Income Taxes

12 Months Ended

Dec. 25, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income (loss) from continuing operations before income taxes are comprised of the following (in millions):

	December 25, 2022		December 26, 2021		December 27, 2020
Domestic	$	(48.4)	$	(6.7)	$	(1.6)
Foreign	15.7		11.1		8.4
Total	$	(32.7)	$	4.4	$	6.8

The provision (benefit) for income taxes from continuing operations are comprised of the following (in millions):

	Year Ended
	December 25, 2022		December 26, 2021		December 27, 2020
Federal income taxes:
Current	$	—	$	—	$	—
Deferred	(4.5)		(0.1)		(68.2)
Total Federal	(4.5)		(0.1)		(68.2)
State and local income taxes:
Current	0.6		1.5		0.5
Deferred	1.9		0.5		(9.4)
Total State and local	2.5		2.0		(8.9)
Foreign income taxes:
Current	3.9		2.9		4.2
Deferred	(0.5)		(0.9)		(0.6)
Total Foreign	3.4		2.0		3.6
Total	$	1.4	$	3.9	$	(73.5)

A reconciliation of the total income tax provision (benefit) to the amount computed by applying the statutory federal income tax rate of 21% to the income from continuing operations before income taxes for the years ended December 25, 2022, December 26, 2021 and December 27, 2020 is as follows (in millions):

	Year Ended
	December 25, 2022		December 26, 2021		December 27, 2020
Income tax (benefit) at federal statutory rate	$	(6.9)	$	0.9	$	1.4
State taxes (benefit), net of federal tax benefit and valuation allowance	(0.3)		0.5		0.6
Difference in tax rates between U.S. and foreign	(0.2)		(0.5)		1.3
Increase (decrease) in valuation allowance	4.9		1.2		(80.1)
Nondeductible expense	0.5		0.8		0.4
Increase in reserve for uncertain tax positions	0.3		0.9		3.0
Other	0.2		0.1		0.8
Officer’s compensation 162(m) limitation	1.0		0.9		0.6
Release of valuation allowance due to acquisitions	—		—		(1.3)
R&D tax credit	(0.9)		(0.9)		(0.9)
Stock-based compensation	2.8		—		0.7
Total	$	1.4	$	3.9	$	(73.5)

On August 16, 2022, the President signed into law the Inflation Reduction Act of 2022 which contained provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks, both of which we expect to be immaterial to our financial results, financial position and cash flows.

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities are as follows (in millions):

	December 25, 2022		December 26, 2021
Deferred tax assets:
Stock-based compensation	$	9.4	$	9.7
Payroll related accruals	6.7		9.2
Lease accruals	25.7		21.8
Net operating loss carryforwards	55.1		58.1
Tax credit carryforwards	11.3		13.1
Deferred expenses	14.1		10.8
Other	19.4		16.5
	141.7		139.2
Valuation allowance	(14.6)		(9.0)
Total deferred tax assets, net of valuation allowance	127.1		130.2
Deferred tax liabilities:
Unearned revenue	(3.3)		(4.3)
Operating lease right-of-use assets	(23.2)		(19.6)
Other intangibles	(23.1)		(28.0)
Property and equipment, principally due to differences in depreciation	(5.6)		(7.1)
Other	(1.6)		(1.6)
Total deferred tax liabilities	(56.8)		(60.6)
Net deferred tax asset	$	70.3	$	69.6

During the fourth quarter of 2022, 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 needed. Evidence evaluated by the Company included but was not limited to, its three-year cumulative results, and its forecast of taxable income. As a result, the Company determined that the majority of the Company’s U.S. deferred tax assets were more likely than not to be realized and that a valuation allowance with respect to a majority of the Company’s deferred tax assets was not required. The remaining valuation allowance on the Company’s U.S. deferred tax assets as of December 25, 2022 relates primarily to state net operating loss carryforwards, capital loss carryforwards and research & development tax credit carryforwards the Company estimates it may not be able to utilize in future periods. During fiscal 2022, the Company recorded a net increase in its valuation allowance of $5.6 million.

At December 25, 2022, the Company had federal tax loss carryforwards of $211.2 million and various state tax loss carryforwards of $233.7 million. The federal tax loss carryforwards will begin to expire in 2031 and state tax loss carryforwards will begin to expire in 2023 in certain states. Additionally, the state capital loss carryforward generated in 2018 will begin to expire in 2023.

At December 25, 2022, the Company had federal tax credit carryforwards of $13.3 million and various state tax credit carryforwards of $0.9 million. The federal tax credit carryforwards will begin to expire in 2024 and the state tax credit carryforwards do not have an expiration.

Federal and state income tax laws impose restrictions on the utilization of net operating losses (“NOLs”) 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 3-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 tax years 2010 and 2011 the Company experienced a Section 382 “ownership change” that will limit the utilization of NOL carryforwards. Additionally, 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. For the year ended December 25, 2022, there was no impact of such Section 382 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.

As of December 31, 2017, all accumulated undistributed earnings of our foreign subsidiaries were subject to the one-time transition tax on foreign earnings required by the 2017 Tax Cuts and Jobs Act. It is the Company’s intention to permanently reinvest undistributed earnings of its foreign subsidiaries. As such, the Company has not provided deferred U.S. income taxes or foreign withholding taxes of approximately $6.1 million on temporary differences relating to the outside basis in its investment in foreign subsidiaries. As of December 25, 2022, the Company has $18.9 million of cash and cash equivalents available for distribution.

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 2002 and later are subject to examination by the U.S. and state tax authorities due to the existence of NOL carryforwards. Generally, the Company’s tax years for 2017 and later are subject to examination by various foreign tax authorities as well.

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

Balance as of December 29, 2019	$	24.0
Increases related to prior periods	0.2
Increases related to current year tax positions	1.5
Expiration of applicable statutes of limitations	(0.3)
Balance as of December 27, 2020	25.4
Increases related to prior periods	0.1
Increases related to current year tax positions	0.5
Expiration of applicable statutes of limitations	(0.2)
Increases related to acquisitions	0.1
Balance as of December 26, 2021	25.9
Decreases related to prior periods	(0.7)
Increases related to current year tax positions	0.2
Expiration of applicable statutes of limitations	(0.4)
Balance as of December 25, 2022	$	25.0

Included in the balance of unrecognized tax benefits at December 25, 2022, are $25.0 million of tax benefits that, if recognized, would affect the effective tax rate. Included in this amount is $11.1 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 assessment of the realizability of the deferred tax asset 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 25, 2022, December 26, 2021 and December 27, 2020, the Company recorded $0.3 million, $0.6 million, and $1.9 million, respectively, in interest or penalty expenses. These amounts are netted by a benefit for interest and penalties related to the reversal of prior positions of $0.2 million, $0.1 million, and $0.2 million for the years ended December 25, 2022, December 26, 2021, and December 27, 2020, respectively. As of December 25, 2022, December 26, 2021, and December 27, 2020, the Company had accrued total interest and penalties of $5.1 million, $5.0 million and $4.5 million, respectively.