Income Taxes

The following table summarizes the activity related to the Company's unrecognized tax benefits (in millions):



Balance at December 27, 2009	$	12.6
Increases related to prior periods (acquired entities)	0.3
Increases related to current year tax positions	0.2
Expiration of applicable statutes of limitations	(0.7		)
Balance at December 26, 2010	12.4
Increases related to prior periods (acquired entities)	0.5
Increases related to current year tax positions	0.2
Expiration of applicable statutes of limitations	(0.6		)
Settlements with taxing authorities	(2.4		)
Balance at December 25, 2011	10.1
Increases related to prior periods (acquired entities)	3.7
Increases related to current year tax positions	—
Expiration of applicable statutes of limitations	(0.1		)
Settlements with taxing authorities	(0.3		)
Balance at December 30, 2012	$	13.4

Included in the balance of unrecognized tax benefits at December 30, 2012, are $13.4 million of tax benefits that, if recognized, would affect the effective tax rate. Included in this amount is $10.8 million that would become a deferred tax asset if the tax benefit were recognized. As such, this benefit may be impacted by a corresponding valuation allowance depending upon the Company's consolidated financial position at the time the benefits are recognized.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. For the years ended December 26, 2010, December 25, 2011 and December 30, 2012, the Company recorded $0.1 million, $0.3 million and $0.4 million, respectively, in interest or penalties. These amounts are netted by a benefit for interest and penalties related to the reversal of prior positions as noted above of $0.4 million, $0.4 million, and $0.1 million for the years ended December 26, 2010, December 25, 2011, and December 30, 2012, respectively. As of December 26, 2010, December 25, 2011, and December 30, 2012, the Company had recorded total interest and penalties of $0.5 million, $0.4 million, and $0.7 million, respectively.

The Company believes that it is reasonably possible that as much as $1.5 million of unrecognized tax benefits will expire within 12 months of December 30, 2012 due to the expiration of various applicable statutes of limitations.

The Company is subject to taxation in the U.S., various state tax jurisdictions and various foreign tax jurisdictions. The Company's tax years for 2000 and later are subject to examination by the U.S. and state tax authorities due to the existence of net operating loss (“NOL”) carryforwards. Generally, the Company's tax years for 2002 and later are subject to examination by various foreign tax authorities.

In assessing the Company's ability to realize deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As such, management has determined that it is appropriate to maintain a full valuation allowance against the Company's deferred tax assets, with the exception of an amount equal to its deferred tax liabilities, which can be expected to reverse over a definite life and certain foreign and separate state deferred tax assets. Management will continue to evaluate the necessity to maintain a valuation allowance against the Company's net deferred tax assets.

It is the Company's intention to permanently reinvest undistributed earnings of its foreign subsidiaries. The Company has not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences resulting from earnings for certain foreign subsidiaries which are permanently reinvested outside the U.S. It is not practicable to determine the amount of unrecognized deferred tax liabilities associated with these temporary differences.

The components of income (loss) before incomes taxes and equity earnings are listed below (in millions):



	2010		2011			2012
Domestic	$	1.9	$	(20.7	)	$	(120.3	)
Foreign	—		(0.9		)	5.8
Total	$	1.9	$	(21.6	)	$	(114.5	)

The provision (benefit) for income taxes from continuing operations for the years ended December 26, 2010, December 25, 2011, and December 30, 2012 are comprised of the following (in millions):



	2010			2011			2012
Federal income taxes:
Current	$	0.1		$	(1.5	)	$	—
Deferred	1.6			0.6			(3.5		)
Total Federal	1.7			(0.9		)	(3.5		)
State and local income taxes
Current	(12.6		)	3.1			0.8
Deferred	(1.8		)	0.8			0.4
Total State and local	(14.4		)	3.9			1.2
Foreign income taxes:
Current	—			0.4			0.1
Deferred	—			(1.5		)	0.6
Total Foreign	—			(1.1		)	0.7
Total	$	(12.7	)	$	1.9		$	(1.6	)

A reconciliation of the total income tax provision (benefit) to the amount computed by applying the statutory federal income tax rate of 35% to income (loss) from continuing operations before income tax provision for the years ended December 26, 2010, December 25, 2011 and December 30, 2012 is as follows (in millions):



	2010			2011			2012
Income tax expense (benefit) at federal statutory rate	$	0.6		$	(7.6	)	$	(40.1	)
State taxes, net of federal tax benefit and valuation allowance	1.9			3.1			0.7
Difference in tax rates between U.S. and foreign	—			(0.1		)	(1.5		)
Release of foreign valuation allowance	—			(0.7		)	—
Increase (decrease) in federal valuation allowance	(2.3		)	4.7			14.2
Nondeductible expense	0.2			0.4			0.3
Increase (decrease) in reserve for uncertain tax positions	(0.2		)	(1.7		)	0.1
Transaction costs	0.7			2.3			0.1
Changes to indefinite life items and separate state deferred taxes	—			1.5			(3.0		)
Impact of purchase accounting	(13.6		)	—			—
Goodwill impairment	—			—			27.6
Total	$	(12.7	)	$	1.9		$	(1.6	)

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities as of December 25, 2011 and December 30, 2012 are as follows (in millions):



	2011			2012
Deferred tax assets:
Allowance for doubtful accounts	$	0.8		$	0.4
Sundry accruals	7.8			3.3
Vacation accrual	5.0			5.1
Stock-based compensation	4.9			4.6
Payroll related accruals	2.3			2.7
Lease accruals	9.5			9.7
Investments	2.1			1.9
Net operating loss carryforwards	104.1			124.8
Tax credit carryforwards	3.5			3.7
Deferred revenue	1.5			2.1
Reserves and other	9.8			10.2
	151.3			168.5
Valuation allowance	(98.8		)	(110.4		)
Total deferred tax assets, net of allowance	52.5			58.1
Deferred tax liabilities:
Unearned revenue	(15.4		)	(42.0		)
Other intangibles	(37.0		)	(15.7		)
Property and equipment, principally due to differences in depreciation	(10.1		)	(7.9		)
Total deferred tax liabilities	(62.5		)	(65.6		)
Net deferred tax asset (liability)	$	(10.0	)	$	(7.5	)

At December 30, 2012, the Company had federal tax loss carryforwards of $344.7 million and various state tax loss carryforwards of $187.8 million including net operating losses resulting from stock options of approximately $14.4 million for federal and state, which if recognized would result in additional paid-in capital. Federal and state income tax laws impose restrictions on the utilization of NOL and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code of 1986 (“Section 382”), as amended (the “Code”). In general, an ownership change occurs when shareholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryovers) have increased their ownership of stock in such corporation by more than 50 percentage points during any 3-year period. The annual base Section 382 limitation is calculated by multiplying the loss corporation's value (which may be modified for certain recent increases to capital) at the time of the ownership change times the greater of the long-term tax-exempt rate determined by the Internal Revenue Service (“IRS”) in the month of the ownership change or the two preceding months. In March 2010, an “ownership change” occurred that will limit the utilization of the loss carryforwards. Additionally, in May 2012, another “ownership change” was triggered. As a result of this change in May, the Company's federal annual utilization of NOL carryforwards will be limited to $28.1 million a year for the five years succeeding the initial ownership change and $11.6 million per year thereafter. If the entire limitation amount is not utilized in a year, the excess can be carried forward and utilized in future years. For the year ended December 30, 2012, there was no impact of such limitations on the income tax provision since the amount of taxable income did not exceed the annual limitation amount. In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could also result in an “ownership change.” If and when any other “ownership change” occurs, utilization of the NOL or other tax attributes may be further limited. As discussed elsewhere, deferred tax assets relating to the NOL and credit carryforwards are offset by a full valuation allowance. In addition, utilization of state tax loss carryforwards is dependent upon sufficient taxable income apportioned to the states.

In assessing the realizability of deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. During fiscal 2012, the Company recorded a net increase in its valuation allowance of $11.6 million.