Income Taxes

12 Months Ended

Dec. 31, 2020

The current income tax provision represents the estimated amount of income taxes paid or payable for the year, as well as changes in estimates from prior years. The deferred income tax provision represents the change in deferred tax liabilities and assets. The following table presents the significant components of the provision for income taxes:


	Fiscal Year
(in thousands)	2020		2019		2018
Current:
Federal	$	38,665	$	7,505	$	(4,228)
State	11,541		4,173		(3,269)
Total current provision (benefit)	$	50,206	$	11,678	$	(7,497)

Deferred:
Federal	$	8,052	$	4,514	$	5,701
State	685		(527)		3,665
Total deferred provision (benefit)	$	8,737	$	3,987	$	9,366

Income tax expense	$	58,943	$	15,665	$	1,869

The Company’s effective income tax rate, calculated by dividing income tax expense by income (loss) before income taxes, was 24.5% for 2020, 45.8% for 2019 and (14.1)% for 2018. The following table provides a reconciliation of income tax expense at the statutory federal rate to actual income tax expense:


	Fiscal Year
	2020				2019				2018
(in thousands)	Income tax expense		% pre-tax income		Income tax expense		% pre-tax income		Income tax expense		% pre-tax loss
Statutory (income) / expense	$	50,618	21.0	%	$	7,187	21.0	%	$	(2,790)	21.0	%
State income taxes, net of federal benefit	9,258		3.8		1,352		4.0		(376)		2.8
Nondeductible compensation	3,007		1.3		4,313		12.6		2,851		(21.5)
Noncontrolling interest – Piedmont	(2,447)		(1.0)		(1,826)		(5.3)		(1,238)		9.3
Valuation allowance change	(1,900)		(0.8)		1,290		3.8		1,566		(11.8)
Meals, entertainment and travel expense	1,476		0.6		2,440		7.1		2,734		(20.6)
Nondeductible fees and expenses	311		0.1		887		2.6		568		(4.3)
Adjustment for uncertain tax positions	114		—		(805)		(2.4)		694		(5.2)
Adjustment for federal tax legislation	—		—		—		—		(1,989)		15.0
Other, net	(1,494)		(0.5)		827		2.4		(151)		1.2
Income tax expense	$	58,943	24.5	%	$	15,665	45.8	%	$	1,869	(14.1)	%

The Company’s effective income tax rate, calculated by dividing income tax expense by income (loss) before income taxes minus net income attributable to noncontrolling interest, was 25.5% for 2020, 57.9% for 2019 and (10.3)% for 2018.

The Company records liabilities for uncertain tax positions related to income tax positions. These liabilities reflect the Company’s best estimate of the ultimate income tax liability based on known facts and information. Material changes in facts or information, as well as the expiration of statutes of limitations and/or settlements with individual tax jurisdictions, may result in material adjustments to these estimates in the future.

The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense. During 2020, 2019 and 2018, the interest and penalties related to uncertain tax positions recognized in income tax expense were not material. In addition, the amount of interest and penalties accrued at December 31, 2020 and December 29, 2019 were not material.

The Company had uncertain tax positions, including accrued interest of $2.6 million on December 31, 2020 and $2.5 million on December 29, 2019, all of which would affect the Company’s effective income tax rate if recognized. While it is expected the amount of uncertain tax positions may change in the next 12 months, the Company does not expect such change would have a significant impact on the consolidated financial statements.

A reconciliation of uncertain tax positions, excluding accrued interest, is as follows:


	Fiscal Year
(in thousands)	2020		2019		2018
Beginning balance - gross uncertain tax positions	$	2,283	$	2,857	$	2,286
Increase as a result of tax positions taken in the current year	61		60		571
Increase as a result of tax positions taken in a prior year	504		—		—
Reduction as a result of the expiration of the applicable statute of limitations	(687)		(634)		—
Ending balance - gross uncertain tax positions	$	2,161	$	2,283	$	2,857

Deferred income taxes are recorded based upon temporary differences between the financial statement and tax bases of assets and liabilities and available net operating loss and tax credit carryforwards. Temporary differences and carryforwards that comprised deferred income tax assets and liabilities were as follows:


(in thousands)	December 31, 2020		December 29, 2019
Acquisition related contingent consideration	$	107,769	$	110,036
Operating lease liabilities	34,632		27,346
Deferred revenue	27,882		24,936
Deferred compensation	26,269		26,788
Accrued liabilities	22,341		19,266
Postretirement benefits	14,726		13,250
Pension	11,055		14,124
Transactional costs	4,451		4,857
Charitable contribution carryover	3,236		6,622
Net operating loss carryforwards	1,628		2,012
Financing lease agreements	1,618		2,432
Other	10,138		3,022
Deferred income tax assets	$	265,745	$	254,691
Less: Valuation allowance for deferred tax assets	5,325		7,190
Net deferred income tax asset	$	260,420	$	247,501

Intangible assets	$	(182,585)	$	(151,940)
Depreciation	(159,359)		(147,140)
Right-of-use assets - operating leases	(33,316)		(26,997)
Inventory	(13,709)		(12,631)
Prepaid expenses	(6,319)		(7,627)
Patronage dividend	(4,555)		(3,009)
Investment in Piedmont	—		(23,287)
Deferred income tax liabilities	$	(399,843)	$	(372,631)

Net deferred income tax liability	$	(139,423)	$	(125,130)

The Company’s deferred income tax assets and liabilities are subject to adjustment in future periods based on the Company’s ongoing evaluations of such deferred assets and liabilities and new information available to the Company.

During 2020, an indirect wholly owned subsidiary of the Company purchased the remaining 22.7% general partnership interest in Piedmont from an indirect wholly owned subsidiary of The Coca‑Cola Company, which resulted in the elimination of the Investment in Piedmont deferred tax liability. For income tax purposes, the tax effects of this purchase were recorded through additional paid in capital in the consolidated balance sheet as of December 31, 2020.

Valuation allowances are recognized on deferred tax assets if the Company believes it is more likely than not that some or all of the deferred tax assets will not be realized. The Company believes the majority of the deferred tax assets will be realized due to the reversal of certain significant temporary differences and anticipated future taxable income from operations.

The valuation allowance of $5.3 million on December 31, 2020 and $7.2 million on December 29, 2019 was established primarily for certain loss carryforwards and deferred compensation.

As of December 31, 2020, the Company had no federal net operating losses and $33.8 million of state net operating losses available to reduce future income taxes, which expire in varying amounts through 2038.

Prior tax years beginning in year 2007 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1998 remain open to examination by certain state tax jurisdictions due to loss carryforwards.