Popeye's 2014 Annual Report Download - page 84

Popeyes Louisiana Kitchen, Inc.
Notes to Consolidated Financial Statements
For Fiscal Years 2014, 2013, and 2012 — (Continued)
66
(in millions) 2014 2013
Deferred tax assets:
Deferred franchise fee revenue $ 1.3 $ 0.8
State net operating loss carry forwards 7.2 6.3
Deferred rentals 4.1 4.0
Deferred compensation 3.9 3.8
Allowance for doubtful accounts 0.1 0.1
Other accruals 0.4 0.4
Reorganization costs 2.4 2.3
Total gross deferred tax assets 19.4 17.7
Deferred tax liabilities:
Franchise value and trademarks (20.6)(19.3)
Property, plant and equipment (7.4)(5.7)
Prepaid expenses and other current assets (0.5) —
Total gross deferred liabilities (28.5)(25.0)
Valuation allowance (7.3)(6.3)
Net deferred tax liability $ (16.4) $ (13.6)
The Company assesses quarterly the likelihood that the deferred tax assets will be recovered. To make this assessment, historical
levels of income, expectations and risks associated with estimates of future taxable income are considered. If recovery is not likely,
the Company increases its valuation allowance for the deferred tax assets that it estimates will not be recovered.
At December 28, 2014, the Company had state net operating losses (“NOLs”) of approximately $137.6 million which expire
between 2017 and 2029. The Company established a full valuation allowance on the deferred tax asset related to these NOLs as
it is more likely than not that such tax benefit will not be realized. As such, the Company has established valuation allowances of
approximately $7.2 million on state net operating loss carry forwards and $0.1 million on other deferred tax assets at December 28,
2014 and $6.3 million on state net operating loss carry forwards at December 29, 2013.
The amount of unrecognized tax benefits were approximately $1.3 million as of December 28, 2014 of which approximately
$0.2 million, if recognized, would impact the effective income tax rate. A reconciliation of the beginning and ending amount of
unrecognized tax benefits as of December 28, 2014 is as follows:
(in millions) 2014 2013 2012
Balance, beginning of year $ 1.4 $ 1.3 $ 2.2
Additions related to current year — 0.1 —
Reductions related to prior years (0.1) — (0.8)
Reductions due to statute expiration — — (0.1)
Balance, end of year $ 1.3 $ 1.4 $ 1.3
The Company recognizes interest and penalties related to uncertain tax positions as a component of its income tax expense.
Interest and penalties on uncertain tax positions for the fiscal years 2014, 2013, and 2012 were not significant. The Company had
approximately $0.1 million of accrued interest and penalties related to uncertain tax positions as of December 28, 2014 and
December 29, 2013.
Unrecognized tax benefits and accrued interest and penalties are reported as a component of deferred credits and other long-
term liabilities.
The Company files income tax returns in the United States and various state jurisdictions. The U.S. federal tax years 2011
through 2013 are open to audit. In general, the state tax years open to audit range from 2010 through 2013.