Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes is set forth below:

	Year Ended
	2023		2022		2021
Domestic	$	264,423	$	231,862	$	228,756
Foreign (a)	14,995		11,643		11,822
	$	279,418	$	243,505	$	240,578

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(a)Excludes foreign income of domestic subsidiaries.

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

	Year Ended
	2023		2022		2021
Current:
U.S. federal	$	(50,435)	$	(43,141)	$	(38,416)
State	(13,730)		(9,152)		(7,039)
Foreign	(11,620)		(9,537)		(8,512)
Current tax provision	(75,785)		(61,830)		(53,967)
Deferred:
U.S. federal	2,163		(3,868)		(52)
State	564		(2,629)		15,993
Foreign	(1,920)		2,192		(2,160)
Deferred tax benefit (provision)	807		(4,305)		13,781
Income tax provision	$	(74,978)	$	(66,135)	$	(40,186)

Deferred tax assets (liabilities) are set forth below:

	Year End
	December 31, 2023		January 1, 2023
Deferred tax assets:
Operating and finance lease liabilities	$	339,655	$	355,653
Net operating loss and credit carryforwards	58,170		58,030
Deferred revenue	23,848		23,617
Unfavorable leases	17,104		19,085
Accrued compensation and related benefits	15,786		14,577
Accrued expenses and reserves	6,802		7,012
Other	11,243		8,275
Valuation allowances	(39,346)		(35,680)
Total deferred tax assets	433,262		450,569
Deferred tax liabilities:
Operating and finance lease assets	(310,011)		(326,646)
Intangible assets	(290,782)		(285,688)
Fixed assets	(62,673)		(66,830)
Other	(40,149)		(41,826)
Total deferred tax liabilities	(703,615)		(720,990)
	$	(270,353)	$	(270,421)

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	$	17,111	2027-2033
Foreign tax credits of non-U.S. subsidiaries	3,973		Indefinite
Total	$	21,084
Net operating loss carryforwards (pre-tax):
State and local net operating loss carryforwards	$	744,363	2024-2035
State and local net operating loss carryforwards	219,652		Indefinite
Foreign net operating loss carryforwards	11,609		Indefinite
Total	$	975,624

The Company’s valuation allowances of $39,346 and $35,680 as of December 31, 2023 and January 1, 2023, respectively, relate primarily to foreign and state tax credit and net operating loss carryforwards. Valuation allowances increased $3,666 during 2023 and decreased $2,597 and $11,691 during 2022 and 2021, respectively. 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 $5,284 and $3,236 as of December 31, 2023 and January 1, 2023, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of December 31, 2023 and January 1, 2023.

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
	2023		2022		2021
Income tax provision at the U.S. federal statutory rate	$	(58,678)	$	(51,136)	$	(50,521)
State income tax provision, net of U.S. federal income tax effect	(11,400)		(11,616)		(6,256)
Prior years’ tax matters	(2,250)		2,290		1,820
Excess federal tax benefits from share-based compensation	845		402		7,160
Foreign and U.S. tax effects of foreign operations	1,799		(3,744)		(5)
Valuation allowances (a)	(3,533)		2,127		11,807
Non-deductible goodwill (b)	—		—		(947)
Tax credits	1,050		1,385		1,028
Non-deductible executive compensation	(2,863)		(3,154)		(3,810)
Unrepatriated earnings	(387)		(294)		(282)
Non-deductible expenses and other	439		(2,395)		(180)
	$	(74,978)	$	(66,135)	$	(40,186)

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(a)2021 primarily relates to a $12,606 benefit resulting from a change in state tax law.

(b)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 through 2021 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 December 31, 2023, the Company had unrecognized tax benefits of $16,719, which, if resolved favorably, would reduce income tax expense by $13,208. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	Year Ended
	2023		2022		2021
Beginning balance	$	17,404	$	18,849	$	20,973
Additions:
Tax positions of current year	836		178		157
Reductions:
Tax positions of prior years	(690)		(662)		(2,015)
Settlements	(249)		(8)		(46)
Lapse of statute of limitations	(582)		(953)		(220)
Ending balance	$	16,719	$	17,404	$	18,849

During 2024, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $220 due primarily to the lapse of statutes of limitations and expected settlements.

During 2023, 2022 and 2021, the Company recognized $134, $(30) and $138 of expense (income) for interest, respectively, and $37 of income in 2021 for penalties, related to uncertain tax positions. The Company has $979 and $943 accrued for interest related to uncertain tax positions as of December 31, 2023 and January 1, 2023, respectively.