Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

NOTE 4—INCOME TAXES

For the three and six months ended June 30, 2011, the Company has utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, "Income Taxes - Interim Reporting," to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. The Company believes that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as (i) the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pretax earnings and (ii) the Company's ongoing assessment that the recoverability of its deferred tax assets is not likely.

As a result of the Company's history of operating losses, the Company's net deferred tax assets are fully offset by a valuation allowance at June 30, 2011 and December 31, 2010.

The Company recognizes a tax benefit associated with an uncertain tax position when, in the Company's judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority.

As of June 30, 2011 and December 31, 2010, the amount of unrecognized tax benefits was $2,500, all of which would affect the Company's annual effective tax rate, if recognized. This unrecognized tax benefit is associated with the Company's non-forfeitable ownership interest in SV Holdco, LLC (see Note 9 - Screenvision Transaction). The Company has recognized a tax basis for these units that is lower than their carrying value for financial statement purposes. However, as this tax position may not be sustained upon examination, the Company has recorded a related liability for this uncertain tax position.

The effective tax rate from continuing operations for the three months ended June 30, 2011 was 11.9%. The effective tax rate differs from the statutory tax rate primarily due to a reduction in taxable income related to bonus depreciation on long-lived assets. The effective tax rate from continuing operations for the six months ended June 30, 2011 was (142.3%), which differs from the statutory tax rate primarily due to the current tax expense associated with the $30,000 cash payment received from Screenvision in January 2011 (see Note 9) and the inability to recognize an associated deferred tax benefit, due to the Company's ongoing assessment that the realization of its deferred tax assets is unlikely.

The Company regularly assesses whether it is more likely than not that its deferred tax asset balance will be recovered from future taxable income, taking into account such factors as its earnings history, carryback and carryforward periods, and tax planning strategies. When evidence exists that indicates that recovery is uncertain, a valuation allowance is maintained against the deferred tax asset. At this time, the Company does not believe that realization of its deferred tax assets is more likely than not to occur.