15. Income Taxes

The current income tax provision represents the estimated amount of income taxes paid or payable for the year, as well as changes in estimates from prior years. The deferred income tax provision represents the change in deferred tax liabilities and assets. The following table presents the significant components of the provision for income taxes for 2015, 2014 and 2013.

	Fiscal Year
In Thousands	2015			2014		2013
Current:
Federal	$	20,107		$	13,153	$	18,938
State		3,563			2,163		3,221
Total current provision	$	23,670		$	15,316	$	22,159
Deferred:
Federal	$	10,638		$	3,638	$	(7,701	)
State		(230	)		582		(2,316	)
Total deferred provision (benefit)	$	10,408		$	4,220	$	(10,017	)
Income tax expense	$	34,078		$	19,536	$	12,142

The Company’s effective income tax rate, as calculated by dividing income tax expense by income before income taxes, for 2015, 2014 and 2013 was 34.4%, 35.1% and 27.40%, respectively. The Company’s effective tax rate, as calculated by dividing income tax expense by income before income taxes less net income attributable to noncontrolling interest, for 2015, 2014 and 2013 was 36.6%, 38.4% and 30.5%, respectively. The following table provides a reconciliation of income tax expense at the statutory federal rate to actual income tax expense.

	Fiscal Year
In Thousands	2015			2014			2013
Statutory expense	$	34,692		$	19,474		$	15,485
State income taxes, net of federal benefit		3,496			2,133			1,811
Noncontrolling interest – Piedmont		(2,261	)		(1,835	)		(1,674	)
Adjustment for uncertain tax positions		51			30			(167	)
Adjustment for state tax legislation		(1,145	)		0			(2,261	)
Valuation allowance change		(1,332	)		1,203			321
Bargain purchase gain		(704	)		0			0
Capital loss carryover		0			(854	)		0
Manufacturing deduction benefit		(1,330	)		(1,470	)		(1,995	)
Meals and entertainment		1,666			1,204			1,127
Other, net		945			(349	)		(505	)
Income tax expense	$	34,078		$	19,536		$	12,142

As of January 3, 2016 and December 28, 2014, the Company had $2.9 million of uncertain tax positions, including accrued interest, all of which would affect the Company’s effective tax rate if recognized. While it is expected that the amount of uncertain tax positions may change in the next 12 months, the Company does not expect such change would have a significant impact on the consolidated financial statements.

A reconciliation of the beginning and ending balances of the total amounts of uncertain tax positions (excluding accrued interest) is as follows:

	Fiscal Year
In Thousands	2015			2014			2013
Gross uncertain tax positions at the beginning of the year	$	2,620		$	2,630		$	4,950
Increase as a result of tax positions taken during a prior period		0			0			55
Decrease as a result of tax positions taken during a prior period		0			0			(33	)
Increase as a result of tax positions taken in the current period		547			498			578
Reduction as a result of the expiration of the applicable statute of limitations		(534	)		(508	)		(2,920	)
Gross uncertain tax positions at the end of the year	$	2,633		$	2,620		$	2,630

The Company records liabilities for uncertain tax positions related to certain income tax positions. These liabilities reflect the Company’s best estimate of the ultimate income tax liability based on currently known facts and information. Material changes in facts or information as well as the expiration of statute and/or settlements with individual tax jurisdictions may result in material adjustments to these estimates in the future.

The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense. During 2015, 2014 and 2013, the interest and penalties related to uncertain tax positions recognized in income tax expense were not material. In addition, the amount of interest and penalties accrued at January 3, 2016 and December 28, 2014 were not material.

The Company reduced its liability for uncertain tax positions by $0.6 million in the third quarter of both 2015 and 2014 and $3.4 million in the third quarter of 2013. The net effect of the adjustments was a decrease to income tax expense of $0.6 million for both 2015 and 2014 and $0.9 million for 2013. The reduction of the liability for uncertain tax positions during these years was primarily due to the expiration of the applicable statute of limitations.

The American Taxpayer Relief Act (“Act”) was signed into law on January 2, 2013. The Act approved a retroactive extension of certain favorable business and energy tax provisions that had expired at the end of 2011 that are applicable to the Company. The Company recorded a reduction to income tax expense totaling $0.4 million related to the Act in 2013, which is included in the other, net line of the reconciliation of income tax expense at the statutory federal rate to actual income tax expense table.

During 2013, state tax legislation was enacted that reduced the corporate tax rate in that state from 6.9% to 6.0% effective January 1, 2014. A further reduction to the corporate tax rate from 6.0% to 5.0% became effective January 1, 2015. This reduction in the corporate tax rate decreased the Company’s income tax expense by approximately $2.3 million in 2013.

During 2015, a target was met that caused a reduction to the corporate tax rate in that state from 5% to 4% effective January 1, 2016 based on the same legislation enacted in 2013 described above. This reduction in the state corporate tax rate decreased the Company’s income tax expense by approximately $1.1 million in 2015 due to the impact on the Company’s net deferred tax liabilities and valuation allowance.

The gain on the exchange of franchise territory and the sale of BYB did not have a significant impact on the effective income tax rate for 2015.

Prior tax years beginning in 2012 remain open to examination by the Internal Revenue Service, and various tax years beginning in year 1998 remain open to examination by certain state tax jurisdictions to which the Company is subject due to loss carryforwards.

As of January 3, 2016, the Company had $2.5 million and $54.9 million of federal net operating losses and state net operating losses, respectively, available to reduce future income taxes. The federal net operating losses would expire in varying amounts through 2032. The state net operating losses would expire in varying amounts through 2034.

The Company’s income tax assets and liabilities are subject to adjustment in future periods based on the Company’s ongoing evaluations of such assets and liabilities and new information that becomes available to the Company.

In November 2015, the FASB issued new accounting guidance which simplified the presentation of deferred income taxes. This guidance requires that deferred tax assets and deferred tax liabilities be classified and presented as noncurrent on the balance sheet. The Company elected to early adopt this new accounting guidance effective January 3, 2016 on a prospective basis. Adoption of this accounting guidance resulted in a reclassification of the Company’s net current deferred tax asset to the net noncurrent deferred tax liability on the Company’s consolidated financial statements as of January 3, 2016. No prior periods were retrospectively adjusted.

Deferred income taxes are recorded based upon temporary differences between the financial statement and tax bases of assets and liabilities and available net operating loss and tax credit carryforwards. Temporary differences and carryforwards that comprised deferred income tax assets and liabilities were as follows:

	Jan. 3,			Dec. 28,
In Thousands	2016			2014
Intangible assets	$	169,338		$	139,744
Depreciation		95,262			77,311
Investment in Piedmont		43,109			42,271
Inventory		9,928			10,777
Prepaid expenses		4,615			4,237
Patronage dividend		4,046			4,361
Debt exchange premium		204			634
Other		434			161
Deferred income tax liabilities		326,936			279,496
Deferred compensation		(44,402	)		(42,990	)
Postretirement benefits		(27,086	)		(26,783	)
Pension (nonunion)		(18,257	)		(25,951	)
Sub-bottling liability		(52,306	)		(18,084	)
Accrued liabilities		(21,853	)		(16,049	)
Capital lease agreements		(6,105	)		(6,265	)
Net operating loss carryforwards		(3,121	)		(4,075	)
Transactional costs		(5,879	)		(3,584	)
Pension (union)		(3,290	)		(3,472	)
Other		0			(54	)
Deferred income tax assets		(182,299	)		(147,307	)
Valuation allowance for deferred tax assets		2,307			3,640
Net current deferred income tax asset		0			(4,171	)
Net noncurrent deferred income tax liability	$	146,944		$	140,000

Note: Net current income tax asset from the table for December 28, 2014 is included in prepaid expenses and other current assets on the consolidated balance sheets.

Valuation allowances are recognized on deferred tax assets if the Company believes that it is more likely than not that some or all of the deferred tax assets will not be realized. The Company believes the majority of the deferred tax assets will be realized due to the reversal of certain significant temporary differences and anticipated future taxable income from operations.

The valuation allowance of $2.3 million, as of January 3, 2016, and $3.6 million, of which $0.2 million was included with the net current income tax asset, as of December 28, 2014, was established primarily for certain loss carryforwards which expire in varying amounts through 2034. The reduction in the valuation allowance as of January 3, 2016, was due to the Company’s assessment of its ability to use certain loss carryforwards primarily related to the sale of BYB.