Note 7.

INCOME TAXES

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company and its subsidiaries are generally no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2010.

As a result of the acquisition of Ft. Wayne Holdings Inc. (“FTW”), the Company recorded deferred tax liabilities of $2.4 million which reduced its net deferred tax assets. The reduction in deferred tax assets caused a release of a valuation allowance of $2.3 million in the nine months ended September 26, 2014.

As of September 25, 2015 the Company had deferred tax assets, net of deferred tax liabilities, of $80.5 million subject to a valuation allowance of $80.6 million. As of December 31, 2014 the Company had deferred tax assets, net of deferred tax liabilities, of $78.9 million subject to a valuation allowance of $79.0 million. Domestic net operating loss (“NOL”) carry forwards comprised $63.7 million and $62.1 million of the deferred tax assets as of September 25, 2015 and December 31, 2014, respectively. Katy’s history of operating losses in many of its taxing jurisdictions provides significant negative evidence with respect to the Company’s ability to generate future taxable income. The valuation allowance relates to federal, state and foreign net operating loss carry-forwards, foreign and domestic tax credits, and certain other deferred tax assets to the extent they exceed deferred tax liabilities.

Accounting for Uncertainty in Income Taxes

During the three and nine months ended September 25, 2015, we recorded a reduction in the tax provision for income taxes of $0.1 million due to the reversal of uncertain tax position as a result of the expiration of statutes of limitations.