Income Taxes

The provisions for income taxes were as follows:



	Fiscal Year Ended
	December 25, 2013			December 26, 2012			December 28, 2011
	(In thousands)
Current:
Federal	$	428		$	875		$	—
State, foreign and other	2,420			1,148			1,919
Deferred:
Federal	9,285			9,683			2,879
State, foreign and other	(185		)	1,740			344
Provision for income taxes before release of valuation allowance	11,948			13,446			5,142
Release of valuation allowance	(420		)	(661		)	(89,102		)
Total provision for (benefit from) income taxes	$	11,528		$	12,785		$	(83,960	)

Based upon our operating results for the years prior to 2012, as well as an assessment of our expected future results of operations, during the year 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 requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Of the valuation allowance remaining, approximately $2.0 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.

The reconciliation of income taxes at the U.S. federal statutory tax rate to our effective tax rate was as follows:



	December 25, 2013		December 26, 2012		December 28, 2011
Statutory provision rate	35	%	35	%	35	%
State, foreign and other taxes, net of federal income tax benefit	6		5		6
Wage addback (deductions) on income tax credits earned (expired), net	3		2		(4	)
General business credits generated	(10	)	(7	)	(14	)
Other	(1	)	3		(4	)
	33	%	38	%	19	%
Release of valuation allowance	(1	)	(2	)	(315	)
Effective tax rate	32	%	36	%	(296	)%

During the years ended December 25, 2013, December 26, 2012 and December 28, 2011, the statutory provision rate included reductions of 1%, 2% and 315%, 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 2013, we recorded a benefit of $0.4 million. For the 2013 period, the difference in the overall effective rate from the U.S. statutory rate was due to state and foreign taxes, employment tax credits and discrete tax items. The passage of the American Tax Payer Relief Act of 2012 resulted in deferred tax benefits of $0.3 million related to work opportunity credits generated in 2012, which were allowed retroactively. In addition, state job tax credits of $0.8 million were claimed during the 2013 period resulting from the prior year's hiring activity. A valuation allowance of $0.2 million was recorded against certain state jobs tax credits during the 2013 period related to changes in California law enacted during the period.

During 2012, we recorded a benefit of $0.7 million related to changes in the valuation allowance. Also during 2012, we recorded a $1.7 million out-of-period discrete tax adjustment related to the reversal of a portion of the income tax benefit recorded in fourth quarter of 2011. This out-of-period adjustment was not material to any prior or current year financial statements or on earnings trends. In addition, a $1.6 million tax benefit was recorded in 2012 relating to additional state credits generated during 2012 from prior years' activity. During 2011, we recorded a benefit of $89.1 million related to the release of the majority of the valuation allowance.

The following table represents the approximate tax effect of each significant type of temporary difference that resulted in deferred income tax assets or liabilities.



	December 25, 2013			December 26, 2012
	(In thousands)
Deferred tax assets:
Self-insurance accruals	$	9,457		$	9,314
Capitalized leases	2,365			3,023
Accrued exit cost	1,485			2,158
Fixed assets	10,430			10,707
Pension, other retirement and compensation plans	11,237			14,778
Other accruals	885			1,050
Alternative minimum tax credit carryforwards	10,344			12,948
General business credit carryforwards - state and federal	29,490			35,105
Net operating loss carryforwards - state	12,976			13,398
Total deferred tax assets before valuation allowance	88,669			102,481
Less: valuation allowance	(12,751		)	(12,860		)
Total deferred tax assets	75,918			89,621
Deferred tax liabilities:
Intangible assets	(22,950		)	(23,818		)
Deferred finance costs	(230		)	(220		)
Interest rate swap	(1,184		)	—
Total deferred tax liabilities	(24,364		)	(24,038		)
Net deferred tax asset	$	51,554		$	65,583

Net deferred tax assets are classified as follows:
Current	$	23,264		$	19,807
Noncurrent	28,290			45,776
Total	$	51,554		$	65,583

At December 25, 2013, we had available, on a consolidated basis, federal general business credit carryforwards of approximately $32.2 million, most of which expire between 2019 and 2033, and alternative minimum tax ("AMT") credit carryforwards of approximately $10.3 million, which never expire. We also had available AMT NOL carryforwards of approximately $63.2 million, which expire in 2030. Approximately $5.3 million of general business credit 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 75% 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 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 was 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 25, 2013. 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.

There were no unrecognized tax benefits as of December 25, 2013 and December 26, 2012. We do not expect the unrecognized tax benefits to increase over the next twelve months. As of and for the years ended December 25, 2013 and December 26, 2012, there were no interest and penalties recognized in our Consolidated Balance Sheets and Consolidated Statements 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 2009. We remain subject to examination for U.S. federal taxes for 2010, 2011, 2012 and 2013 and in the following major state jurisdictions: California (2009-2013), Florida (2011-2013) and Texas (2012-2013).