Income Taxes

12 Months Ended

Dec. 25, 2011

Income Taxes [Abstract]

Income Taxes

15. Income Taxes

The total income tax expense (benefit) for each respective year is as follows:

		$ (4,332)			$ (4,332)			$ (4,332)
	2011			2010			2009
	(in thousands)
Income tax expense (benefit) attributable to:
Loss from continuing operations	$	672		$	(1,838	)	$	2,254
Loss from discontinued operations		—			(10	)		(106	)
Shareholders’ equity, tax benefit derived from non-qualified stock options exercised		(17	)		(11	)		—
Total income tax expense (benefit)	$	655		$	(1,859	)	$	2,148

Income tax expense (benefit) related to loss before income taxes for each respective year is as follows:

		$ (4,332)			$ (4,332)			$ (4,332)
	2011			2010			2009
	(in thousands)
Current	$	(114	)	$	(4,332	)	$	2,892
Deferred		769			2,483			(638	)
Income tax expense (benefit) from continuing operations	$	655		$	(1,849	)	$	2,254
Income tax benefit from discontinued operations	$	—		$	(10	)	$	(106	)

Income tax expense (benefit) attributable to loss from continuing operations before income taxes differs from the amounts computed by applying the applicable U.S. federal income tax rate to pretax (loss) earnings as a result of the following:

		$ (4,332)			$ (4,332)			$ (4,332)
	2011			2010			2009
Federal statutory rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in taxes due to:
State income taxes, net of federal tax benefit		(1.5	)		0.4			(80.2	)
Tax credits, primarily FICA tip credits		36.4			17.2			583.8
Stock compensation shortfall		(2.5	)		(1.2	)		(217.2	)
Valuation allowance		(89.3	)		(54.7	)		(545.4	)
Other		16.1			9.7			(22.9	)
		(5.8	)%		6.4	%		(246.9	)%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at each of the respective year ends are as follows:

		(101,044)			(101,044)
	December 25, 2011			December 26, 2010
	(in thousands)
Deferred tax assets:
Workers’ compensation, general liability, and employee health insurance accruals	$	4,833		$	4,821
Accrued compensation		3,418			3,749
Restricted stock		998			1,133
Asset impairment and exit cost		18,770			19,601
Property and equipment, principally due to differences in depreciation and amortization		16,725			7,690
Tax credits, primarily FICA tip credits		36,848			30,783
Federal net operating loss and state carry-forwards		5,471			5,440
Goodwill		14,968			17,696
Other		75			1,165
Total gross deferred tax assets		102,106			92,078
Deferred tax asset valuation allowance		(101,044	)		(90,887	)
Total net deferred tax assets		1,062			1,191
Deferred tax liabilities:
Trademark intangible		5,892			5,251
Total gross deferred tax liabilities		5,892			5,251
Net deferred tax liability	$	(4,830	)	$	(4,060	)

The net deferred tax liabilities are classified as follows:

		(101,044)			(101,044)
	2011			2010
	(in thousands)
Deferred income taxes, non-current liability	$	(4,426	)	$	(4,034	)
Deferred income taxes, current liability		(404	)		(26	)
	$	(4,830	)	$	(4,060	)

The Company has gross state net operating loss carry-forwards of $120.8 million to reduce future tax liabilities, which begin to expire at various times starting in fiscal year 2012, federal general business tax credits of $36.8 million which begin to expire at various times starting in 2027, and federal net operating losses of $0.7 million which expires in 2030.

The Company has established a valuation allowance of $101.0 million as of December 25, 2011 and $90.9 million as of December 26, 2010 to reduce deferred tax assets to the amount that is more likely than not to be realized which includes substantially all deferred tax assets. The change in the deferred tax valuation allowance was $10.2 million in 2011, $18.6 million in 2010, and $6.5 million in 2009. In assessing the realization 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. Under FASB ASC 740, the Company is required to assess whether a valuation allowance should be established against the Company’s deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. The Company has a three-year cumulative pre-tax loss. A cumulative pre-tax loss is given more weight than projections of future income, and a recent historical cumulative loss is considered a significant factor that is difficult to overcome. Therefore, the Company has established a valuation allowance against all deferred tax assets, with the exception of $1.1 million and $1.2 million for 2011 and 2010, respectively, relating to federal and state net operating loss carryovers expected to be realized. The deferred tax valuation allowance may be released in future years when management considers that it is more likely than not that some portion or all of the deferred tax assets will be realized. To form a conclusion that some or all of the deferred tax assets will be realized, the Company will need to periodically evaluate all available evidence, such as whether future taxable income and reversal of temporary differences provides sufficient positive evidence to offset any potential negative evidence that may exist at such time, including the Company’s three-year cumulative pre-tax loss. In the event the deferred tax valuation allowance is released, the Company would record an income tax benefit for the portion or all of the deferred tax valuation allowance released.

The Company has a $0.5 million, net liability recorded as of December 25, 2011 and $1.3 million, net liability recorded for December 26, 2010 for uncertain tax positions. As of December 25, 2011, the total amount of unrecognized tax positions that, if recognized, would affect the effective tax rate is $0.3 million compared to $0.6 for fiscal 2010. The tax years 2007 to 2011 remain open to examination by major taxing jurisdictions.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended December 25, 2011, December 26, 2010 and December 27, 2009. The tabular reconciliation is shown without interest, and is adjusted for uncertain tax positions included in state net operating losses. The amount of interest liability is $0.1 million, $0.2 million, $0.5 million and the adjustment for state net operating losses is $0.3 million, $0.6 million, and $0.6 million for fiscal years ended December 25, 2011, December 26, 2010, and December 27, 2009, respectively.

	2011			2010			2009
	(in thousands)
Beginning balance	$	1,693		$	3,355		$	3,398
Gross prior year increases		3			271			82
Gross prior year decreases		(573	)		(1,521	)		(1,033	)
Gross current year increases		51			420			1,732
Settlements		(68	)		(126	)		(21	)
Lapse of statute of limitations		(450	)		(706	)		(803	)
Ending balance	$	656		$	1,693		$	3,355