Note 7 - Income Taxes

6 Months Ended

Jun. 27, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

7. Income Taxes

Ordinarily, interim tax provisions are calculated using the estimated effective tax rate (“ETR”) expected to be applicable for the full fiscal year. However, when a reliable estimate of the annual ETR cannot be made, the actual ETR for the year-to-date period may be the best estimate of the annual ETR. For the three and six months ended June 27, 2020, we used the actual year-to-date ETR in computing our tax provision, as a reliable estimate of the 2020 annual ETR cannot be made, since relatively small changes in our projected income produce a significant variation in our ETR. The ETR on loss from continuing operations for the three months ended June 27, 2020 and June 29, 2019 was (3.0)% and 4.5%, respectively, and 3.7% and 2.6% for the six months ended June 27, 2020 and June 29, 2019, respectively. The tax benefit on loss from continuing operations in 2020 and 2019 differs from the U.S. federal statutory rate primarily due to the lack of a tax benefit on our domestic losses as a result of our valuation allowance on deferred tax assets, foreign income taxed at different rates, withholding tax, taxes on unremitted earnings and changes to unrecognized tax benefits.

Our German subsidiaries income tax returns for 2015 to 2017 are currently under routine examination by tax authorities in Germany. We believe our financial statement accruals for income taxes are appropriate.

During the three-month period ended June 27, 2020, our unrecognized tax benefits decreased by $0.2 million due to settlement with the tax authority, offset by accrued interest. During the six-month period ended June 27, 2020, our unrecognized tax benefits decreased by $0.5 million due to settlement with the tax authority, expiration of the statute of limitations, foreign currency exchange rate changes, offset by accrued interest. Other than for settlement with the tax authority and foreign currency exchange rate changes, there was no material change to our unrecognized tax benefits and related accrued interest and penalties during the three and six-month period ended June 27, 2020.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). Corporate taxpayers may carryback net operating losses (NOLs) originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three and six-month period ended June 27, 2020, or to our net deferred tax assets as of June 27, 2020.