How does Noodles & Company measure deferred tax assets and liabilities?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
Provision (benefit) for income taxes is accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those deferred amounts are expected to be recovered or settled. Valuation allowances are recorded for deferred tax assets that more likely than not will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company's policy is to recognize interest to be paid on an underpayment of income
taxes in interest expense and any related statutory penalties in provision (benefit) for income taxes in the Consolidated Statements of Operations.
For the year ended December 31, 2024, the Company determined that it was appropriate to maintain a valuation allowance of $60.2 million against U.S. deferred tax assets due to uncertainty regarding the realizability of future tax benefits. The previously recorded valuation allowance increased during 2023 due to increases in deferred tax assets. The valuation allowance is recorded against net deferred tax assets, exclusive of indefinite-lived assets and liabilities. The Company will maintain the remaining valuation allowance until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit to the effective tax rate.
As of December 31, 2024 and January 2, 2024, net operating loss ("NOL") carry forwards for federal income tax purposes of approximately $184.0 million and $180.0 million, respectively, were available to offset future taxable income. Of these amounts, $106.8 million is available to offset future taxable income through 2037 and $77.2 million can be carried forward indefinitely, but can only offset 80% of future taxable income. The Internal Revenue Code Section 382 generally limits the utilization of NOLs when there is an ownership change. The Company completed an analysis under Section 382 through December 31, 2024 and determined that there isn't a current year limitation on utilization of tax attributes. Prior to the utilization of NOLs in the future, the Company will determine whether there are any limitations under Section 382. If such a limitation exists, it is possible that a portion of the NOLs may not be available for use before expiration.
Uncertain tax positions are recognized if it is more likely than not that the Company will be able to sustain the tax position taken, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, the company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, including operating loss and tax credit carryforwards. These deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years when those deferred amounts are expected to be recovered or settled.
Noodles & Company records valuation allowances for deferred tax assets that are unlikely to be realized. Changes in tax rates can affect deferred tax assets and liabilities, and these effects are recognized in income during the period that includes the enactment date. The company's policy is to include interest on underpayment of income taxes in interest expense and any related statutory penalties in the provision for income taxes in the Consolidated Statements of Operations.
For the year ending December 31, 2024, Noodles & Company maintained a valuation allowance of $60.2 million against U.S. deferred tax assets due to uncertainty regarding the realization of future tax benefits. As of December 31, 2024, and January 2, 2024, the company had net operating loss carryforwards for federal income tax purposes of approximately $184.0 million and $180.0 million, respectively, available to offset future taxable income. Of these amounts, $106.8 million is available to offset future taxable income through 2037, and $77.2 million can be carried forward indefinitely but can only offset 80% of future taxable income.
The company analyzes its filing positions in all federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Uncertain tax positions are recognized if it is more likely than not that the company will be able to sustain the tax position taken, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit.