Chuy's Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 29, 2013

INCOME TAXES

The provision for federal and state income taxes for the years ended December 29, 2013, December 30, 2012 and December 25, 2011 consisted of the following:



	2013		2012		2011
Current Income Tax Expense
Federal	$	—	$	—	$	—
State	775		483		436
Total Current income tax expense	775		483		436
Deferred income tax expense
Federal	3,216		1,552		755
State	205		208		443
Total deferred income tax expense	3,421		1,760		1,198
Total income tax expense	$	4,196	$	2,243	$	1,634

Temporary difference between tax and financial reporting basis of assets and liabilities that give rise to the deferred income tax assets (liabilities) and their related tax effects as of December 29, 2013 and December 30, 2012 are as follows:



	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	4,571		$	5,800
Accrued liabilities	363			773
General business credits	7,582			4,464
Stock-based compensation	536			551
Other	107			62
Total deferred tax assets	13,159			11,650
Deferred tax liability:
Intangibles	(7,123		)	(6,058		)
Prepaid expenses	(384		)	(298		)
Property and equipment	(9,773		)	(9,213		)
Other	(26		)	(542		)
Total deferred tax liabilities	(17,306		)	(16,111		)
Net deferred liabilities	$	(4,147	)	$	(4,461	)

The Company’s net operating loss carry forward of $13.4 million at December 29, 2013 will expire between 2028 and 2031. We have approximately $11.0 million of tax benefits ($4.0 million net of tax) related to excess stock compensation which were recorded to additional paid-in-capital during the fiscal year ended December 29, 2013. Under the "tax law ordering" method, as described in ASC 740, this amount was also used as a tax deduction and reduced the amount of net operating loss carry forward utilized during 2013. As of December 29, 2013, the Company has general business tax credits of $7.6 million expiring between 2026 and 2033.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred taxes will not be realized. Both positive and negative evidence are considered in forming management’s judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. The tax benefits relating to any reversal of the valuation allowance on the deferred tax assets would be recognized as a reduction of future income tax expense. The Company believes that it will realize all of the deferred tax assets. Therefore, no valuation allowance has been recorded.

The effective income tax expense differs from the federal statutory tax expense for the fiscal years ended December 29, 2013, December 30, 2012 and December 25, 2011 as follows:



	2013			2012			2011
Expected income tax expense	$	5,191		$	2,618		$	1,733
State tax expense, net of federal benefit	647			456			580
Non-deductible compensation	711			457			354
FICA tip credit	(2,092		)	(1,342		)	(1,040		)
Other	(261		)	54			7
Income tax expense	$	4,196		$	2,243		$	1,634

Federal tax standards require that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e. a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The standards also require that changes in judgment that result in subsequent recognition, derecognition or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the interim period in which the change occurs. As of December 29, 2013 and December 30, 2012 the Company recognized no liability for uncertain tax positions.

It is the Company’s policy to include any penalties and interest related to income taxes in its income tax provision. However, the Company currently has no penalties or interest related to income taxes. The Company is currently open to audit under the statute of limitations by the IRS for the years ended December 26, 2010 through December 29, 2013.

The effective income tax rate for the year ended December 29, 2013 was 27.5% compared to an effective income tax rate of 29.1% for the year ended December 30, 2012. The decrease in the effective income tax rate from the prior year was primarily attributable to the favorable impact of a one time adjustment made for incremental employment tax credits for the current year as well as the previous open tax years, which resulted in a $556,000 net favorable impact on net income during the year ended December 29, 2013. The decrease in the effective income tax rate was partially offset by the unfavorable impact of the non-tax deductible secondary offering costs incurred during the current year ended December 29, 2013. The impact on the effective income tax rate for these items will be treated discretely in this fiscal year as required by the FASB's ASC. The effective income tax rate for 2013 excluding these discrete items is estimated to be approximately 29%.

Since the Company has net operating loss carry forwards, the net favorable tax benefit mentioned above will primarily increase the general business credits deferred tax asset.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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