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Income Taxes | 12 Months Ended
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Dec. 28, 2011
Income Taxes [Abstract] |
Income Taxes | Note 14. Income Taxes The provisions for income taxes were as follows:
|  | Fiscal Year Ended |
|  | December 28, 2011 |  |  | December 29, 2010 |  |  | December 30, 2009 |
|  | (In thousands) |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | - |  |  | $ | - |  |  | $ | (897 | )
State, foreign and other |  |  | 1,919 |  |  |  | 1,058 |  |  |  | 1,626 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 2,879 |  |  |  | 235 |  |  |  | 525 |
State, foreign and other |  |  | 344 |  |  |  | 88 |  |  |  | 146 |
Provision for income taxes before valuation allowance |  |  | 5,142 |  |  |  | 1,381 |  |  |  | 1,400 |
Release of valuation allowance |  |  | (89,102 | ) |  |  | - |  |  |  | - |
Total provision for (benefit from) income taxes |  | $ | (83,960 | ) |  | $ | 1,381 |  |  | $ | 1,400 |
As of December 29, 2010, we had a full valuation allowance against certain of our deferred tax assets, consisting primarily of net operating loss carryforwards, temporary differences and state and general business credits. Based upon our operating results over recent years, as well as an assessment of our expected future results of operations, during the quarter ended December 28, 2011, we determined that it is more likely than not that certain of our deferred tax assets will be utilized. As a result, we released the majority of our valuation allowance, recognizing a tax benefit of $89.1 million. The release of our valuation allowance was determined in accordance with the provisions of ASC 740, which require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. The analysis performed to assess the release of the valuation allowance included, as of December 28, 2011, an evaluation of:
· | the level of historical pre-tax income, after adjustments for non-recurring income items, such as gains from the sale of real estate and restaurants, in recent years;
· | the pattern and timing of the reversals of temporary differences and the length of carryback and carryforward periods available under the applicable federal and state laws;
· | the amount and timing of estimated future taxable income; and
· | historical trends on same store sales.
Based on the analysis performed and the actions noted above, we concluded that it is more likely than not that we could realize all but $22.7 million of our deferred tax assets, which consist of certain federal and state net operating losses and state tax credits. We were not able to demonstrate potential sources of taxable income that may be available in order to realize these remaining deferred tax assets. After considering the reversals of temporary differences and the length of carryback and carryforward periods available under the applicable federal and state laws, the existing levels of pretax earnings are sufficient to generate the minimum amount of future taxable income needed to realize the deferred tax asset. Of the valuation allowance remaining, approximately $5.3 million, if released, will be credited directly to paid-in capital. It is more likely than not that we will be able to utilize most of our federal net operating loss and credit carryforwards prior to expiration. In addition, it is more likely than not we will be able to utilize all of our existing temporary differences and a portion of our state tax net operating losses and state tax credit carryforwards prior to their expiration. Deferred tax assets of $76.2 million were recorded in our Consolidated Balance Sheet as of December 28, 2011, compared with a deferred tax liability of $13.3 million as of December 29, 2010. The reconciliation of income taxes at the U.S. federal statutory tax rate to our effective tax rate was as follows:
|  | December 28, 2011 |  |  | December 29, 2010 |  |  | December 30, 2009 |
Statutory provision (benefit) rate |  |  | 35 | % |  |  | 35 | % |  |  | 35 | %
State, foreign, and other taxes, net of federal income tax benefit |  |  | 6 |  |  |  | 3 |  |  |  | 3 |
Wage addback (deductions) on income tax credits earned (expired), net |  |  | (4 | ) |  |  | (9 | ) |  |  | - |
Portion of net operating losses, temporary differences and unused income tax credits resulting from the valuation allowance |  |  | - |  |  |  | (24 | ) |  |  | (35 | )
General business credits generated |  |  | (14 | ) |  |  | - |  |  |  | - |
Other |  |  | (4 | ) |  |  | 1 |  |  |  | - |
|  |  | 19 | % |  |  | 6 |  |  |  | 3 |
Release of valuation allowance |  |  | (315 | ) |  |  | - |  |  |  | - |
Effective tax rate |  |  | (296 | %) |  |  | 6 | % |  |  | 3 | %
During the years ended December 28, 2011, December 29, 2010 and December 30, 2009, the statutory provision rate included reductions of 315%, 24% and 35%, respectively, principally related to the reversal or change of valuation allowances associated with the utilization of net operating losses, temporary differences and alternative minimum tax credits. Specifically, during 2011, we recorded a benefit of $89.1 million related to the release of the majority of the valuation allowance. During fiscal 2010, we recorded a $1.1 million, or 5%, increase in the valuation allowance related to net operating losses, a $7.2 million, or 30%, reduction in the valuation allowance related to temporary differences and a $0.3 million, or 1%, increase in the valuation allowance related to other items. During fiscal 2009, we recorded a $6.6 million, or 15%, reduction in the valuation allowance related to net operating losses, an $8.2 million, or 19%, reduction in the valuation allowance related to temporary differences and a $0.9 million, or 1%, reduction in the valuation allowance related to alternative minimum taxes. The following table represents the approximate tax effect of each significant type of temporary difference that resulted in deferred income tax assets or liabilities. Certain prior year amounts within the table were reclassified to conform to current year presentation.
|  | December 28, 2011 |  |  | December 29, 2010 |
|  | (In thousands) |
Deferred tax assets: |  |  |  |  |  |
Self-insurance accruals |  | $ | 10,048 |  |  | $ | 10,455 |
Capitalized leases |  |  | 3,577 |  |  |  | 4,026 |
Closed store liabilities |  |  | 2,260 |  |  |  | 2,695 |
Fixed assets |  |  | 13,508 |  |  |  | 16,908 |
Pension, other retirement and compensation plans |  |  | 17,145 |  |  |  | 14,777 |
Other accruals |  |  | - |  |  |  | 1,590 |
Future deductions on expired wage based credits |  |  | 1,535 |  |  |  | 2,500 |
Alternative minimum tax credit carryforwards |  |  | 12,409 |  |  |  | 12,376 |
General business credit carryforwards - state and federal |  |  | 35,769 |  |  |  | 35,456 |
Net operating loss carryforwards - state |  |  | 24,587 |  |  |  | 26,186 |
Net operating loss carryforwards - federal |  |  | 5,371 |  |  |  | 5,368 |
Total deferred tax assets before valuation allowance |  |  | 126,209 |  |  |  | 132,337 |
Less: valuation allowance |  |  | (22,700 | ) |  |  | (120,175 | )
Total deferred tax assets |  |  | 103,509 |  |  |  | 12,162 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | (24,610 | ) |  |  | (25,501 | )
Deferred finance costs |  |  | (2,583 | ) |  |  | - |
Other assets |  |  | (161 | ) |  |  | - |
Total deferred tax liabilities |  |  | (27,354 | ) |  |  | (25,501 | )
Net deferred tax asset (liability) |  | $ | 76,155 |  |  | $ | (13,339 | )
Net deferred tax assets (liabilities) are classified as follows: |  |  |  |  |  |  |  |
Current |  | $ | 15,519 |  |  | $ | - |
Noncurrent |  |  | 60,636 |  |  |  | (13,339 | )
Total |  | $ | 76,155 |  |  | $ | (13,339 | )
At December 28, 2011, we had available, on a consolidated basis, federal general business credit carryforwards of approximately $35.0 million, most of which expire between 2019 and 2030, and alternative minimum tax ("AMT") credit carryforwards of approximately $12.4 million, which never expire. We also had available regular NOL and AMT NOL carryforwards of approximately $27.6 million and $117.7 million, respectively, which expire between 2020 and 2030. Approximately $12.2 million of these net operating loss carryforwards are unrecognized in the schedule above and on our Consolidated Balance Sheets as a result of the application of ASC Paragraph 718-740-25-10, which delays their recognition until they reduce taxes payable. The South Carolina net operating loss carryforwards represent 72% of the total state net operating loss carryforwards. Prior to 2005, Denny's had ownership changes within the meaning of Section 382 of the Internal Revenue Code. Because of these changes, the amount of our NOL carryforwards along with any other tax carryforward attribute, for periods prior to the dates of change, are limited to an annual amount which may be increased by the amount of our net unrealized built-in gains at the time of any ownership change recognized in that taxable year. Prior to 2011, a valuation allowance was established for a significant portion of these deferred tax assets since it was our position that it was more likely than not the tax benefit would not be realized from these assets. In conjunction with our ongoing review of our actual results and anticipated future earnings, we have reassessed the possibility of releasing a portion or all of the valuation allowance currently in place for our deferred tax assets. Based upon this assessment, a release of the valuation allowance is appropriate as of December 28, 2011. It is our position that any pre-2005 credits or net operating loss carryforwards can be utilized due to the total amount of unrealized built-in gains recognized and annual limitation accumulated as of December 28, 2011. The occurrence of an additional ownership change could limit our ability to utilize our current net operating losses and income tax credits generated after 2004. The reconciliation of changes in unrecognized tax benefits was as follows:
|  | Fiscal Year Ended |
|  | December 28, 2011 |  |  | December 29, 2010 |
|  | (In thousands) |
Balance, beginning of year |  | $ | - |  |  | $ | 1,513 |
Lapse of statute of limitations |  |  | - |  |  |  | (1,513 | )
Balance, end of year |  | $ | - |  |  | $ | - |
We do not expect the unrecognized tax benefits to increase over the next twelve months. As of and for the years ended December 28, 2011 and December 29, 2010, there were no interest and penalties recognized in our Consolidated Balance Sheet and Consolidated Statement of Income. We file income tax returns in the U.S. federal jurisdictions and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2008. We remain subject to examination for U.S. federal taxes for 2008, 2010 and 2011 and in the following major state jurisdictions: California (2007-2011); Florida (2008-2011) and Texas (2007-2011). We completed an IRS exam for our 2009 tax year during 2011. No changes were made to our 2009 tax return based on this exam. It is therefore unlikely that the IRS will audit 2008's income tax return, even though the statute remains open until September 2012.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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