Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.10.0.1
INCOME TAXES
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
INCOME TAXES

17.

INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act made changes to the U.S. tax code, which included (1) reduced U.S. corporate tax rate from 35 percent to 21 percent, (2) generally eliminated U.S. federal income taxes on dividends from foreign subsidiaries,  (3) a one-time transition tax on certain undistributed earnings of foreign subsidiaries, and (4) created new taxes on certain foreign-sourced earnings.  

As of December 31, 2018, the amounts recorded for the Tax Act are final for the 2017 transition tax, the re-measurement of deferred taxes, and the Company’s reassessment of valuation allowances.  The Company recorded a net additional charge as a result of the Tax Act and its recently issued guidance of $19,180, all non-cash,  including a true up of the re-measurement of deferred tax liabilities using the lower U.S. corporate income tax rate and a reduction in a deferred tax asset with regard to foreign tax credit carryforwards.

The Company’s provision for federal and foreign income tax expense for continuing operations consisted of the following:

 

 

 

Year Ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

274,756

 

 

$

280,535

 

 

$

289,727

 

Foreign

 

 

85,890

 

 

 

64,842

 

 

 

21,007

 

Total

 

$

360,646

 

 

$

345,377

 

 

$

310,734

 

 

Current and deferred income taxes were as follows:

 

 

 

Year Ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

65,303

 

 

$

54,435

 

 

$

46,826

 

Foreign

 

 

32,047

 

 

 

29,306

 

 

 

11,822

 

State

 

 

11,936

 

 

 

10,632

 

 

 

13,594

 

Total current expense

 

$

109,286

 

 

$

94,373

 

 

$

72,242

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(13,667

)

 

$

(14,046

)

 

$

27,055

 

Foreign

 

 

1,674

 

 

 

(4,270

)

 

 

(6,166

)

State

 

 

6,526

 

 

 

3,301

 

 

 

2,298

 

Total deferred taxes

 

$

(5,467

)

 

$

(15,015

)

 

$

23,187

 

Income taxes

 

$

103,819

 

 

$

79,358

 

 

$

95,429

 

 

A reconciliation between income tax expense and taxes computed by applying the applicable statutory federal income tax rate to income before income taxes follows:

 

 

 

Year Ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Computed statutory tax expense

 

$

126,226

 

 

$

120,882

 

 

$

65,254

 

Foreign inflation adjustments

 

 

(281

)

 

 

 

 

State and local income taxes, net of federal income tax impact

 

 

11,999

 

 

 

12,786

 

 

 

12,611

 

Foreign losses not benefited and changes in valuation allowance

 

 

(34,757

)

 

 

249

 

 

 

822

 

Foreign tax rate differential

 

 

(942

)

 

 

(245

)

 

 

2,235

 

Foreign dividends

 

 

68,684

 

 

 

13,662

 

 

 

-

 

Foreign tax credits

 

 

(62,815

)

 

 

(21,647

)

 

 

3,927

 

Impacts related to 2017 Tax Act (1)(2)

 

 

 

 

(44,889

)

 

 

19,180

 

Changes in uncertain tax positions

 

 

921

 

 

 

983

 

 

 

(6,139

)

Other — net

 

 

(5,216

)

 

 

(2,423

)

 

 

(2,461

)

Income taxes

 

$

103,819

 

 

$

79,358

 

 

$

95,429

 

 

(1)

The amount for the year ended December 31, 2018 includes a one-time charge to true-up deferred taxes of $1,913 and a reduction in deferred tax assets with regard to foreign tax credit carryforwards of $17,267.

(2)

The amount for the year ended December 31, 2017 includes a one-time benefit due to re-measurement of net deferred tax liabilities using a lower U.S. corporate tax rate and a reassessment of permanently reinvested earnings of ($79,834),  a deemed repatriation tax of $14,512, and a reduction in deferred tax assets with regard to foreign tax credit carryforwards of $20,433.

As of December 31, 2018, all earnings invested offshore subject to the Tax Act have been included in the transition tax. As of December 31, 2018, the Company had approximately $415,323 of accumulated undistributed earnings and profits, approximately $373,768 of which was subject to the one-time transition tax pursuant to the Tax Act. Any additional tax due on the repatriation of previously taxed earnings would generally be foreign withholding and U.S. state income taxes. The Company does not intend to repatriate these offshore earnings and profits, and therefore has not recorded any deferred taxes on such earnings. The Company considers any excess of the amount for financial reporting over the tax basis of its investment in its foreign subsidiaries to be indefinitely reinvested. At this time, the determination of deferred tax liabilities on this amount is not practicable.

Deferred Income Taxes

The tax effects of significant temporary differences and tax loss and tax credit carryforwards comprising the net long-term deferred income tax liabilities as of December 31, 2017 and 2018 consisted of the following:

 

 

 

December 31,

 

 

 

2017

 

 

2018

 

Deferred liabilities:

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

$

147,208

 

 

$

158,797

 

Intangible  asset — other

 

 

30,770

 

 

 

33,561

 

Intangible  asset — tradenames

 

 

72,967

 

 

 

73,261

 

Investment in partnerships

 

 

67,449

 

 

 

63,217

 

Total deferred liabilities

 

 

318,394

 

 

 

328,836

 

Deferred assets:

 

 

 

 

 

 

 

 

Deferred lease expenses

 

 

14,714

 

 

 

13,464

 

Exchange loss

 

 

220

 

 

 

1,306

 

Deferred revenue - NCM

 

 

85,816

 

 

 

70,688

 

Capital lease obligations

 

 

67,369

 

 

 

63,895

 

Tax impact of items in accumulated other comprehensive income

 

 

 

 

 

2,237

 

Other tax loss carryforwards

 

 

15,564

 

 

 

15,608

 

Other tax credit carryforwards

 

 

38,436

 

 

 

42,989

 

Other expenses, not currently deductible for tax purposes

 

 

13,801

 

 

 

26,776

 

Total deferred assets

 

 

235,920

 

 

 

236,963

 

Net deferred income tax liability before valuation allowance

 

 

82,474

 

 

 

91,873

 

Valuation allowance against deferred assets – non-current

 

 

35,246

 

 

 

54,725

 

Net deferred income tax liability

 

$

117,720

 

 

$

146,598

 

Net deferred tax (asset) liability — Foreign

 

$

3,073

 

 

$

(5,449

)

Net deferred tax liability — U.S.

 

 

114,647

 

 

 

152,047

 

Total

 

$

117,720

 

 

$

146,598

 

 

A significant portion of our foreign tax credit carryforwards expire in 2023.  Some foreign net operating losses expired in 2018; however, some losses may be carried forward indefinitely. State net operating losses may be carried forward for periods of between five and twenty years with the last expiring year being 2037.

The Company’s valuation allowance changed from $35,246 at December 31, 2017 to $54,725 at December 31, 2018 (see Note 21). The increase was a result of recently issued guidance for the Tax Act and the impact on the estimated usage of foreign tax credit carryforwards before their expiration.  

Uncertain Tax Positions

The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties, for the years ended December 31, 2016, 2017 and 2018:

 

 

 

Year Ended December 31,

 

 

 

2016

 

 

2017

 

 

2018

 

Balance at January 1,

 

$

17,133

 

 

$

17,403

 

 

$

18,266

 

Gross increases - tax positions in prior periods

 

 

13

 

 

 

92

 

 

 

Gross decreases - tax positions in prior periods

 

 

 

 

(12

)

 

 

(143

)

Gross increases - current period tax positions

 

 

923

 

 

 

265

 

 

 

424

 

Settlements

 

 

(924

)

 

 

(177

)

 

 

(7,191

)

Foreign currency translation adjustments

 

 

258

 

 

 

695

 

 

 

(795

)

Balance at December 31,

 

$

17,403

 

 

$

18,266

 

 

$

10,561

 

 

The Company had $20,231 and $13,953 of unrecognized tax benefits, including interest and penalties, as of December 31, 2017 and 2018, respectively. Of these amounts, $20,231 and $13,953  represent the amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate for the years ended December 31, 2017 and 2018, respectively. The Company had $5,288 and $3,390 accrued for interest and penalties as of December 31, 2017 and 2018, respectively.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in certain state and foreign jurisdictions and are routinely under audit by many different tax authorities. The Company believes that its accrual for tax liabilities is adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. The Company is no longer subject to income tax audits from the Internal Revenue Service for years before 2015. Additionally, the Company began and concluded an audit from the Internal Revenue Service for the year 2016, with no changes.  The Company is no longer subject to state income tax examinations by tax authorities in its major state jurisdictions for years before 2014. The Company is no longer subject to non-U.S. income tax examinations by tax authorities in its major non-U.S. tax jurisdictions for years before 2005.

The Company is currently under audit in the non-U.S. tax jurisdiction of Brazil. The Company concluded an audit in Chile in 2018 and recorded a tax benefit of $6,802.