| (16) | Income Taxes |
On December 22, 2017 the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among other provisions, the Tax Act reduces the federal statutory corporate income tax rate from 35% to 21%. During the fourth quarter of fiscal 2017, the Company recognized a deferred income tax benefit of $40.1 million due to the revaluation of our deferred tax assets and liabilities to reflect the new lower rate.
Based on the Company’s current interpretation of the Tax Act, it made reasonable estimates to record provisional adjustments during the fourth quarter of fiscal 2017. The Company will continue to analyze additional information and guidance related to the Tax Act as supplemental legislation, regulatory guidance, changes in accounting standards, or evolving technical interpretations become available. The final impacts may result in an adjustment to the $40.1 million benefit recorded during the fourth quarter of fiscal 2017, and the Company will continue to refine such amounts within the measurement period provided by the Securities and Exchange Commission (“SEC”). The Company expects to complete its analysis no later than the fourth quarter of fiscal 2018.
Income tax benefit (expense) consist of the following (in thousands):
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| December 31, 2017 |
December 25, 2016 |
December 27, 2015 |
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Current: |
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U.S. federal |
$ | (12,673 | ) | (19,344 | ) | (16,021 | ) | |||||
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State and local |
(1,449 | ) | (2,370 | ) | (2,005 | ) | ||||||
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Total current |
(14,122 | ) | (21,714 | ) | (18,026 | ) | ||||||
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Deferred: |
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U.S. federal |
$ | 39,613 | 699 | 566 | ||||||||
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State and local |
634 | 1,478 | 1,426 | |||||||||
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Total deferred |
40,247 | 2,177 | 1,992 | |||||||||
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Income tax benefit (expense) |
$ | 26,125 | (19,537 | ) | (16,034 | ) | ||||||
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Income tax benefit (expense) for the fiscal years ended December 31, 2017, December 25, 2016 and December 27, 2015 differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income as a result of the following (in thousands):
| Fiscal Year Ended | ||||||||||||||||||||||||
| December 31, 2017 |
December 25, 2016 |
December 27, 2015 |
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| Income Taxes |
% | Income Taxes |
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Computed “expected” tax expense |
$ | (16,058 | ) | 35.0 | % | $ | (20,038 | ) | 35.0 | % | $ | (14,896 | ) | 35.0 | % | |||||||||
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Reduction (increase) in income taxes resulting from: |
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Enactment of Tax Cuts and Jobs Act |
40,113 | (87.4 | )% | — | 0.0 | % | — | 0.0 | % | |||||||||||||||
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Excess tax benefits from stock-based payment arrangements |
1,554 | (3.4 | )% | — | 0.0 | % | — | 0.0 | % | |||||||||||||||
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Work Opportunity and Welfare to Work tax credits, net of federal income tax expense |
1,084 | (2.4 | )% | 1,355 | (2.4 | )% | 795 | (1.9 | )% | |||||||||||||||
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State and local income taxes, net of federal income tax expense/benefit |
(530 | ) | 1.2 | % | (580 | ) | 1.0 | % | (376 | ) | 0.9 | % | ||||||||||||
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Expenses related to public offerings not deductible for income tax purposes |
(1 | ) | 0.0 | % | (145 | ) | 0.2 | % | (1,548 | ) | 3.6 | % | ||||||||||||
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Meals and entertainment |
(31 | ) | 0.1 | % | (32 | ) | 0.1 | % | (27 | ) | 0.1 | % | ||||||||||||
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Other, net |
(6 | ) | 0.0 | % | (97 | ) | 0.2 | % | 18 | 0.0 | % | |||||||||||||
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Total |
$ | 26,125 | (56.9 | )% | $ | (19,537 | ) | 34.1 | % | $ | (16,034 | ) | 37.7 | % | ||||||||||
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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and December 25, 2016 are presented below (in thousands):
| December 31, 2017 |
December 25, 2016 |
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Noncurrent deferred tax assets (liabilities): |
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Brand |
$ | (64,749 | ) | (101,116 | ) | |||
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Franchise rights and other intangible assets |
(9,845 | ) | (15,562 | ) | ||||
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Discount on early repayment of debt |
(355 | ) | (1,185 | ) | ||||
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Capital lease assets and obligations and property and equipment |
(1,337 | ) | (1,160 | ) | ||||
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Deferred compensation |
606 | 1,177 | ||||||
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Stock-based compensation |
1,445 | 2,354 | ||||||
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Deferred rent |
2,166 | 2,805 | ||||||
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Reserves, accruals, and other assets |
879 | 1,375 | ||||||
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Noncurrent deferred tax liabilities, net |
$ | (71,190 | ) | (111,312 | ) | |||
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There was no valuation allowance for deferred tax assets as of December 31, 2017 and December 25, 2016. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.
The Company recognizes interest and penalties related to uncertain tax positions in interest expense and general and administrative expenses, respectively. Uncertain tax positions and related interest and penalties on uncertain tax positions for the fiscal years ended December 31, 2017, December 25, 2016 and December 27, 2015 were not significant.
The Company is subject to U.S. federal income tax, as well as income tax of multiple state jurisdictions. The U.S. federal and material state and local tax statutes of limitations remain open for the fiscal years 2014 and forward.