Income Taxes

12 Months Ended

Jan. 02, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes is set forth below:

	Year Ended
	2021		2020		2019
Domestic	$	228,756	$	149,046	$	160,474
Foreign (a)	11,822		3,749		11,007
	$	240,578	$	152,795	$	171,481

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(a)Excludes foreign income of domestic subsidiaries.

The (provision for) benefit from income taxes is set forth below:

	Year Ended
	2021		2020		2019
Current:
U.S. federal	$	(38,416)	$	(16,176)	$	(18,421)
State	(7,039)		(3,723)		(6,093)
Foreign	(8,512)		(4,798)		(9,190)
Current tax provision	(53,967)		(24,697)		(33,704)
Deferred:
U.S. federal	(52)		(6,707)		1,585
State	15,993		(3,185)		(2,449)
Foreign	(2,160)		(374)		27
Deferred tax (provision) benefit	13,781		(10,266)		(837)
Income tax provision	$	(40,186)	$	(34,963)	$	(34,541)

Deferred tax assets (liabilities) are set forth below:

	Year End
	January 2, 2022		January 3, 2021
Deferred tax assets:
Operating and finance lease liabilities	$	368,932	$	365,005
Net operating loss and credit carryforwards	60,620		62,210
Deferred revenue	23,636		24,303
Unfavorable leases	19,060		23,511
Accrued compensation and related benefits	18,487		16,443
Accrued expenses and reserves	6,763		7,673
Other	7,586		5,869
Valuation allowances	(38,277)		(49,968)
Total deferred tax assets	466,807		455,046
Deferred tax liabilities:
Operating and finance lease assets	(341,681)		(332,515)
Intangible assets	(290,088)		(301,969)
Fixed assets	(63,936)		(63,826)
Other	(38,812)		(37,491)
Total deferred tax liabilities	(734,517)		(735,801)
	$	(267,710)	$	(280,755)

The amounts and expiration dates of net operating loss and tax credit carryforwards are as follows:

	Amount		Expiration
Tax credit carryforwards:
U.S. federal foreign tax credits	$	15,309	2022-2032
State tax credits	593		2022-2023
Foreign tax credits of non-U.S. subsidiaries	4,159		Indefinite
Total	$	20,061
Net operating loss carryforwards (pre-tax):
State and local net operating loss carryforwards	$	1,131,604	2022-Indefinite
Foreign net operating loss carryforwards	6,962		Indefinite
Total	$	1,138,566

The Company’s valuation allowances of $38,277 and $49,968 as of January 2, 2022 and January 3, 2021, respectively, relate primarily to foreign and state tax credit and net operating loss carryforwards. Valuation allowances decreased $11,691 during 2021 and increased $4,785 and $3,008 during 2020 and 2019, respectively. The decrease in 2021 resulted primarily from a 2021 change in state tax law, which resulted in a one-time reduction in previously recorded valuation allowances against our deferred state tax assets of $12,606. Additionally, the relative presence of Company-operated restaurants in various states impacts expected future state taxable income available to utilize state net operating loss carryforwards.

The current portion of refundable income taxes was $11,901 and $5,399 as of January 2, 2022 and January 3, 2021, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of January 2, 2022 and January 3, 2021.

The reconciliation of income tax computed at the U.S. federal statutory rate of 21% to reported income tax is set forth below:

	Year Ended
	2021		2020		2019
Income tax provision at the U.S. federal statutory rate	$	(50,521)	$	(32,087)	$	(36,011)
State income tax provision, net of U.S. federal income tax effect	(6,256)		(4,664)		(6,470)
Prior years’ tax matters (a)	1,820		1,761		6,135
Excess federal tax benefits from share-based compensation	7,160		5,338		5,841
Foreign and U.S. tax effects of foreign operations	(5)		(397)		250
Valuation allowances (b)	11,807		(4,593)		(2,833)
Non-deductible goodwill (c)	(947)		—		—
Tax credits	1,028		1,901		879
Non-deductible executive compensation	(3,810)		(1,973)		(1,925)
Unrepatriated earnings	(282)		(283)		(402)
Non-deductible expenses and other	(180)		34		(5)
	$	(40,186)	$	(34,963)	$	(34,541)

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(a)2019 primarily relates to a reduction in unrecognized tax benefits due to a lapse of statute of limitations.

(b)2021 primarily relates to the $12,606 benefit resulting from the state tax law change described above. The effect of the tax law change also included $840 of additional deferred tax expense included in the State income tax provision line item, for a total of $11,766.

(c)Related to the sale of the New York Company-operated restaurants (including Manhattan). See Note 4 for further information.

The Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance Process (“CAP”). As part of CAP, tax years are examined on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. As such, our tax returns for fiscal years 2009 through 2019 have been settled. The statute of limitations for the Company’s state tax returns vary, but generally the Company’s state income tax returns from its 2018 fiscal year and forward remain subject to examination. We believe that adequate provisions have been made for any liabilities, including interest and penalties that may result from the completion of these examinations.

Unrecognized Tax Benefits

As of January 2, 2022, the Company had unrecognized tax benefits of $18,849, which, if resolved favorably would reduce income tax expense by $14,890. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	Year Ended
	2021		2020		2019
Beginning balance	$	20,973	$	22,323	$	27,632
Additions:
Tax positions of current year	157		322		1,356
Tax positions of prior years	—		—		—
Reductions:
Tax positions of prior years	(2,015)		(1,183)		(227)
Settlements	(46)		(119)		—
Lapse of statute of limitations	(220)		(370)		(6,438)
Ending balance	$	18,849	$	20,973	$	22,323

The reductions in unrecognized tax benefits in 2021 and 2020 were primarily related to decreases as a result of settlements with various taxing jurisdictions. The additions in unrecognized tax benefits in 2019 was primarily related to the uncertainty of the income tax consequences of a cash settlement related to a previously held investment.

During 2022, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $98 due primarily to the lapse of statutes of limitations and expected settlements.

During 2021, 2020 and 2019, the Company recognized $138, $159 and $(489) of expense (income) for interest and $37, $81 and $81 of income for penalties, respectively, related to uncertain tax positions. The Company has $975 and $873 accrued for interest and $0 and $37 accrued for penalties as of January 2, 2022 and January 3, 2021, respectively.