Income Taxes:

For financial reporting purposes, income (loss) before income taxes includes the following components:



		Fiscal Year
		2019			2018			2017
	(in thousands)
United States		$	(43,346	)	$	(28,731	)	$	(25,667	)
Foreign (including U.S. Possessions)		4,059			3,249			4,442
Income (loss) before income taxes		$	(39,287	)	$	(25,482	)	$	(21,225	)

Our income tax expense (benefit) consists of the following for the periods presented:



		Fiscal Year
		2019			2018			2017
	(in thousands)
Current tax expense (benefit):
Federal		$	3,075		$	1,276		$	(2,668	)
State		312			1,090			(708		)
Foreign		759			795			960
		4,146			3,161			(2,416		)
Deferred tax expense (benefit):
Federal		(12,150		)	(8,382		)	(72,829		)
State		(2,360		)	24			(137		)
Foreign		—			176			1,091
		(14,510		)	(8,182		)	(71,875		)
Income tax expense (benefit)		$	(10,364	)	$	(5,021	)	$	(74,291	)

A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows:



	Fiscal Year
	2019		2018		2017
Federal statutory rate	(21.0	)%	(21.0	)%	(35.0	)%
State income taxes, net of federal benefit	(4.5	)%	2.0	%	(4.5	)%
Federal employment related income tax credits, net	(1.4	)%	(2.9	)%	(1.2	)%
Merger and litigation related costs	(0.1	)%	0.4	%	1.6	%
Canadian tax rate difference	—	%	—	%	0.4	%
Canadian nondeductible interest	—	%	—	%	0.7	%
Canadian deferred tax valuation adjustment	—	%	0.7	%	5.7	%
Canadian tax reorganization	—	%	0.8	%	(7.6	)%
State tax credit, valuation adjustment	0.3	%	1.3	%	2.0	%
Foreign taxes withheld	(0.2	)%	1.4	%	—	%
Other	0.5	%	0.4	%	1.9	%
Effective tax rate (before impact of Tax Cuts and Jobs Act of 2017 ⁽¹⁾	(26.4	)%	(16.9	)%	(36.0	)%
Adjustment related to the Tax Cuts and Jobs Act of 2017 ⁽¹⁾	—	%	(2.8	)%	(314.0	)%
Adjusted effective tax rate	(26.4	)%	(19.7	)%	(350.0	)%

_________________

(1) The Tax Cuts and Jobs Act of 2017 (enacted on December 22, 2017) resulted in a $66.6 million decrease of our net deferred tax liability and a corresponding benefit to our deferred federal income taxes for Fiscal 2017.

Our effective income tax rates for Fiscal 2019 and Fiscal 2018 were 26.4% and 16.9%, respectively (where the effective income tax rate for Fiscal 2018 excludes adjustments recorded in that year in relation to the provisional estimate made in Fiscal 2017 to account for the impact of the Tax Cuts and Jobs Act (the “TCJA”) pursuant to Staff Accounting Bulletin No. 118 (“SAB 118”) issued by the SEC staff on December 22, 2017).

Our effective income tax rate for Fiscal 2019 was favorably impacted by employment-related federal income tax credits, offset by the following:


(i)	nondeductible penalties and other expenses;


(ii)	state income taxes;


(iii)	foreign income taxes withheld (not offset by foreign tax credits due to the foreign tax credit limitation);


(iv)	accruals for uncertain tax positions; and


(v)	an increase in the valuation allowance for deferred tax assets associated with a carryforward of state tax credits that are more than likely to expire before utilized.

Our effective income tax rate for Fiscal 2018 was favorably impacted by employment-related federal income tax credits, offset by the following:


(i)	nondeductible litigation costs related to the Merger;


(ii)	nondeductible penalties and other expenses;


(iii)	state income taxes including an increase in our state income tax expense caused by state tax legislation enacted during the second quarter that increased the amount of income subject to state taxation;


(iv)	foreign income taxes withheld (not offset by foreign tax credits due to the foreign tax credit limitation);


(v)	accruals for uncertain tax positions;


(vi)	an increase in the valuation allowance for deferred tax assets associated with a carryforward of state tax credits that are more than likely to expire before utilized; and

(vii)

an increase in the valuation allowance for deferred tax assets relating to our Canada operations that could expire before they are utilized, partially offset by a favorable one-time adjustment to deferred tax (the tax effect of the cumulative foreign currency translation adjustment existing as of January 1, 2018) resulting from the change in our intent to no longer indefinitely reinvest monies previously loaned to our Canadian subsidiary recorded in the first quarter of Fiscal 2018.

Our total effective income tax rate for Fiscal 2018 was 19.7% and includes 2.8% of favorable adjustments to the provisional estimate provided in Fiscal 2017 to account for the impact of the TCJA pursuant to SAB 118. Pursuant to SAB 118, we included a provisional estimate of $66.6 million tax benefit in our consolidated financial statements for the fiscal year ended December 31, 2017, relating to the enactment of TJCA, which primarily related to the re-measurement of our deferred tax liability. In the second quarter of Fiscal 2018, we recorded an adjustment to the provisional estimate of $0.2 million tax benefit, in the third quarter of Fiscal 2018, we recorded an incremental adjustment to the provisional estimate of $0.5 million tax benefit. The measurement period relating to the enactment of the TCJA ended during our fourth quarter, and the tax effects thereof were completed as of the end of Fiscal 2018.

Deferred income tax assets and liabilities consisted of the following at the dates presented:



	December 29, 2019			December 30, 2018
	(in thousands)
Deferred tax assets:
Accrued compensation	$	2,213		$	1,523
Unearned revenue	3,305			2,360
Deferred rent	—			8,272
Operating lease obligations ⁽¹⁾	149,782			—
Stock-based compensation	912			730
Accrued insurance and employee benefit plans	3,284			3,328
Unrecognized tax benefits ⁽²⁾	318			377
NOL and other carryforwards	5,629			5,746
Interest deduction carryforward	8,930			—
Loan costs	—			394
Other	800			722
Gross deferred tax assets	175,173			23,452
Less: Valuation allowance ⁽³⁾	2,865			2,896
Net deferred tax asset	172,308			20,556
Deferred tax liabilities:
Depreciation and amortization ⁽⁴⁾	(3,465		)	(5,774		)
Prepaid assets	(424		)	(621		)
Intangibles	(120,534		)	(117,025		)
Operating lease right-of-use assets ⁽¹⁾	(137,048		)	—
Favorable/unfavorable Leases	—			(172		)
Internal use software and other	(3,216		)	(4,022		)
Deferred loan costs	(61		)	—
Gross deferred tax liabilities	(264,748		)	(127,614		)
Net deferred tax liability	$	(92,440	)	$	(107,058	)

_________________


(1)	Cumulative deferred tax assets and liabilities relating to deferred rent, favorable/unfavorable leases, landlord incentives, and cease-use obligations were reclassed to Operating Lease Right-of-Use-Asset/Liability upon the adoption of ASU 2016-02, Leases (Topic 842), at the beginning of Fiscal 2019.


(2)	Amount represents the value of future tax benefits that would result if the liabilities for uncertain state tax positions and accrued interest related to uncertain tax positions are settled.


(3)	Valuation allowance for deferred tax assets relating to Canada deferred tax assets (including Canada net operating loss carryforward) and certain state tax credits.


(4)	Includes the cumulative deferred tax relating to leases accounted for as financing transactions.

As of December 29, 2019, we have $7.8 million of federal net operating loss carryforwards (with $5.3 million expiring at the end of tax year 2037 and the remaining $2.5 million having an indefinite carryforward period), $21.8 million of state net operating loss carryforwards (expiring at the end of tax years 2024 through 2039 or having an indefinite carryforward period), and $0.9 million of Canadian net operating loss carryforwards (expiring at the end of tax years 2035 through 2039) with an offsetting valuation allowance. In addition, as of December 29, 2019, we have $35.0 million of interest carryforwards with an indefinite carryforward period,$0.1 million of Alternative Minimum Tax credit carryforwards with an indefinite carryforward period, and state income tax credit carryforwards of $2.1 million (expiring at the end of 2019 through 2027) with an offsetting valuation allowance.

We file numerous federal, state, and local income tax returns in the U.S. and some foreign jurisdictions. As a matter of ordinary course, we are subject to regular examination by various tax authorities. Certain of our income tax returns are currently under examination and are in various stages of the audit/appeals process. In general, the U.S. federal statute of limitations has expired for our federal income tax returns filed for tax years ended before 2014 with the exception of certain Peter Piper Pizza federal income tax returns containing net operating losses which are carried forward to open tax years, 2014 and thereafter. Whereas, adjustments can be made to those returns pre-dating 2014 until the respective statute of limitations expire for the particular tax year(s) the net operating loss(es) was utilized. The net operating loss carryforward from Peter Piper Pizza were fully utilized by the end of our Fiscal 2018 federal income tax return. In general, our state income tax statutes of limitations have expired for tax years ended before 2015. In general, the statute of limitations for our Canada income tax returns has expired for tax years ended before 2015.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Fiscal Year
	2019			2018			2017
	(in thousands)
Balance at beginning of period	$	4,286		$	3,853		$	3,119
Additions for tax positions taken in the current year	100			114			1,677
Increases for tax positions taken in prior years	826			571			16
Decreases for tax positions taken in prior years	(42		)	(48		)	(390		)
Settlements with tax authorities	(131		)	(5		)	(32		)
Expiration of statute of limitations	(1,060		)	(199		)	(537		)
Balance at end of period	$	3,979		$	4,286		$	3,853

Our liability for uncertain tax positions (excluding interest and penalties) was $4.0 million and $4.3 million as of December 29, 2019 and December 30, 2018, respectively, and if recognized would decrease our provision for income taxes by $3.1 million. Within the next twelve months, we could settle or otherwise conclude certain ongoing income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decrease within the next twelve months by as much as $3.9 million as a result of payments and/or settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months. The total accrued interest and penalties related to unrecognized tax benefits as of December 29, 2019 and December 30, 2018, was $1.0 million and $1.1 million, respectively. On the Consolidated Balance Sheets, we include current accrued interest related to unrecognized tax benefits in “Accrued interest,” current accrued penalties in “Accrued expenses” and non-current accrued interest and penalties in “Other noncurrent liabilities.”