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Income Taxes
9 Months Ended
Sep. 30, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
For the 39 weeks ended September 30, 2014, the Company recorded an income tax benefit of $4.6 million compared to income tax expense of $4.4 million for the prior year period. Under Accounting Standards Codification 740 (“ASC 740”), companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period. Under ASC 740, companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. Based on fluctuations in the Company’s current and projected results, a reliable projection of the Company’s annual effective rate has been difficult to determine, producing significant variations in the customary relationship between income tax expense and pre-tax book income in interim periods. As such, and in contrast with its previous methods of recording income tax expense, the Company recorded a tax benefit of $4.8 million for the 39 weeks ended September 30, 2014 based on actual year-to-date results. This benefit was primarily related to federal employment-related tax credits. The Company also recorded a favorable adjustment of $0.8 million related to the release of liabilities for uncertain tax positions which was offset by income tax expense of $1.0 million for an adjustment to deferred taxes for a change in the applicable state income tax rate and other adjustments related to the filing of federal and state tax returns during the third quarter of 2014. For the 39 weeks ended September 24, 2013, the lower than statutory rate was primarily due to (i) tax credits, (ii) a $1.6 million favorable tax adjustment related to previously unrecognized prior year federal employment-related credits that were recognized upon extension of the credits on January 2, 2013 and (iii) other adjustments related to the filing of federal and state tax returns during the third quarter of 2013.
The Company files a consolidated US federal tax return with its parent company, NPC Holdings. The Company allocates taxes between it and the Parent utilizing the separate return method.
The liability for uncertain tax positions was $2.8 million at September 30, 2014 and $4.0 million at December 31, 2013, and was included in other deferred items and as a reduction to deferred tax assets in the Consolidated Balance Sheets.