Income Taxes

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



	Year Ended
	2015		2014		2013
Domestic	$	208,827	$	173,143	$	54,175
Foreign	25,301		19,397		9,417
	$	234,128	$	192,540	$	63,592

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



	Year Ended
	2015			2014			2013
Current:
U.S. Federal	$	(12,414	)	$	6,673		$	(1,942	)
State	3,346			(7,863		)	8,889
Foreign	(10,778		)	(8,093		)	(7,446		)
Current tax provision	(19,846		)	(9,283		)	(499		)
Deferred:
U.S. Federal	(53,916		)	(67,977		)	(22,810		)
State	(21,375		)	671			5,306
Foreign	988			473			1,946
Deferred tax provision	(74,303		)	(66,833		)	(15,558		)
Income tax provision	$	(94,149	)	$	(76,116	)	$	(16,057	)

Deferred tax assets (liabilities) are set forth below:



	Year End
	2015			2014
Deferred tax assets:
Net operating loss and credit carryforwards	$	51,782		$	82,143
Unfavorable leases	40,084			34,140
Accrued compensation and related benefits	35,963			40,268
Accrued expenses and reserves	18,156			23,336
Deferred rent	17,661			15,214
Other	9,157			9,122
Valuation allowances	(17,097		)	(11,213		)
Total deferred tax assets	155,706			193,010
Deferred tax liabilities:
Intangible assets	(499,467		)	(506,251		)
Owned and leased fixed assets net of related obligations	(95,619		)	(89,117		)
Other	(20,333		)	(17,824		)
Total deferred tax liabilities	(615,419		)	(613,192		)
	$	(459,713	)	$	(420,182	)

In November 2015, the FASB issued an amendment that requires deferred tax assets and deferred tax liabilities be classified as non-current in the consolidated balance sheet. The Company early adopted this amendment, prospectively, during the fourth quarter of 2015.

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 3, primarily related to state valuation allowances and favorable and unfavorable leases.

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



	Amount		Expiration
Tax credit carryforwards:
U.S. federal foreign tax credits	$	20,845	2021-2023
State tax credits	454		2019-2023
Foreign tax credits of non-U.S. subsidiaries	3,051		2021-2024
Total	$	24,350

Net operating loss carryforwards:
State net operating loss carryforwards	$	944,314	2016-2033

As of January 3, 2016, the Company had a deferred tax asset of $53,661 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 2015 and prior years, we deducted $167,386 in excess of cumulative compensation costs relating to the exercise of stock options and vesting of restricted stock. The Company has recognized $49,613 and $9,363 in 2015 and 2014, respectively, of the $60,856 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 carryforwards. The Company has recognized the $49,613 and $9,363 tax benefits in 2015 and 2014, respectively, as a reduction of current income taxes payable with an equal offsetting increase in “Additional paid-in capital.”

The Company’s valuation allowances of $17,097, $11,213 and $10,548 as of January 3, 2016, December 28, 2014 and December 29, 2013, respectively, relate to state net operating loss and foreign and state tax credit carryforwards. Valuation allowances increased $5,884 during the year ended January 3, 2016 primarily as a result of the expected sale of restaurants classified as held for sale under our system optimization initiative described in Note 3. 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.

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 $99,400 at January 3, 2016 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 $9,400 at January 3, 2016.

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



	Year Ended
	2015			2014			2013
Income tax provision at the U.S. Federal statutory rate	$	(81,945	)	$	(67,389	)	$	(22,257	)
State income tax provision, net of U.S. Federal income tax effect	(7,234		)	(4,747		)	(1,278		)
Foreign and U.S. tax effects of foreign operations (a)	4,389			4,089			2,886
Dividends received deduction (b)	3,455			—			1,424
Jobs tax credits, net	2,402			2,084			4,384
Non-deductible goodwill (c)	(7,435		)	(9,389		)	(9,875		)
Valuation allowances (d)	(6,075		)	(665		)	10,504
Non-deductible expenses and other	(1,706		)	(99		)	(1,845		)
	$	(94,149	)	$	(76,116	)	$	(16,057	)

_______________


(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 $54,911 and $40,145 during 2015 and 2013, respectively, from our investment in Arby’s. See Note 8 for further information.


(c)	Substantially all of the goodwill included in the gain on sales of restaurants in 2015, 2014 and 2013 under our system optimization initiative as noted below, and the impairment of international goodwill in 2013 was non-deductible for tax purposes. See Notes 3 and 10 for further information.


(d)	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. 2015 and 2013 primarily relate 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 3 impacted our tax provision due to the following: 1) goodwill disposal and other non-deductible expenses incurred in connection with the sale of restaurants during 2015, 2014 and 2013 of $8,987, $9,389 and $7,471, respectively, (2) changes to the Canadian deferred tax rate of $70 in 2014, (3) changes to the state deferred tax rate of $1,587 and $5,122 in 2015 and 2013, respectively, and (4) changes in valuation allowances related to the likelihood of the utilization of state net operating loss carryforwards of $4,542 in 2015. These amounts are included in the state income tax provision, the foreign provision, non-deductible goodwill and the valuation allowance 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 2014 have been settled. Certain of the Company’s state income tax returns from its 2011 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.

Unrecognized Tax Benefits

As of January 3, 2016, the Company had unrecognized tax benefits of $21,224, which, if resolved favorably would reduce income tax expense by $15,843. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:



	Year End
	2015			2014			2013
Beginning balance	$	25,715		$	23,897		$	28,848
Additions:
Tax positions of current year	927			—			—
Tax positions of prior years	476			2,678			3,579
Reductions:
Tax positions of prior years	(5,182		)	(582		)	(4,914		)
Settlements	(251		)	—			(2,416		)
Lapse of statute of limitations	(461		)	(278		)	(1,200		)
Ending balance	$	21,224		$	25,715		$	23,897

During the first quarter of 2015, we concluded two state income tax examinations which resulted in the recognition of a net tax benefit of $1,872 and the reduction of our unrecognized tax benefits by $3,686. Additionally, during the second quarter of 2015, unfavorable state court decisions and audit experience led us to abandon certain refund claims, which resulted in a reduction of our unrecognized tax benefits by $1,274.

During 2016, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $6,896, primarily as a result of the completion of certain income tax examinations.

During 2015, 2014 and 2013, the Company recognized $(1,627), $315 and $(835) of (income) expense for interest and $15, $330 and $672 of income resulting from the reversal of accrued penalties, respectively, related to uncertain tax positions. The Company has approximately $1,223 and $2,949 accrued for interest and $642 and $657 accrued for penalties as of January 3, 2016 and December 28, 2014, respectively.