Income Taxes

9 Months Ended

Sep. 26, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

A reconciliation of the total income tax provision (benefit) to the amount computed by applying the statutory federal income tax rate of 21% to income from continuing operations before income taxes for the three and nine months ended September 26, 2021 and September 27, 2020 is as follows (in millions):

	For the Three Months Ended				For the Nine Months Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Income tax expense at federal statutory rate	$	1.0	$	1.6	$	0.3	$	0.8
State and foreign taxes, net of federal tax benefit and valuation allowance	2.1		1.9		0.6		1.2
Release of valuation allowance due to acquisitions	—		(0.1)		—		(1.0)
Nondeductible expenses and other	3.2		2.5		1.0		1.2
Impact of deferred tax liabilities for indefinite-lived assets	—		1.1		—		0.5
Increase in reserves for uncertain tax positions	0.4		2.2		0.5		1.2
Stock compensation - excess tax benefits	(0.1)		—		(2.7)		—
Federal impact of research & development tax credits	(0.9)		—		(0.3)		—
Decrease in federal valuation allowance	—		(4.2)		—		(2.1)
Provision (benefit) for income taxes from continuing operations	$	5.7	$	5.0	$	(0.6)	$	1.8

During the fourth quarter of 2020, the Company evaluated all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets was still needed. Evidence evaluated by the Company included, but was not limited to, the fact that it was in a three-year cumulative income position and no longer had cumulative losses in recent years, the results and trend of pretax book income from core operations, and its forecast of taxable income for 2021 and beyond. As a result, the Company had determined that it is more likely than not that sufficient taxable income will exist to realize the majority of its U.S. deferred tax assets and reversed a significant portion of the valuation allowance previously recorded against those deferred tax assets as of December 27, 2020. The remaining valuation allowance on the Company’s U.S. deferred tax assets relates primarily to state net operating loss and capital loss carryforwards the Company estimates are not more likely than not to be utilized in future periods.

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 its deferred tax assets will not be realized. In making this assessment, the Company has concluded that positive evidence continues to outweigh the negative evidence as of September 26, 2021.

Federal and state income tax laws impose restrictions on the utilization of net operating loss (“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, as amended (“Section 382”). In general, an ownership change occurs when shareholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOLs or other loss carryovers) have increased their ownership of

stock in such corporation by more than 50 percentage points during any three-year period. The annual base Section 382 limitation is calculated by multiplying the loss corporation’s value at the time of the ownership change by the greater of the long-term tax-exempt rate determined by the Internal Revenue Service in the month of the ownership change or the two preceding months. This base limitation is subject to adjustments, including an increase for built-in gains recognized in the five-year period after the ownership change.

In March 2010, an “ownership change” occurred that will limit the utilization of NOL carryforwards. In July 2011, another “ownership change” occurred. The March 2010 ownership change limitation is more restrictive. In prior years, the Company acquired corporations with NOL carryforwards at the date of acquisition (“Acquired NOLs”). The Acquired NOLs are subject to separate limitations that may further restrict the use of Acquired NOLs. As a result, the Company’s federal annual utilization of NOL carryforwards was limited to $27.0 million a year for the five years succeeding the March 2010 ownership change and $11.6 million for each year thereafter subject to separate limitations for Acquired NOLs. If the entire limitation amount is not utilized in a year, the excess can be carried forward and utilized in future years.

For the nine months ended September 26, 2021, 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. However, future equity offerings or acquisitions that have equity as a component of the purchase price could also cause an “ownership change.” If and when any other “ownership change” occurs, utilization of the NOLs or other tax attributes may be further limited.

The Company is subject to taxation in the U.S. and various state and 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 the NOL carryforwards. Generally, the Company’s tax years for 2015 and later are subject to examination by various foreign tax authorities as well.

As of December 27, 2020, the Company had $25.4 million of unrecognized tax benefits that, if recognized, would impact the Company’s effective income tax rate. During the nine months ended September 26, 2021 unrecognized tax benefits increased by $0.1 million relating to various current year tax positions.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. For the nine months ended September 26, 2021 and September 27, 2020, the Company recorded an expense for interest and penalties of $0.5 million and $0.3 million, respectively. For the nine months ended September 26, 2021 and September 27, 2020, there was no material benefit recorded related to the removal of interest and penalties. The Company believes that it is reasonably possible that as much as $0.3 million of the liabilities for uncertain tax positions will expire within the next twelve months due to the expiration of various applicable statutes of limitations.