Income Taxes

Income (loss) from continuing operations before income taxes and noncontrolling interests is set forth below:



	Year Ended
	2014		2013		2012
Domestic	$	181,872	$	49,635	$	(23,154	)
Foreign	19,397		9,417		10,029
	$	201,269	$	59,052	$	(13,125	)

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



	Year Ended
	2014			2013			2012
Current:
U.S. Federal	$	6,087		$	(1,603	)	$	104
State	(8,289		)	7,879			(669		)
Foreign	(8,093		)	(7,446		)	(8,667		)
Current tax provision	(10,295		)	(1,170		)	(9,232		)
Deferred:
U.S. Federal	(70,246		)	(21,103		)	6,458
State	233			6,173			18,026
Foreign	473			1,946			5,831
Deferred tax (provision) benefit	(69,540		)	(12,984		)	30,315
Income tax (provision) benefit	$	(79,835	)	$	(14,154	)	$	21,083

Deferred tax assets (liabilities) are set forth below:



	Year End
	2014			2013
Deferred tax assets:
Net operating loss and credit carryforwards	$	82,143		$	115,910
Accrued compensation and related benefits	40,268			40,289
Unfavorable leases	34,140			13,913
Accrued expenses and reserves	23,336			31,555
Deferred rent	15,214			13,121
Other	9,122			8,682
Valuation allowances	(11,213		)	(10,548		)
Total deferred tax assets	193,010			212,922
Deferred tax liabilities:
Intangible assets	(506,251		)	(473,011		)
Owned and leased fixed assets net of related obligations	(89,117		)	(83,352		)
Other	(17,824		)	(18,996		)
Total deferred tax liabilities	(613,192		)	(575,359		)
	$	(420,182	)	$	(362,437	)

Changes in the Company’s deferred tax asset and liability balances were primarily the result of the utilization of net operating loss and credit carryforwards and the impact of the system optimization initiative, as described in Note 2, primarily related to favorable and unfavorable leases and compensation accruals.

The amounts and expiration dates of net operating loss and tax credit carryforwards are as follows:



	Amount		Expiration
Tax credit carryforwards:
U.S. federal credits (primarily foreign tax credits and jobs credits)	$	90,136	2018-2034
State tax credits	504		2019-2023
Foreign tax credits of non-U.S. subsidiaries	2,313		2021-2023
Total	$	92,953

Net operating loss carryforwards:
State net operating loss carryforwards	$	1,087,272	2015-2033

As of December 28, 2014, the Company had a deferred tax asset of $124,566 related to the state net operating loss carryforwards and federal, foreign and state tax credits before reduction for unrecognized tax benefits related to excess share-based compensation deductions. In 2014 and prior years, we deducted $142,422 in excess of cumulative compensation costs relating to the exercise of stock options and vesting of restricted stock. In 2014, the Company has recognized $9,363 of the $51,786 tax benefit relating to these deductions and will continue to do so in future periods as it continues to have income taxes currently payable against which the benefits can be realized as a result of utilizing its net operating loss and credit carryforwards. The Company has recognized the $9,363 tax benefit as a reduction of current income taxes payable with an equal offsetting increase in “Additional paid-in capital.”

The Company’s valuation allowances of $11,213, $10,548 and $21,052 as of December 28, 2014, December 29, 2013 and December 30, 2012, respectively, relate to state net operating loss and foreign and state tax credit carryforwards. Valuation allowances increased $665 during the year ended December 28, 2014 primarily as a result of generating foreign tax credits with a limited carryforward period in 2014 that are in excess of what the Company expects to utilize prior to their expiration. Valuation allowances decreased $10,504 during the year ended December 29, 2013 primarily as a result of changes to the legal form of certain subsidiaries resulting in changes in expected future state taxable income available to utilize certain state net operating loss carryforwards. Valuation allowances increased $3,655 during the year ended December 30, 2012 primarily as a result of changes in state net operating losses.

During the first quarter of 2013, the Company finalized its long-term investment plan with respect to the Company’s non-U.S. earnings. There are no plans to repatriate cash from, and the Company intends to indefinitely reinvest undistributed earnings of, its non-U.S. subsidiaries. As such, the Company reversed $1,832 of deferred tax liabilities during the year ended December 29, 2013, relating to investments in foreign subsidiaries which the Company now considers permanently invested outside of the U.S.

Consequently, deferred income taxes have not been recorded for temporary differences related to investments in non-U.S. subsidiaries. These temporary differences were approximately $63,800 at December 28, 2014 and consisted primarily of undistributed earnings considered permanently invested in operations outside the U.S. Determination of the incremental income tax liability on these unremitted earnings is dependent on circumstances existing if, and when remittance occurs. However, we estimate that if unremitted earnings were to have been remitted, the additional tax liability would have been approximately $6,100 at December 28, 2014.

The reconciliation of income tax computed at the U.S. Federal statutory rate to reported income tax is set forth below:



	Year Ended
	2014			2013			2012
Income tax (provision) benefit at the U.S. Federal statutory rate	$	(70,444	)	$	(20,668	)	$	4,594
State income tax (provision) benefit, net of U.S. Federal income tax effect	(5,309		)	(1,370		)	11,364
Foreign and U.S. tax effects of foreign operations (a)	4,089			2,886			347
Jobs tax credits, net	2,084			4,384			970
Dividends received deduction (b)	—			1,424			1,133
Corrections related to prior years’ tax matters (c)	—			—			7,620
Non-deductible goodwill (d)	(9,389		)	(9,875		)	—
Valuation allowances (e)	(665		)	10,504			(3,655		)
Non-deductible expenses and other, net	(201		)	(1,439		)	(1,290		)
	$	(79,835	)	$	(14,154	)	$	21,083

_______________


(a)	2013 includes reversal of deferred taxes on investments in foreign subsidiaries now considered permanently invested outside of the U.S.


(b)	We received dividends of $40,145 and $4,625 during 2013 and 2012, respectively, from our investment in Arby’s. See Note 6 for further information.


(c)	Corrections in 2012 related to tax matters in prior years for the effects of tax depreciation in states that do not follow federal law of $3,300, the effects of a one-time federal employment tax credit in 2011 of $2,220 and a correction to certain deferred tax assets and liabilities of $2,100.


(d)	Substantially all of the goodwill included in the gain on sales of restaurants in 2014 and 2013, including under our system optimization initiative as noted below, and the impairment of international goodwill in 2013 was non-deductible for tax purposes. See Notes 2, 3 and 8 for further information.


(e)	Includes changes for deferred tax assets generated or utilized during the current year and changes in our judgment regarding the likelihood of the utilization of deferred tax assets. 2013 primarily relates to changes in the likelihood of the utilization of deferred tax assets related to state net operating loss carryforwards.

The Company’s system optimization initiative described in Note 2 impacted our tax provision due to the following: 1) goodwill disposed of in connection with the sale of restaurants during 2014 and 2013 of $4,914 and $7,471, respectively, substantially all of which was non-deductible for tax purposes, (2) changes to the Canadian deferred tax rate of $70 in 2014 and (3) changes to the state deferred tax rate of $5,122 in 2013. These amounts are included in the state income tax provision, the foreign provision and the non-deductible goodwill amounts presented in the table above.

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 2009 through 2013 have been settled. Certain of the Company’s state income tax returns from its 2001 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.

Uncertain Tax Positions

As of December 28, 2014, the Company had unrecognized tax benefits of $25,715, which, if resolved favorably would reduce income tax expense by $18,762. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:



	Year End
	2014			2013			2012
Beginning balance	$	23,897		$	28,848		$	30,614
Additions:
Tax positions of prior years	2,678			3,579			3,410
Reductions:
Tax positions of prior years	(582		)	(4,914		)	(2,964		)
Settlements	—			(2,416		)	(1,327		)
Lapse of statute of limitations	(278		)	(1,200		)	(885		)
Ending balance	$	25,715		$	23,897		$	28,848

In January 2014, the Company adopted the FASB amendment requiring unrecognized tax benefits to be presented as a reduction to deferred tax assets when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The adoption of this amendment in the first quarter of 2014 resulted in a reduction of $6,214 in the liability for unrecognized tax benefits and a corresponding increase to net non-current deferred income tax liabilities. During 2014, the Company increased its unrecognized tax benefits by $2,627 for certain amended state returns.

During 2015, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $5,836, primarily as a result of the completion of certain state tax audits.

During 2014, 2013 and 2012, the Company recognized $315, $(835) and $(584) of expense (income) for interest and $330, $672 and $204 of income resulting from the reversal of accrued penalties, respectively, related to uncertain tax positions. The Company has approximately $2,949 and $2,634 accrued for interest and $657 and $987 accrued for penalties as of December 28, 2014 and December 29, 2013, respectively.