Income Taxes

12 Months Ended

Jan. 01, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes is set forth below:

	Year Ended
	2022		2021		2020
Domestic	$	231,862	$	228,756	$	149,046
Foreign (a)	11,643		11,822		3,749
	$	243,505	$	240,578	$	152,795

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(a)Excludes foreign income of domestic subsidiaries.

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

	Year Ended
	2022		2021		2020
Current:
U.S. federal	$	(43,141)	$	(38,416)	$	(16,176)
State	(9,152)		(7,039)		(3,723)
Foreign	(9,537)		(8,512)		(4,798)
Current tax provision	(61,830)		(53,967)		(24,697)
Deferred:
U.S. federal	(3,868)		(52)		(6,707)
State	(2,629)		15,993		(3,185)
Foreign	2,192		(2,160)		(374)
Deferred tax (provision) benefit	(4,305)		13,781		(10,266)
Income tax provision	$	(66,135)	$	(40,186)	$	(34,963)

Deferred tax assets (liabilities) are set forth below:

	Year End
	January 1, 2023		January 2, 2022
Deferred tax assets:
Operating and finance lease liabilities	$	355,653	$	368,932
Net operating loss and credit carryforwards	58,030		60,620
Deferred revenue	23,617		23,636
Unfavorable leases	19,085		19,060
Accrued compensation and related benefits	14,577		18,487
Accrued expenses and reserves	7,012		6,763
Other	8,275		7,586
Valuation allowances	(35,680)		(38,277)
Total deferred tax assets	450,569		466,807
Deferred tax liabilities:
Operating and finance lease assets	(326,646)		(341,681)
Intangible assets	(285,688)		(290,088)
Fixed assets	(66,830)		(63,936)
Other	(41,826)		(38,812)
Total deferred tax liabilities	(720,990)		(734,517)
	$	(270,421)	$	(267,710)

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	$	14,350	2027-2032
State tax credits	423		2023-2024
Foreign tax credits of non-U.S. subsidiaries	3,881		Indefinite
Total	$	18,654
Net operating loss carryforwards (pre-tax):
State and local net operating loss carryforwards	$	1,059,037	2023-Indefinite
Foreign net operating loss carryforwards	13,880		Indefinite
Total	$	1,072,917

The Company’s valuation allowances of $35,680 and $38,277 as of January 1, 2023 and January 2, 2022, respectively, relate primarily to foreign and state tax credit and net operating loss carryforwards. Valuation allowances decreased $2,597 and $11,691 during 2022 and 2021, respectively, and increased $4,785 during 2020. The relative presence of Company-operated restaurants in various states impacts expected future state taxable income available to utilize state net operating loss carryforwards.

The current portion of refundable income taxes was $3,236 and $11,901 as of January 1, 2023 and January 2, 2022, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of January 1, 2023 and January 2, 2022.

The reconciliation of income tax computed at the U.S. federal statutory rate of 21% to reported income tax is set forth below:

	Year Ended
	2022		2021		2020
Income tax provision at the U.S. federal statutory rate	$	(51,136)	$	(50,521)	$	(32,087)
State income tax provision, net of U.S. federal income tax effect	(11,616)		(6,256)		(4,664)
Prior years’ tax matters	2,290		1,820		1,761
Excess federal tax benefits from share-based compensation	402		7,160		5,338
Foreign and U.S. tax effects of foreign operations	(3,744)		(5)		(397)
Valuation allowances (a)	2,127		11,807		(4,593)
Non-deductible goodwill (b)	—		(947)		—
Tax credits	1,385		1,028		1,901
Non-deductible executive compensation	(3,154)		(3,810)		(1,973)
Unrepatriated earnings	(294)		(282)		(283)
Non-deductible expenses and other	(2,395)		(180)		34
	$	(66,135)	$	(40,186)	$	(34,963)

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(a)2021 primarily relates to a $12,606 benefit resulting from a change in state tax law.

(b)Related to the sale of the New York Company-operated restaurants (including Manhattan). See Note 4 for further information.

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 2020 have been settled. The statute of limitations for the Company’s state tax returns vary, but generally the Company’s state income tax returns from its 2018 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 1, 2023, the Company had unrecognized tax benefits of $17,404, which, if resolved favorably, would reduce income tax expense by $13,749. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	Year Ended
	2022		2021		2020
Beginning balance	$	18,849	$	20,973	$	22,323
Additions:
Tax positions of current year	178		157		322
Reductions:
Tax positions of prior years	(662)		(2,015)		(1,183)
Settlements	(8)		(46)		(119)
Lapse of statute of limitations	(953)		(220)		(370)
Ending balance	$	17,404	$	18,849	$	20,973

During 2023, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $582 due primarily to the lapse of statutes of limitations and expected settlements.

During 2022, 2021 and 2020, the Company recognized $(30), $138 and $159 of (income) expense for interest and $0, $37 and $81 of income for penalties, respectively, related to uncertain tax positions. The Company has $943 and $975 accrued for interest related to uncertain tax positions as of January 1, 2023 and January 2, 2022, respectively.