Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision (benefit) for income taxes was comprised of the following:

	Year ended
	December 31, 2023		January 1, 2023		January 2, 2022
Current:
Federal	$	273	$	—	$	—
State	439		(37)		(36)
	712		(37)		(36)
Deferred:
Federal	4,383		(16,790)		(12,374)
State	1,489		(5,027)		(4,021)
	5,872		(21,817)		(16,395)
Increase (decrease) in valuation allowance	(2,111)		21,065		11,272
Provision (benefit) for income taxes	$	4,473	$	(789)	$	(5,159)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

The components of deferred income tax assets and liabilities at December 31, 2023 and January 1, 2023 were as follows:

	December 31, 2023		January 1, 2023
Deferred income tax assets:
Operating lease liabilities	$	208,884	$	211,000
Federal net operating loss carryforwards	13,054		26,122
Tax credit carryforwards	47,328		43,906
State net operating loss carryforwards	6,241		8,216
Interest expense limitation under section 163 (j)	7,139		8,090
Stock-based compensation expense	2,001		1,467
Accrued vacation benefits	3,329		2,904
Postretirement benefit obligations	671		721
Intangible Assets	—		757
Other deferred income tax assets	10,172		5,981
Gross deferred income tax assets	298,819		309,164
Less: Valuation allowance	(42,713)		(44,263)
Total deferred income tax assets	$	256,106	$	264,901
Deferred income tax liabilities:
Operating right-of-use assets	(192,269)		(195,705)
Property and equipment depreciation	(11,207)		(12,247)
Franchise rights	(61,080)		(61,755)
Intangible Assets	(687)		—
Accumulated other comprehensive income-postretirement benefits	(355)		(386)
Accumulated other comprehensive income-accrued interest rate swap	(1,294)		(2,160)
Other deferred income tax liabilities	(304)		(313)
Total deferred income tax liabilities	(267,196)		(272,566)
Net long-term deferred income tax liabilities	$	(11,090)	$	(7,665)

The Company's federal net operating loss carryforwards can be carried forward indefinitely but are subject to a limit of 80% of taxable income each year. As of December 31, 2023, the Company had federal net operating loss carryforwards of approximately $62.2 million, general business credits ("GBC") carryforwards of $47.3 million and approximately $133.2 million in state net operating loss carryforwards. The Company's GBC carryforwards begin to expire in 2032 and state net operating loss carryforwards begin to expire in 2024.

The Company has performed the required assessment of positive and negative evidence regarding the realization of deferred income tax assets in accordance with ASC 740 at December 31, 2023 and January 1, 2023. Under ASC 740, the weight given to negative and positive evidence is commensurate only to the extent that such evidence can be objectively verified. ASC 740 prescribes that objective historical evidence, in particular the Company's three-year cumulative loss position at December 31, 2023, be given a greater weight than subjective evidence, including the Company's forecast of future taxable income, which include assumptions that cannot be objectively verified. In determining the likelihood of future realization of the deferred income tax assets as of December 31, 2023 and January 1, 2023, the Company considered both positive and negative evidence and weighted the effect of such evidence based upon its objectivity.

Based on the required weight of evidence under ASC 740, as of December 31, 2023 and January 1, 2023, the Company determined the valuation allowance needed for certain federal income tax credits, federal net operating losses and state net operating losses that may expire prior to their utilization by the Company was $42.7 million and $44.3 million, respectively. The amount of the deferred tax asset to be considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth. The Company recorded an income tax benefit of $2.1 million in fiscal 2023 and recorded income tax expense of $21.1 million and $11.3 million in fiscal 2022 and 2021, respectively, relative to this valuation allowance reserve.

The Company records goodwill as a result of acquisitions which is not amortized for financial reporting purposes, however, has a tax deductible life of 15 years. This results in a deferred tax expense and deferred tax liability for the indefinitely lived asset which is known as a naked credit. The deferred tax liability will have an indefinite life and is expected to increase over the 15-year amortization period. Due to the indefinite life of the cumulative losses the Company incurred in 2021 and 2022, the federal deferred tax liability from amortization of the goodwill was offset against the federal operating net losses to the extent allowed. The remaining deferred tax liability may remain on the Company's consolidated balance sheet indefinitely unless there is a financial statement impairment of goodwill recorded, or if a portion of the business is sold. Due to the potential for an indefinite life of the previously mentioned liability, it is not netted against the deferred tax assets for purposes of determining the required valuation allowance.

A reconciliation of the statutory federal income tax provision to the income tax provision (benefit) for the years ended December 31, 2023, January 1, 2023, and January 2, 2022 was as follows:

	Year ended
	December 31, 2023		January 1, 2023		January 2, 2022
Statutory federal income tax provision (benefit)	$	7,867	$	(16,036)	$	(10,119)
State income taxes, net of federal benefit	1,681		(4,085)		(2,934)
Employment tax credits	(3,173)		(2,817)		(3,274)
Change in valuation allowances	(2,111)		21,065		11,272
Non-deductible expenses	181		597		431
Stock-based compensation	310		684		127
Rate change	—		—		(163)
Other	(282)		(197)		(499)
Provision (benefit) for income taxes	$	4,473	$	(789)	$	(5,159)

The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At December 31, 2023 and January 1, 2023, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2020 - 2022 remain open to examination by the major taxing jurisdictions to which the Company files tax returns. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.