XML 50 R28.htm IDEA: XBRL DOCUMENT v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The following table presents the domestic and foreign components of Income before provision for income taxes for the periods indicated:
 FISCAL YEAR
(dollars in thousands)202320222021
Domestic$235,357 $134,465 $258,202 
Foreign37,618 17,442 (8,905)
Income before provision for income taxes$272,975 $151,907 $249,297 

Provision for income taxes consisted of the following for the periods indicated:
 FISCAL YEAR
(dollars in thousands)202320222021
Current provision (benefit):
Federal$17,514 $13,026 $16,951 
State10,788 10,576 10,917 
Foreign(1,918)5,354 1,862 
 26,384 28,956 29,730 
Deferred (benefit) provision:   
Federal(2,787)5,172 (2,057)
State944 3,470 1,194 
Foreign(5,980)5,106 (2,483)
 (7,823)13,748 (3,346)
Provision for income taxes$18,561 $42,704 $26,384 

Effective Income Tax Rate - The reconciliation of income taxes calculated at the United States federal tax statutory rate to the Company’s effective income tax rate is as follows for the periods indicated:
 FISCAL YEAR
 202320222021
Income taxes at federal statutory rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal benefit3.4 7.3 3.8 
Employment-related credits, net(13.5)(22.4)(13.2)
Brazil tax legislation(7.7)0.2 — 
Income tax exemption on certain Brazil state value added tax benefits(1.8)— — 
Net changes in deferred tax valuation allowances(0.8)(2.8)(0.7)
Non-deductible loss on 2025 Notes Partial Repurchase— 18.0 — 
Non-deductible expenses2.7 2.8 2.3 
Foreign tax rate differential2.1 2.3 (0.2)
U.S. tax on foreign earnings - GILTI1.8 1.6 — 
Tax settlements and related adjustments0.1 (0.1)(1.7)
Other, net(0.5)0.2 (0.7)
Total6.8 %28.1 %10.6 %

The net decrease in the effective income tax rate in 2023 as compared to 2022 was primarily a result of the 2022 non-deductible losses associated with the 2025 Notes Partial Repurchase and the 2023 benefits of Brazil tax legislation, which includes a temporary reduction in the Brazilian income tax rate from 34% to 0%.
The net increase in the effective income tax rate in 2022 as compared to 2021 was primarily due to the non-deductible losses associated with the 2025 Notes Partial Repurchase recorded during 2022.

In the U.S., a restaurant company employer may claim a credit against its federal income taxes for FICA taxes paid on certain tipped wages (the “FICA tax credit”). The level of FICA tax credits is primarily driven by U.S. Restaurant sales and is not impacted by costs incurred that may reduce Income before provision for income taxes.

The Company has a blended federal and state statutory rate of approximately 26%. The effective income tax rate for 2023 was lower than the blended federal and state statutory rate primarily due to the benefit of FICA tax credits on certain tipped wages and benefits of Brazil tax legislation, which includes a temporary reduction in the Brazilian income tax rate from 34% to 0%.

Deferred Tax Assets and Liabilities - The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows as of the periods indicated:
(dollars in thousands)DECEMBER 31, 2023DECEMBER 25, 2022
Deferred income tax assets:
Operating lease liabilities$339,783 $346,482 
Insurance reserves14,184 15,695 
Unearned revenue55,746 52,366 
Deferred compensation12,210 14,726 
Net operating loss carryforwards12,729 14,277 
Federal tax credit carryforwards177,775 165,411 
Other, net (1)14,334 12,248 
Gross deferred income tax assets626,761 621,205 
Less: valuation allowance(10,583)(12,664)
Deferred income tax assets, net of valuation allowance616,178 608,541 
Deferred income tax liabilities:  
Less: operating lease right-of-use asset basis differences(277,376)(284,701)
Less: property, fixtures and equipment basis differences(66,370)(63,344)
Less: intangible asset basis differences(113,027)(109,162)
Deferred income tax assets, net$159,405 $151,334 
Reported as:
Deferred income tax assets$159,405 $153,118 
Deferred income tax liabilities (included in Other long-term liabilities, net)— (1,784)
Net deferred tax assets$159,405 $151,334 
________________
(1)As of December 31, 2023 and December 25, 2022, the Company maintained deferred tax liabilities for state income taxes on historical foreign earnings of $0.5 million and $0.3 million, respectively.

As of December 31, 2023, valuation allowances against deferred tax assets in the U.S. and in certain foreign jurisdictions totaled $0.4 million and $10.2 million, respectively. The Company will maintain the valuation allowances in each applicable tax jurisdiction until it determines it is more likely than not the deferred tax assets will be realized. The net change in the deferred tax valuation allowance in 2023 is primarily attributable to net operating loss carryforwards in certain foreign jurisdictions with full valuation allowances recorded that expired or are no longer available to the Company.

In September 2022, the Company’s Brazilian subsidiary received a preliminary injunction authorizing it to benefit from the exemptions enacted by Law 14,148/2021 which provides for emergency and temporary actions that grant certain industries a 100% exemption from income tax (IRPJ and CSLL) and federal value added taxes (PIS and COFINS) for a five-year period. The injunction was issued as part of an ongoing lawsuit initiated by the Company’s
Brazilian subsidiary due to the uncertainty regarding the restaurant industry’s eligibility for the exemptions under this legislation.

The benefits of the Brazil tax legislation include an increase in revenues as a result of not being required to remit certain PIS and COFINS during the exemption period. The increase in revenues is partially offset by higher costs in several financial statement line items that were previously reduced by PIS and COFINS tax credits that were generated during the exemption period. Benefits of this legislation also initially included a reduction in the Brazilian income tax rate from 34% to 0% for a period of five years on certain income earned in Brazil. Benefits began in the thirteen weeks ended December 25, 2022. The tax benefit attributable to the Brazil tax legislation, including both income tax and PIS and COFINS, was approximately $23.6 million for the year ended December 31, 2023. The benefit of the Brazil tax legislation on GAAP diluted earnings per share was approximately $0.25 for the year ended December 31, 2023.

In May 2023, Brazil enacted tax legislation that prospectively limits the Company’s ability to benefit from the 100% exemption from income tax (IRPJ and CSLL) and federal value added taxes (PIS and COFINS) for the full five-year period (the “May 2023 Brazil tax legislation”). As a result of this legislation, the Company is subject to PIS and COFINS and CSLL beginning in the fourth quarter of 2023 and IRPJ beginning in 2024.

On January 24, 2024, the Company’s Brazilian subsidiary received an unfavorable second level court ruling related to its ongoing litigation regarding its eligibility for tax exemptions under the Brazil tax legislation. The Company will appeal this ruling and in connection with the appeal anticipates making a cash judicial deposit of approximately $45.0 million to $50.0 million during the first half of 2024, which includes the disputed amounts through December 31, 2023. The judicial deposit will be recorded in Other assets, net, on the Company’s Consolidated Balance Sheet. The Company believes that it will more likely than not prevail in this appeal and accordingly has not recorded any expense or liability for the disputed amounts.

Undistributed Earnings - As of December 31, 2023, the Company had aggregate undistributed foreign earnings of approximately $42.6 million. These earnings may be repatriated to the U.S. without additional material U.S. federal income tax. These amounts are not considered indefinitely reinvested in the Company’s foreign subsidiaries.

The Company has not recorded a deferred tax liability on the financial statement carrying amount over the tax basis of its investments in foreign subsidiaries because the Company continues to assert that it is indefinitely reinvested in its underlying investments in foreign subsidiaries. The determination of any unrecorded deferred tax liability on this amount is not practicable due to the uncertainty of how these investments would be recovered.

Tax Carryforwards - The amount and expiration dates of tax loss carryforwards and credit carryforwards as of December 31, 2023 are as follows:
(dollars in thousands)EXPIRATION DATEAMOUNT
Federal tax credit carryforwards2026-2043$190,169 
Foreign loss carryforwards2024-Indefinite$55,794 
Foreign credit carryforwardsIndefinite$864 

As of December 31, 2023, the Company had $188.3 million in general business tax credit carryforwards, which have a 20-year carryforward period and are utilized on a first-in, first-out basis. The Company currently expects to utilize these tax credit carryforwards within a 10-year period. However, the Company’s ability to utilize these tax credits could be adversely impacted by, among other items, a future “ownership change” as defined under Section 382 of the Internal Revenue Code.

Unrecognized Tax Benefits - As of December 31, 2023 and December 25, 2022, the liability for unrecognized tax benefits was $17.2 million and $18.3 million, respectively. Of the total amount of unrecognized tax benefits, including accrued interest and penalties, $16.7 million and $17.9 million, respectively, if recognized, would impact the Company’s effective income tax rate.
The following table summarizes the activity related to the Company’s unrecognized tax benefits for the periods indicated:
FISCAL YEAR
(dollars in thousands)202320222021
Balance, beginning of the period$18,258 $19,238 $25,524 
Additions for tax positions taken during a prior period42 114 166 
Reductions for tax positions taken during a prior period(601)(401)(4,209)
Additions for tax positions taken during the current period1,507 1,100 1,292 
Settlements with taxing authorities— (375)(2,674)
Lapses in the applicable statutes of limitations(2,037)(1,424)(854)
Translation adjustments3 6 (7)
Balance, end of the period$17,172 $18,258 $19,238 

The Company had approximately $0.5 million and $0.8 million accrued for the payment of interest and penalties as of December 31, 2023 and December 25, 2022, respectively. The Company recognized immaterial interest and penalties related to uncertain tax positions in the Provision for income taxes, for all periods presented.

In many cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by relevant taxable authorities. Based on the outcome of these examinations, or a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related recorded unrecognized tax benefits for tax positions taken on previously filed tax returns will change by approximately $0.5 million to $1.0 million within the next 12 months.

Open Tax Years - Following is a summary of the open audit years by jurisdiction as of December 31, 2023:
OPEN AUDIT YEARS
United States - federal2007-2022
United States - state2009-2022
Foreign2015-2022