Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

7. INCOME TAXES

The provision for income taxes consisted of the following:

	Year Ended
	December 31,			December 25,			December 27,
(In millions)	2021			2020			2019
Current:
Federal	$	-		$	(0.1	)	$	0.1
State		1.0			0.9			0.1
Foreign		30.0			18.1			12.3
Total current		31.0			18.9			12.5
Deferred:
Federal		0.3			0.3			(0.1	)
State		0.4			0.5			0.7
Foreign		(3.8	)		(0.4	)		(3.1	)
Total deferred		(3.1	)		0.4			(2.5	)
Total provision	$	27.9		$	19.3		$	10.0

Income before provision for income taxes was generated from the following geographic areas:

	Year Ended
	December 31,			December 25,			December 27,
(In millions)	2021			2020			2019
United States	$	(42.1	)	$	(24.5	)	$	(49.7	)
Foreign		196.4			124.2			52.0
Total pretax income	$	154.3		$	99.7		$	2.3

The effective tax rate differs from the U.S. federal statutory tax rate as follows:

	Year Ended
	December 31,				December 25,				December 27,
	2021				2020				2019
Federal income tax provision at    statutory rate		21.0		%		21.0		%		21.0		%
State income taxes, net of federal    benefit		(0.1	)	%		0.6		%		(99.5	)	%
Effect of foreign operations		(10.3	)	%		(8.3	)	%		(85.3	)	%
Change in valuation allowance		2.9		%		(0.1	)	%		552.7		%
Foreign income inclusions		4.9		%		4.6		%		34.5		%
Nondeductible executive compensation		1.8		%		-		%		-		%
Common stock purchase obligation		-		%		1.2		%		-		%
Excess tax benefits related to stock-based compensation		(3.1	)	%		-		%		-		%
Income tax audit adjustment		-		%		1.3		%		-		%
Other		1.0		%		(1.0	)	%		(7.5	)	%
Effective Tax Rate		18.1		%		19.3		%		415.9		%

Significant components of deferred tax assets and liabilities are as follows:

	Year Ended
	December 31,			December 25,
(In millions)	2021			2020
Deferred tax assets:
Inventory valuation and basis difference	$	7.4		$	3.9
State taxes		-			0.2
Stock compensation		1.8			1.7
Operating lease liabilities		11.4			10.0
Interest expense limitation		13.0			6.8
Intangibles		12.9			12.6
Net operating losses		11.2			6.4
Tax credits		4.2			2.6
Other timing differences		6.6			4.9
		68.5			49.1
Valuation allowance		(30.9	)		(25.6	)
Total deferred tax assets		37.6			23.5
Deferred tax liabilities:
Undistributed earnings		(0.5	)		(0.5	)
Operating lease right-of-use assets		(10.8	)		(8.5	)
Depreciation		(8.7	)		(5.0	)
Intangibles		(19.7	)		(6.7	)
Goodwill		(15.2	)		(12.9	)
Total deferred tax liabilities		(54.9	)		(33.6	)
Net deferred tax liabilities	$	(17.3	)	$	(10.1	)

As of December 31, 2021, the Company had undistributed earnings of certain foreign subsidiaries of approximately $449.3 million that are considered indefinitely reinvested and on which we have not recognized deferred taxes. It is not practicable to determine the tax liability that might be incurred if these earnings were to be distributed.  For undistributed earnings of foreign subsidiaries which are not considered indefinitely reinvested deferred taxes have been accrued.  

As of December 31, 2021, a valuation allowance of $30.9 million was established for deferred tax assets related to U.S. federal and state assets and certain foreign assets. For fiscal 2021, the increase in the valuation allowance was $5.3 million.

The Company’s gross liability for unrecognized tax benefits as of December 31, 2021 and December 25, 2020 was $1.6 million and $0.9 million, respectively. If the remaining balance of unrecognized tax benefits were recognized in a future period, it would result in a tax benefit of $1.3 million as of December 31, 2021 ($0.9 million as of December 25, 2020) and a reduction in the effective tax rate.  Increases or decreases to interest and penalties on uncertain tax positions are included in the income tax provision in the Consolidated Statements of Operations. Interest related to uncertain tax positions for the periods ended December 31, 2021, December 25, 2020 and December 27, 2019, were $0.2 million, $0.3 million, and $0.3 million, respectively. There are no penalties accrued within the liability for unrecognized benefits. Although it is possible some of the unrecognized tax benefits could be settled within the next twelve months, the Company cannot reasonably estimate the outcome at this time.

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

Balance as of December 28, 2018	$	1.0
Expiration of the statute of limitations		-
Balance as of December 27, 2019	$	1.0
Expiration of the statute of limitations for the assessment of taxes		(0.1	)
Balance as of December 25, 2020	$	0.9
Increases related to prior year tax positions		0.2
Increases related to current year tax positions		0.7
Expiration of the statute of limitations for the assessment of taxes		(0.2	)
Balance as of December 31, 2021	$	1.6

As of December 31, 2021, the Company had California and foreign net operating loss carryforwards (“NOLs”) of approximately $46.9 million and $38.8 million, respectively.   The California NOLs begin expiring after 2031 and the foreign NOLs begin expiring after 2022.  The Company also had federal tax credit carryforwards of approximately $4.1 million which expire in various years from fiscal 2028 through 2041.

The Company files federal, state and foreign income tax returns in several U.S. and foreign jurisdictions. The federal statute of limitation has closed for years prior to 2018.  State statutes of limitation are generally closed for years prior to 2017. The statute of limitation for significant foreign jurisdictions has closed for years prior to 2018.

During the fiscal quarter ended December 25, 2020, the Company recorded a net charge to provision for income taxes of approximately $1.3 million related to the settlement of an income tax audit by the local tax authorities of Cinos Korea.  The net settlement reflects additional taxes and associated penalties for the tax years 2015 to 2019.

The Company is operating under a Development and Expansion Incentive (“DEI”) in Singapore which is effective through 2023.  The DEI reduces the local tax on certain Singapore income from a statutory rate of 17.0% to 5.0%.   The Company has also been granted a tax holiday in Malaysia, subject to certain conditions.  The Malaysia tax holiday period is expected to commence in fiscal year 2022.