Driven Brands Holdings Inc.DRVN
Driven Brands Holdings Inc. Income Taxes Disclosure
Income Taxes
The provision for income taxes was computed based on the following amounts of income before income taxes:
| Year Ended | |||||||||||||||||
| (in thousands) | December 27, 2025 | December 28, 2024 | December 30, 2023 | ||||||||||||||
| As Restated | As Restated | ||||||||||||||||
| Domestic | $ | 109,421 | $ | 49,912 | $ | (46,052) | |||||||||||
| Foreign | 9,810 | (24,819) | 4,906 | ||||||||||||||
| Income before income taxes | $ | 119,231 | $ | 25,093 | $ | (41,146) | |||||||||||
The components of the income tax (benefit) expense were as follows:
| Year Ended | |||||||||||||||||
| (in thousands) | December 27, 2025 | December 28, 2024 | December 30, 2023 | ||||||||||||||
| As Restated | As Restated | ||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 16,473 | $ | 6,977 | $ | 4,835 | |||||||||||
| State | 5,097 | 4,311 | 6,249 | ||||||||||||||
| Foreign | 1,322 | 8,985 | (670) | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (35,738) | 18,111 | (6,963) | ||||||||||||||
| State | 2,013 | 2,261 | 1,233 | ||||||||||||||
| Foreign | (2,009) | (16,098) | 952 | ||||||||||||||
| Total income tax (benefit) expense | $ | (12,842) | $ | 24,547 | $ | 5,636 | |||||||||||
As presented under the requirements of ASU 2023-09 for the year ended December 27, 2025, A reconciliation between the U.S. federal statutory tax rate and the effective tax rate reflected in the accompanying financial statements is as follows:
| Year Ended | |||||||||||
| (in thousands) | December 27, 2025 | ||||||||||
| Federal income tax at statutory rate | $ | 25,039 | 21.0 | % | |||||||
State income taxes, net of federal tax benefits (1) | 6,040 | 5.1 | % | ||||||||
| Foreign tax effects | |||||||||||
| Canada | 1,555 | 1.3 | % | ||||||||
| Germany | |||||||||||
| Change in tax law | (4,137) | (3.5) | % | ||||||||
| Other foreign jurisdictions | 1,290 | 1.1 | % | ||||||||
| Tax credits | |||||||||||
| Work opportunity tax credit | (2,099) | (1.8) | % | ||||||||
| Changes in valuation allowance | (37,833) | (31.7) | % | ||||||||
| Effect of cross-border tax laws | |||||||||||
| Dual taxed foreign earnings | 2,571 | 2.2 | % | ||||||||
| Unrealized foreign exchange | (7,866) | (6.6) | % | ||||||||
| Subpart f inclusion | (629) | (0.5) | % | ||||||||
| Non-taxable or non-deductible items | |||||||||||
| Non-deductible executive compensation | 3,354 | 2.8 | % | ||||||||
| Other non-deductible | 582 | 0.5 | % | ||||||||
| Other | (709) | (0.7) | % | ||||||||
| Effective tax rate | $ | (12,842) | (10.8) | % | |||||||
(1)The state and local jurisdictions that make up 50% of this line item are: Florida, Louisiana, California, Georgia, Tennessee, Illinois, and Virginia.
In accordance with the guidance prior to the adoption of ASU 2023-09 for years ended December 28, 2024 and December 30, 2023, a reconciliation between the U.S. federal statutory tax rate and the effective tax rate reflected in the accompanying financial statements is as follows:
| Year Ended | |||||||||||||||||||||||
| (in thousands) | December 28, 2024 | December 30, 2023 | |||||||||||||||||||||
| As Restated | As Restated | ||||||||||||||||||||||
| Federal income tax at statutory rate | $ | 5,269 | 21.0 | % | $ | (8,641) | 21.0 | % | |||||||||||||||
| State income taxes, net of federal tax benefits | 4,248 | 16.9 | % | 2,027 | (4.9) | % | |||||||||||||||||
| Changes in valuation allowance | 12,668 | 50.5 | % | 5,113 | (12.4) | % | |||||||||||||||||
| Taxable foreign source income | 295 | 1.2 | % | 1,955 | (4.8) | % | |||||||||||||||||
| Non-deductible compensation | 6,549 | 26.1 | % | 1,959 | (4.8) | % | |||||||||||||||||
| Foreign tax rate differential | (1,947) | (7.8) | % | 76 | (0.2) | % | |||||||||||||||||
| Other permanent differences | (2,574) | (10.3) | % | 597 | (1.4) | % | |||||||||||||||||
| Deferred tax adjustments | (2,459) | (9.8) | % | 1,834 | (4.5) | % | |||||||||||||||||
| Current tax adjustments | 2,498 | 10.0 | % | 1,067 | (2.6) | % | |||||||||||||||||
| Reserve for uncertain tax positions | — | — | % | (351) | 0.9 | % | |||||||||||||||||
| Effective tax rate | $ | 24,547 | 97.8 | % | $ | 5,636 | (13.7) | % | |||||||||||||||
Deferred tax assets (liabilities) are comprised of the following:
| (in thousands) | December 27, 2025 | December 28, 2024 | |||||||||
| As Restated | |||||||||||
| Deferred tax asset | |||||||||||
| Accrued liabilities | $ | 2,741 | $ | 6,257 | |||||||
| Accounts receivable allowance | 5,562 | 6,824 | |||||||||
| Net operating loss carryforwards | 58,595 | 21,059 | |||||||||
| Lease liabilities | 134,347 | 329,079 | |||||||||
| Interest expense limitation | 101,385 | 73,649 | |||||||||
| Deferred revenue | 6,961 | 7,494 | |||||||||
| Unrealized foreign exchange differences | 2,862 | — | |||||||||
| Foreign tax credits | 2,508 | — | |||||||||
| Subsidiary outside basis differences | 11,122 | — | |||||||||
| Other deferred assets | 31,184 | 17,711 | |||||||||
| Total deferred tax asset | 357,267 | 462,073 | |||||||||
| Less valuation allowance | (60,383) | (78,651) | |||||||||
| Net deferred tax asset | 296,884 | 383,422 | |||||||||
| Deferred tax liabilities | |||||||||||
| Goodwill and intangible assets | 169,703 | 48,687 | |||||||||
| Right-of-use assets | 124,608 | 319,486 | |||||||||
| Fixed asset basis differences | 8,679 | 36,545 | |||||||||
| Unrealized foreign exchange differences | — | 186 | |||||||||
| Other deferred liabilities | 3,467 | 3,197 | |||||||||
| Total deferred liabilities | 306,457 | 408,101 | |||||||||
| Net deferred liabilities | $ | 9,573 | $ | 24,679 | |||||||
The following table presents the activity included in the deferred tax valuation allowance as follows:
| (in thousands) | December 27, 2025 | December 28, 2024 | December 30, 2023 | ||||||||||||||
| As Restated | As Restated | ||||||||||||||||
| Balance at beginning of period | $ | 78,651 | $ | 22,606 | $ | 1,216 | |||||||||||
| Charged (credited) to income tax expense – continuing operations | (36,923) | 12,668 | 5,113 | ||||||||||||||
Charged to other accounts(1) | 18,655 | 43,377 | 16,277 | ||||||||||||||
| Balance at end of period | $ | 60,383 | $ | 78,651 | $ | 22,606 | |||||||||||
(1)Charges to other accounts include the effects of foreign currency translation and changes to valuation allowances as a result to intraperiod allocations, including income tax expenses of discontinued operations.
During the year ended December 27, 2025, the valuation allowance decreased by $18 million principally related to the favorable tax provisions included in the 2025 enactment of the One Big Beautiful Bill Act connected to taxpayer favorable U.S. federal interest expense rules offset with certain increases related to outside basis differences recorded over the Company’s investment in ICW. Specifically, in the fourth quarter of 2025 the ICW assets met the criteria to be classified as held for sale and discontinued operations. Consequently, the Company recorded a $11 million deferred tax asset on its outside basis difference. However, because it is not more likely than not that this asset will be realized, a full valuation allowance has been recorded against this deferred tax asset. The Company remains indefinitely reinvested with respect to Canada and as a result the Company does not provide for deferred income taxes on the unremitted earnings of these subsidiaries. As of December 27, 2025, the determination of the amount of such unrecognized deferred tax liability is not practicable.
As of December 27, 2025, the Company had pre-tax federal operating loss and interest limitation carry forwards of $130 million and $448 million, respectively, which are both not subject to expiration. State tax effected net operating loss and interest limitation carryforwards were $38 million and $7 million, respectively, for which portions begin to expire in fiscal year 2026. As of December 27, 2025, the Company had pre-tax foreign operating loss and interest limitation carryforwards of
$4 million and $6 million, respectively, for which portions begin to expire in fiscal year 2026, while others are indefinite lived and not subject to expiration.
As of December 27, 2025, the Company had general business tax credit carryforwards of $2 million and foreign tax credit carryforwards of $3 million, which begin to expire in 2044 and 2030, respectively.
At December 27, 2025, the Company had less than $1 million of unrecognized tax benefits. A reconciliation of the change in the accrual for unrecognized income tax benefits is as follows:
| (in thousands) | December 27, 2025 | December 28, 2024 | |||||||||
| Balance at beginning of period | $ | 342 | $ | 373 | |||||||
| Translation adjustments | 19 | (31) | |||||||||
| Balance at end of period | $ | 361 | $ | 342 | |||||||
The unrecognized income tax benefits could affect the Company's effective tax rate, if recognized. The Company had minimal aggregate accrued interest and penalties at both December 27, 2025 and December 28, 2024.
The Company files income tax returns in the U.S., Canada, and various state and foreign jurisdictions. The Company is generally subject to income tax examinations for years 2019 and later and believes appropriate provisions for all outstanding matters have been made for all jurisdictions and open years.
In accordance with ASU 2023-09 cash paid for income taxes, net of refunds, and inclusive of continued and discontinued operations during the year ended December 27, 2025 was as follows:
| in thousands | December 27, 2025 | ||||
| US federal | $ | 8,252 | |||
| US state and local | |||||
| Texas | $ | 2,445 | |||
| Other states | $ | 3,017 | |||
| Foreign | |||||
| Canada | $ | 4,161 | |||
| United Kingdom | $ | 7,685 | |||
| Other countries | $ | (707) | |||
| Total cash paid for income taxes, net of refunds | $ | 24,853 | |||
Cash paid for income taxes, net of refunds, and inclusive of continued and discontinued operations during the years ended December 28, 2024 and December 30, 2023 was $37 million and $23 million, respectively.
Base Erosion and Profits Shifting (2.0)
During 2021, the Organization for Economic Co-operation and Development (“OECD”) published a Base Erosion and Profits Shifting (“BEPS”) framework and agreed to a two-pillar (“Pillar II”) approach to implement global profit allocation and a 15% corporate global minimum tax of 15%. The inclusive framework calls for the tax law changes to take effect in 2024 and 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar II, certain countries in which the Company operates have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar II. The Company does not expect Pillar II to have a material impact on the Company’s tax provision and will continue to evaluate the impact of these tax law changes on future periods.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | May 19, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 18, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.