Einstein Bros 2010 Annual Report Download - page 39

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312511067286/d10k.htm[9/11/2014 10:09:09 AM]
change would limit our ability to utilize approximately $100.3 million of our NOL carryforwards that are not currently subject to limitation, and could further limit our ability to utilize our remaining NOL
carryforwards and possibly other tax attributes. Approximately $15.4 million of our NOLs are currently subject to limitation. On December 30, 2008, we filed a request with the IRS to review our methodology
for determining ownership changes in accordance with Internal Revenue Code Section 382. On September 24, 2009, we received a favorable ruling from the IRS agreeing with our methodology.
We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the
relevant tax authority.
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Table of Contents
EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
December 30,
2008
December 29,
2009
December 28,
2010
(As Restated,
see Note 3)
(As Restated,
see Note 3)
(in thousands)
Balance, beginning of fiscal year $ 618 $ 1,115 $ 826
Increase related to prior period positions 106 — —
Increase related to current year positions 391 — 455
Decrease related to prior period positions — (289) (134)
Decrease related to change in prior year estimate — — —
Balance, end of fiscal year $ 1,115 $ 826 $ 1,147
At December 30, 2008, December 29, 2009 and December 28, 2010 we had cumulative unrecognized tax benefits of approximately $1.1 million, $0.8 million, and $1.1 million respectively. The amounts
recorded, if recognized, will have no impact on the effective tax rate due to the existence of net operating loss carryforwards. It is reasonably possible that part of our unrecognized tax benefit attributable to
certain accrued liabilities will change as a result of an ongoing audit of our December 30, 2008 Federal Income Tax Return. The range of reasonably possible change is from $0.7 million to $1.1 million. Due to
net operating losses and other tax attributes going forward, we are currently open to audit by the IRS for the years ending December 31, 1994 through December 28, 2010. With few exceptions our state tax
returns are open to audit for the years ended December 31, 1997 through December 28, 2010.
We are subject to income taxes in the U.S. federal jurisdiction, and various states and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws
and regulations and require significant judgment to apply. We remain subject to examination by U.S. federal, state and local tax authorities for tax years 2007 through 2009 and with certain state and local
authorities for tax years 2006 through 2009. In the third quarter of 2010, the IRS notified the Company that its 2008 federal tax return has been selected for examination. With a few exceptions, we are no longer
subject to U.S. federal, state or local examinations by tax authorities for the tax year 2005 and prior.
The amount of the deferred tax asset considered realizable could be reduced if estimates of future taxable income during the carryforward periods are reduced. As of December 28, 2010, the Company’ s
net operating loss carryforwards for U.S. federal income tax purposes that are expected to be utilized were subject to the following expiration schedule:
Net Operating Loss Carryforwards
Expiration Date Amount
(in thousands)
December 31, 2012 $ 6,431
December 31, 2018 863
December 31, 2020 5,205
December 31, 2021 2,856
December 31, 2022 29,330
December 31, 2023 42,362
December 31, 2024 12,003
December 31, 2025 5,413
December 31, 2026 4,900
December 31, 2029 6,330
$ 115,693
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Table of Contents
EINSTEIN NOAH RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The reconciliation of income taxes calculated at the U.S. federal tax statutory rate to the Company’ s effective tax rate is set forth below:
December 30,
2008
December 29,
2009
December 28,
2010
(As Restated,
see Note 3)
(As Restated,
see Note 3)
U.S. Federal statutory rate 35.0% 35.0% 35.0%
State income tax rate, net of Federal tax (benefit) 6.2% 5.1% 6.6%
Other, net -4.0% 2.1% 4.8%
Effect of change in tax rate 5.6% -3.7% 0.7%
Series Z 0.0% 2.8% 1.9%
42.8% 41.3% 49.0%
Change in valuation allowance -31.7% -421.9% -0.7%
Effective income tax rate 11.1% -380.6% 48.3%
Excess tax benefits related to stock option exercises were not recorded for each of the three fiscal years ended 2008, 2009 and 2010, due to the Company’ s NOL carryforward position. The following
represents a reconciliation of the Company’ s unrecognized tax benefits for the year ended December 28, 2010:
Unrecognized
tax benefits
(in thousands)
Balance—December 30, 2008 $ 3,892
Additions based on 2009 stock option exercises 2,338