $7.4 million in general business credits and $0.2 million in foreign tax credits. The general business credits can be carried over twenty years for possible utilization in the future and will begin to expire at the end of fiscal year 2022 through the end of fiscal year 2033, if not utilized by then. The foreign tax credits can be carried over ten years for possible utilization in the future and will begin to expire at the end of fiscal year 2021 through the end of fiscal year 2023, if not utilized by then.

For the fiscal year ended August 29, 2012, including both continuing and discontinued operations, the Company generated federal taxable income of approximately $10.3 million. The Company utilized NOL carryovers from prior years to reduce the current year federal tax liability to zero.

For the fiscal year ended August 31, 2011, including both continuing and discontinued operations, the Company generated a federal tax NOL of approximately $0.6 million. The unused general business tax credits of approximately $5.6 million can be carried over twenty years for possible utilization in the future.

The IRS has periodically reviewed the Company’s federal income tax returns. The IRS concluded a review of the federal income tax return for fiscal year 2008 on March 12, 2011. The IRS made no changes to the return. The State of Texas examined the franchise tax filings for report years 2008 through 2011 based on accounting years 2007 through 2010 resulting in additional taxes of $33,000. The State of Louisiana is also examining the Company’s tax return filings. There are no other examinations of income or franchise tax filings currently scheduled or underway.

Prior to fiscal year 2010, the Company operated in five states and was subject to state and local income taxes in addition to federal income taxes. With the acquisition of Fuddruckers restaurants at the end of fiscal year 2010 and Cheeseburger in Paradise in fiscal year 2013, the Company has income tax filing requirements in additional states.

The Company had deferred tax assets at August 28, 2013 of approximately $12.3 million, the most significant of which include the Company’s federal NOL and general business tax credits carryovers to future years of approximately $8.3 million of deferred tax assets, combined. Management has evaluated both positive and negative evidence, including its forecasts of the Company’s future operational performance and taxable income, adjusted by varying probability factors, in making a determination as to whether it is more likely than not that all or some portion of the deferred tax assets will be realized. Based on its analysis, management concluded a valuation allowance of zero, zero, approximately $2.6 million and $3.1 million was necessary as of the end of fiscal years 2013, 2012, 2011 and 2010, respectively. The valuation allowance amount as of fiscal year 2010 partially offset the Company’s NOL carryovers to future years and the Company’s carryover of general business tax credits. The valuation allowance as of fiscal year 2011 partially offset only the Company’s carryover of general business tax credits since a valuation allowance on the Company’s NOL carryovers was no longer necessary, as these assets were more likely than not to be fully realized. In fiscal year 2012, the valuation allowance was reduced to zero as the Company’s NOL carryovers and general business tax carryovers were more likely than not be fully realized. The reversals of the valuation allowance amounts in fiscal years 2010, 2011 and 2012 were based upon continued improvement in current and projected operational performance and the ability to utilize NOL amounts through carryforwards. This positive and negative evidence was weighed, and in each year, an increasing portion of the Company’s NOL and general business tax credits was determined to be realizable, on a more likely than not basis, with corresponding adjustments to the valuation allowance. The reductions of the valuation allowance in fiscal years 2010, 2011 and 2012 are reported as part of the income tax expense (or benefit) included in income/(loss) from continuing operations for the year.

Two of the most significant items included in deferred tax assets are federal NOL carryovers and general business tax credits. Both of these items may be carried forward up to twenty years for possible utilization in the future. NOL amounts carried over, beginning in fiscal year 2010, will begin to expire at the end of fiscal year 2030 through fiscal year 2031, if not utilized by then. The carryover of general business tax credits, beginning in fiscal year 2002, will begin to expire at the end of fiscal year 2022 through 2033, if not utilized by then.

There were no payments of federal income taxes in fiscal years 2010, 2011, 2012 or 2013. State income tax payments were approximately $0.5 million each year during fiscal years 2010, 2011, 2012 and 2013.

The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal years 2011, 2012 and 2013 (in thousands):

Balance at August 25, 2010	$	82
Interest Expense		1
Balance as of August 31, 2011	$	83
Increase (decrease) based on prior year tax positions		480
Interest Expense		407
Balance as of August 29, 2012	$	970
Increase (decrease) based on prior year tax positions		(273	)
Interest Expense		72
Balance as of August 28, 2013	$	769

The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized. The estimate of interest and penalties associated with unrecognized benefits is approximately $0.5 million as of August 28, 2013. The Company has included interest or penalties related to income tax matters as part of income tax expense (or benefit).

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 August 28, 2013.

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.

Tangible Property Regulations

In September 2013, the U.S. Treasury issued final regulations addressing the tax consequences associated with the acquisition, production and improvement of tangible property and which are generally effective for taxable years beginning on or after January 1, 2014, which for the Company is its year beginning August 28, 2014. The Company plans to timely adopt these regulations and, at this time, has not evaluated the impact of these regulations on its consolidated financial statements.