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Income Taxes
12 Months Ended
Dec. 31, 2018
Income Taxes [Abstract]  
Income Taxes

7. Income Taxes

The components of the provision for income taxes are as follows:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Year ended December 31,



2018

 

2017

 

2016

Current tax:

 

 

 

 

 

 

 

 

U.S. Federal

$

58,878 

 

$

98,208 

 

$

20,765 

U.S. State

 

21,780 

 

 

18,639 

 

 

8,687 

Foreign

 

637 

 

 

669 

 

 

556 



 

81,295 

 

 

117,516 

 

 

30,008 

Deferred tax:

 

 

 

 

 

 

 

 

U.S. Federal

 

10,541 

 

 

(16,201)

 

 

(11,596)

U.S. State

 

479 

 

 

(1,559)

 

 

(2,546)

Foreign

 

(2,261)

 

 

(496)

 

 

(2,470)



 

8,759 

 

 

(18,256)

 

 

(16,612)

Valuation allowance

 

1,829 

 

 

230 

 

 

2,405 

Provision for income taxes

$

91,883 

 

$

99,490 

 

$

15,801 



The effective tax rate differs from the statutory tax rates as follows:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Year ended December 31,



 

2018

 

2017

 

2016

Statutory U.S. federal income tax rate

 

21.0 

%

 

35.0 

%

 

35.0 

%

State income tax, net of related federal income tax benefit

 

6.6 

 

 

4.4 

 

 

13.3 

 

Federal credits

 

(2.1)

 

 

(1.5)

 

 

(10.1)

 

Executive compensation disallowed

 

1.4 

 

 

 -

 

 

 -

 

Meals and entertainment

 

0.1 

 

 

 -

 

 

 -

 

Enhanced deduction for food donation

 

(0.1)

 

 

(0.2)

 

 

(2.4)

 

Valuation allowance

 

0.7 

 

 

0.1 

 

 

6.0 

 

Other

 

3.5 

 

 

1.5 

 

 

6.2 

 

Effects of the TCJA

 

 -

 

 

(2.3)

 

 

 -

 

Return to provision and other discrete items

 

1.1 

 

 

(0.9)

 

 

(7.2)

 

Equity compensation related adjustments

 

2.0 

 

 

 -

 

 

 -

 

Effective income tax rate

 

34.2 

%

 

36.1 

%

 

40.8 

%



The 2018 annual effective tax rate was lower than the 2017 rate primarily due to the favorable impacts of the TCJA (as defined below) and federal tax credits offset by unfavorable tax impacts of expirations and cancellations of various equity awards.

The components of the deferred income tax assets and liabilities as of December 31, 2018 and 2017 for continuing operations are as follows:



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

December 31,



 

 

 

2018

 

2017

Deferred income tax liability:

 

 

 

 

 

 

 

 

Leasehold improvements, property and equipment

 

 

 

$

144,113 

 

$

140,908 

Goodwill and other assets

 

 

 

 

1,438 

 

 

1,339 

Prepaid assets and other

 

 

 

 

4,154 

 

 

5,191 

Total deferred income tax liability

 

 

 

 

149,705 

 

 

147,438 

Deferred income tax asset:

 

 

 

 

 

 

 

 

Deferred rent

 

 

 

 

49,481 

 

 

42,859 

Gift card liability

 

 

 

 

5,752 

 

 

4,580 

Capitalized transaction costs

 

 

 

 

323 

 

 

324 

Stock-based compensation and other employee benefits

 

 

 

 

65,651 

 

 

80,447 

Foreign net operating loss carry-forwards

 

 

 

 

11,871 

 

 

11,376 

State credits

 

 

 

 

5,230 

 

 

5,589 

Allowances, reserves and other

 

 

 

 

13,355 

 

 

13,719 

Valuation allowance

 

 

 

 

(13,524)

 

 

(12,270)

Total deferred income tax asset

 

 

 

 

138,139 

 

 

146,624 

Net deferred income tax liability

 

 

 

$

11,566 

 

$

814 



As of December 31, 2018, we have $1,530 of deferred tax assets related to outstanding non-vested stock awards that contain market conditions. If market conditions are not achieved, then we may not realize the benefit of these deferred tax assets, which would increase our effective tax rates in future periods.

As of December 31, 2018 and 2017, the gross foreign net operating losses were $54,599 and $50,292 as of December 31, 2018 and 2017, respectively.

As of December 31, 2018 and 2017, we had gross valuation allowances of approximately $63,509 and $54,675, respectively, against certain foreign deferred tax assets. The increase in the valuation allowance was primarily due to the recording of a valuation allowance on various foreign tax attributes.

Unrecognized Tax Benefits

A reconciliation of the unrecognized tax benefits is as follows:





 

 

 

 

 

 

 

 



Year ended December 31,



2018

 

2017

 

2016

Beginning of year

$

8,937 

 

$

4,211 

 

$

3,776 

Increase resulting from current year tax position

 

751 

 

 

4,726 

 

 

435 

Lapsing of statutes of limitations

 

(328)

 

 

 -

 

 

 -

End of year

$

9,360 

 

$

8,937 

 

$

4,211 



Interest expense related to uncertain tax positions is recognized in interest expense, and penalties related to uncertain tax positions are recognized in income tax expense. During the years ended December 31, 2018, 2017, and 2016, we recognized $536,  $364, and $430, respectively, in interest expense related to uncertain tax positions. These balances are gross amounts before any tax benefits and are included in other liabilities in the accompanying consolidated balance sheets. We have accrued $1,329 and $794 for the payment of interest at December 31, 2018 and 2017, respectively. 

We are no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2015. For the majority of states where we have a significant presence, we are no longer subject to tax examinations by tax authorities for tax years before 2015. Currently, we expect expirations of statutes of limitations, excluding indemnified amounts, on reserves of approximately $767 within the next twelve months.

It is reasonably possible the amount of the unrecognized benefit with respect to certain unrecognized positions could significantly increase or decrease within the next twelve months and would have an impact on net income.

Tax Cuts and Jobs Act

Effective for tax years beginning after December 31, 2017, the U.S. corporate income tax rate is 21% pursuant to the Tax Cuts and Jobs Act (“TCJA”), that was signed into law December 2017.  As of December 31, 2018, we have completed our accounting for the tax effects of the TCJA and recorded cumulative tax adjustments of $6,446 in accordance with SAB 118 guidance.

In connection with the TCJA, a one-time transition tax is assessed on total post-1986 accumulated foreign earnings and profits that were previously deferred from U.S. income taxes, the amount of those earnings held in cash, and other specified assets and foreign tax pools. Based on our analysis of our total post-1986 accumulated foreign earnings and profits that were previously deferred from U.S. income taxes, the amount of those earnings held in cash, and other specified assets and foreign tax pools, we have determined a one-time transition tax of $0