NOTE 9—INCOME TAXES

Income tax expense (benefit) from continuing operations is summarized as follows:


	Year Ended December 31,
	2011		2010			2009
Current:
Federal	$	9,399	$	(983	)	$	3,511
State		976		368			739
Deferred:
Federal		—		—			—
State		—		—			—

Total income tax expense (benefit)	$	10,375	$	(615	)	$	4,250

The consolidated income tax provision was different from the amount computed using the U.S. statutory income tax rate for the following reasons:


	Year Ended December 31,
	2011			2010			2009
Pre-tax income (loss) from continuing operations	$	1,045		$	(14,277	)	$	(10,969	)

Federal tax expense (benefit), at statutory rates		366			(4,997	)		(3,839	)
State tax expense (benefit), net of federal tax effects		237			(497	)		(374	)
Permanent non-dedecutible expenses		65			136			—
Increase (reduction) in prior year tax		380			(2,369	)		—
Tax effect of uncertain tax position		55			2,471			—
Impact of equity investment income at statutory tax rate		697			455			—
Other		(73	)		(52	)		45
Reduction in gross deferred tax assets due to IRC Section 382 limitations		—			—			1,693
Increase in valuation allowance		8,648			4,238			6,725

Total tax expense (benefit) from continuing operations	$	10,375		$	(615	)	$	4,250

The Company's effective tax rate was 365.1%, 4.7% and (38.8%) for the years ended December 31, 2011, 2010 and 2009, respectively. The Company's tax rates differ 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 11—Screenvision Transaction) and the Company's ongoing assessment that the realization of its deferred tax assets is unlikely. The Company's effective tax rate is generally significantly impacted by the limitations on its net operating losses due to the ownership change and the effect of a full valuation allowance against its deferred tax assets.

Components of the Company's deferred tax assets (liabilities) are as follows:


	December 31,
	2011			2010
Net operating loss carryforwards	$	12,505		$	10,727
Alternative minimum tax credit carryforwards		779			779
Tax basis of property, equipment and other assets over book basis		48,907			52,936
Deferred income		10,421			—
Deferred compensation		1,342			1,237
Deferred rent		5,848			5,857
Compensation accruals		2,925			2,137
Basis difference in investee		2,236			2,261

Total deferred tax asset	$	84,963		$	75,934
Valuation allowance		(84,963	)		(75,934	)

Net deferred tax asset	$	—		$	—

The Company experienced an "ownership change" within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during the fourth quarter of 2008. The ownership change has and will continue to subject the Company's pre-ownership change net operating loss carryforwards to an annual limitation, which will significantly restrict its ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of the Company's stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

The Company determined that at the date of the ownership change, it had a net unrealized built-in loss ("NUBIL"). The NUBIL is determined based on the difference between the fair market value of the Company's assets and their tax basis at the ownership change. Because of the NUBIL, certain deductions recognized during the five-year period beginning on the date of the IRC Section 382 ownership change (the "recognition period") are subjected to the same limitation as the net operating loss carryforwards. Because the annual limitation is applied first against the realized built-in losses ("RBILs"), the Company does not expect to utilize any of its net operating carryforwards during the five year recognition period. The amount of the disallowed RBILs could increase if the Company disposes of assets with built-in losses at the date of the ownership change during the recognition period.

An ownership change was also deemed to have occurred during the second quarter of 2011. The Company does not believe this change will further limit its ability to utilize its net operating loss carryforwards.

At December 31, 2011, the Company had federal and state net operating loss carryforwards of $33,113, net of IRC Section 382 limitations, to offset the Company's future taxable income. The federal and state net operating loss carryforwards will begin to expire in the year 2020. The federal and state operating loss carryforwards begin to expire in the year 2020. In addition, the Company's alternative minimum tax credit carryforward of approximately $779 has an indefinite carryforward life but is subject to the IRC Section 382 limitation.

The Company generated a net operating loss during 2010 of approximately $4,432. This net operating loss is not subject to the IRC Section 382 limitation related to the 2008 ownership change. The Company has carried this loss back to obtain a refund of taxes paid in prior years and has recorded an income tax receivable of $1,149 million as of December 31, 2011, which is included in prepaid expenses and other assets on the consolidated balance sheets as of December 31, 2011 and 2010. The Company received this refund in January 2012.

Valuation Allowance

At December 31, 2011 and December 31, 2010, the Company's consolidated net deferred tax assets, net of IRC Section 382 limitations, were $84,963 and $75,934, respectively, before the effects of any valuation allowance. The Company regularly assesses whether it is more likely than not that its deferred tax asset balances will be recovered from future taxable income, taking into account such factors as earnings history, carryback and carryforward periods, IRC limitations and tax planning strategies. When sufficient evidence exists that indicates that recovery is uncertain, a valuation allowance is established against the deferred tax assets, increasing the Company's income tax expense in the period that such conclusion is made. The valuation allowance increased during 2011 primarily due to the tax effect of temporary differences attributable to the $30,000 cash payment received from Screenvision during 2011, which is being amortized into revenue over the term of the agreement but is included in income in the current period for tax purposes, and an increase in net operating losses in 2011, partially offset by a reduction in the tax basis of property and equipment due to bonus depreciation recognized during 2011. The valuation allowance increased during 2010 primarily due to the tax effect of temporary differences attributable to impairment losses not deductible in the current period for tax purposes, additional deferred tax assets of $5,735 arising from the IRS examination of the 2007 and 2008 tax years that was concluded during the year, and additional deferred tax assets of $2,471 arising from uncertain tax positions taken during the year.

Income Tax Uncertainties

The benefits of uncertain tax positions are recorded in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities.

As of December 31, 2011 and 2010, the amount of unrecognized tax benefits related to continuing operations was $2,526 and $2,471 respectively, all of which would affect the Company's annual effective tax rate, if recognized. The unrecognized tax benefit is associated with the Company's non-forfeitable ownership interest in SV Holdco, LLC (See Note 11- Screenvision Transaction). The Company recognizes a tax basis for these units that is lower than the 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.

A reconciliation of the beginning and ending uncertain tax positions is as follows:


Gross unrecognized tax benefits at January 1, 2010	$	—
Increases in tax positions for prior years		—
Decreases in tax positions for prior years		—
Increases in tax positions for current year		2,471
Settlements		—
Lapse in statute of limitations		—

Gross unrecognized tax benefits at December 31, 2010		2,471
Increases in tax positions for prior years		—
Decreases in tax positions for prior years		—
Increases in tax positions for current year		39
Settlements		—
Lapse in statute of limitations		—

Gross unrecognized tax benefits at December 31, 2011	$	2,510

The Company files consolidated and separate income tax returns in the United States federal jurisdiction and in many state jurisdictions. The Company is no longer subject to United States federal income tax examinations for years before 2000 and is no longer subject to state and local income tax examinations by tax authorities for years before 1999.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in interest expense and general and administrative expenses, respectively, in the Company's consolidated statements of operations. Tax, if any, associated with the December 31, 2010 uncertain tax position liability did not begin to accrue interest until 2011. Amounts accrued for interest and penalties at December 31, 2011 is not significant to the consolidated financial statements.