Income Taxes

As of December 30, 2012, the Company had $13.4 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate, subject to possible offset by an increase in the valuation allowance. During the nine months ended September 29, 2013, this amount was increased by $0.1 million relating to the CEI acquisition. This increase in unrecognized tax benefits was recorded as an adjustment to goodwill. Additionally, the unrecognized tax benefit amount was reduced by $3.1 million relating to the expiration of statues of limitations. $1.6 million of this reduction in unrecognized tax benefits was recorded as a benefit from continuing operations. The remaining $1.5 million was offset by an increase to the valuation allowance.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company recorded an expense related to interest and penalties of $0.3 million and $0.1 million for the nine months ended September 30, 2012 and September 29, 2013, respectively. The Company recorded a benefit for interest and penalties related to the reversal of prior positions of $0.1 million for the nine months ended September 30, 2012 and a benefit for interest and penalties related to the reversal of prior positions of $0.2 million for the nine months ended September 29, 2013. The Company believes that no material amount of the liabilities for uncertain tax positions will expire within twelve months of September 29, 2013.

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 U.S. federal, combined state and certain foreign 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. Management will continue to evaluate the necessity to maintain a valuation allowance against the Company's net deferred tax assets.

A reconciliation of the total income tax provision to the amount computed by applying the statutory federal income tax rate of 35% to loss from continuing operations before income tax provision for the three and nine months ended September 30, 2012 and September 29, 2013 is as follows (in millions):



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2012			September 29, 2013			September 30, 2012			September 29, 2013
Income tax benefit at federal statutory rate	$	(0.9	)	$	(3.3	)	$	(6.3	)	$	(7.7	)
State and foreign taxes, net of federal tax benefit and valuation allowance	0.5			—			1.6			1.6
Nondeductible expenses and other	1.3			—			2.0			0.4
Impact of indefinite lived deferred tax liabilities	0.6			0.2			2.1			2.9
Increase (decrease) in reserves for uncertain tax positions	0.1			(0.1		)	0.1			(1.7		)
Increase (decrease) in federal valuation allowance	(0.3		)	3.4			4.3			7.4
Total	$	1.3		$	0.2		$	3.8		$	2.9

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 (“Section 382”) of the Internal Revenue Code of 1986, 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 tax attribute 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. The annual base Section 382 limitation may be increased for certain recognized built-in gains during the 5-year period succeeding an ownership change The Company has incurred multiple “ownership changes” in recent years that will limit the utilization of the loss carryforwards. As a result of these changes, the Company's federal and state annual utilization of NOL carryforwards will be limited. For the nine months ended September 29, 2013, 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, shifts 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.