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NOTE 8—INCOME TAXES
The difference between the effective tax rate on earnings from continuing operations before income taxes and the U.S. federal income tax statutory rate is as follows:
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Thirty-nine Weeks Ended |
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December 29,
2011 |
|
December 30,
2010 |
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Income tax expense (benefit) at the federal statutory rate |
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$ |
(28,440 |
) |
$ |
13,600 |
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Effect of: |
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State income taxes |
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1,510 |
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2,550 |
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Permanent items |
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(90 |
) |
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(200 |
) |
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Change in ASC 740 (formally FIN 48) reserve |
|
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(5,410 |
) |
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— |
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Valuation allowance |
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33,940 |
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(13,400 |
) |
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Other, net |
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— |
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— |
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| |
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Income tax expense |
|
$ |
1,510 |
|
$ |
2,550 |
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Effective income tax rate |
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(1.9 |
)% |
|
6.6 |
% |
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The accounting for income taxes requires that deferred tax assets and liabilities be recognized, using enacted tax rates, for the tax effect of temporary differences between the financial reporting and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized.
The current period decrease related to ASC 740, Income Taxes, (formally FIN 48) reserve includes increases for current year positions of $705,000, decreases for expiring statute of limitations of $5,135,000, and amounts for effectively settled of $980,000.
The state tax provision was for the states that impose their income based taxes on a gross sales method, that impose a margin tax or that have suspended the use of net operating loss carryforwards into the current tax year.
The IRS has issued a Notice of Proposed Adjustment to the Company for the 2007-2009 fiscal years related to its investment in NCM. The proposed adjustment is not expected to materially impact the Company's financial statements and any payments of taxes and interest related to the proposed adjustment are expected to be negligible. |