Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.6.0.2
INCOME TAXES
12 Months Ended
Dec. 31, 2016
INCOME TAXES
16. INCOME TAXES

Income before income taxes consisted of the following:

 

     Year Ended December 31,  
     2014      2015      2016  

Income before income taxes:

        

U.S.

   $ 205,521      $ 259,652      $ 274,756  

Foreign

     84,542        88,015        85,890  
  

 

 

    

 

 

    

 

 

 

Total

   $ 290,063      $ 347,667      $ 360,646  
  

 

 

    

 

 

    

 

 

 

Current and deferred income taxes were as follows:

 

     Year Ended December 31,  
     2014      2015      2016  

Current:

        

Federal

   $ 61,732      $ 71,288      $ 65,303  

Foreign

     27,681        35,874        32,047  

State

     6,125        10,682        11,936  
  

 

 

    

 

 

    

 

 

 

Total current expense

   $ 95,538      $ 117,844      $ 109,286  
  

 

 

    

 

 

    

 

 

 

Deferred:

        

Federal

   $ 6,322      $ 10,420      $ (13,667

Foreign

     (6,437      (3,339      1,674  

State

     641        4,014        6,526  
  

 

 

    

 

 

    

 

 

 

Total deferred taxes

     526        11,095        (5,467
  

 

 

    

 

 

    

 

 

 

Income taxes

   $ 96,064      $ 128,939      $ 103,819  
  

 

 

    

 

 

    

 

 

 

 

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,  
     2014     2015     2016  

Computed statutory tax expense

   $ 101,522     $ 121,683     $ 126,226  

Foreign inflation adjustments

     641       (1,295     (281

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

     4,549       9,559       11,999  

Foreign losses not benefited and changes in valuation allowance

     (275     (2,408     (34,757

Foreign tax rate differential

     (2,125     (2,660     (942

Foreign dividends

     1,083       —         68,684  

Foreign tax credits

     —         —         (62,815

Sale of Mexican subsidiaries and related changes in intangible assets

     (10,065     —         —    

Changes in uncertain tax positions

     (1,540     3,717       921  

Other — net

     2,274       343       (5,216
  

 

 

   

 

 

   

 

 

 

Income taxes

   $ 96,064     $ 128,939     $ 103,819  
  

 

 

   

 

 

   

 

 

 

The Company reinvests the accumulated undistributed earnings of its non-U.S. subsidiaries. As of December 31, 2016, the Company has not provided deferred taxes on approximately $251,000 of accumulated undistributed earnings of non-U.S. subsidiaries, as it is the Company’s policy to indefinitely reinvest these earnings in non-U.S. operations. However, the Company may periodically repatriate a portion of these earnings to the extent that it does not incur an additional U.S. tax liability. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested accumulated earnings 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, 2015 and 2016 consisted of the following:

 

     December 31,  
     2015      2016  

Deferred liabilities:

     

Theatre properties and equipment

   $ 141,155      $ 176,781  

Tax impact of items in accumulated other comprehensive loss

     158        —    

Intangible asset — other

     28,889        36,052  

Intangible asset — tradenames

     112,413        112,747  

Investment in partnerships

     108,733        107,066  
  

 

 

    

 

 

 

Total deferred liabilities

     391,348        432,646  
  

 

 

    

 

 

 

Deferred assets:

     

Deferred lease expenses

     26,966        24,026  

Exchange (gain) loss

     3,736        (731

Deferred revenue — NCM

     128,642        130,005  

Capital lease obligations

     75,966        85,721  

Tax loss carryforwards

     7,379        7,396  

Alternative minimum tax and other credit carryforwards

     41,300        56,520  

Other expenses, not currently deductible for tax purposes

     20,204        11,270  
  

 

 

    

 

 

 

Total deferred assets

     304,193        314,207  
  

 

 

    

 

 

 

Net deferred income tax liability before valuation allowance

     87,155        118,439  

Valuation allowance against deferred assets — non-current

     50,636        14,524  
  

 

 

    

 

 

 

Net deferred income tax liability

   $ 137,791      $ 132,963  
  

 

 

    

 

 

 

Net deferred tax liability — Foreign

   $ 4,212      $ 7,571  

Net deferred tax liability — U.S.

     133,579        125,392  
  

 

 

    

 

 

 

Total

   $ 137,791      $ 132,963  
  

 

 

    

 

 

 

The Company’s foreign tax credit carryforwards began to expire in 2015. Some foreign net operating losses will expire in the next reporting period; 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 2036.

The Company’s valuation allowance changed from $50,636 at December 31, 2015 to $14,524 at December 31, 2016. The decrease was a result of the implementation of a foreign holding and financing structure, which increased the Company’s ability to use foreign tax credits that previously had a full valuation allowance.

 

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, 2014, 2015 and 2016:

 

     Year Ended December 31,  
     2014      2015      2016  

Balance at January 1,

   $ 18,780      $ 16,515      $ 17,133  

Gross increases — tax positions in prior periods

     10        40        13  

Gross decreases — tax positions in prior periods

     (2,379      —          —    

Gross increases — current period tax positions

     1,324        2,112        923  

Settlements

     (963      (871      (924

Foreign currency translation adjustments

     (257      (663      258  
  

 

 

    

 

 

    

 

 

 

Balance at December 31,

   $ 16,515      $ 17,133      $ 17,403  
  

 

 

    

 

 

    

 

 

 

The Company had $17,008 and $18,190 of unrecognized tax benefits, including interest and penalties, as of December 31, 2015 and 2016, respectively. Of these amounts, $17,008 and $18,190 represent the amount of unrecognized tax benefits that if recognized would impact the effective income tax rate for the years ended December 31, 2015 and 2016, respectively. The Company had $3,198 and $4,111 accrued for interest and penalties as of December 31, 2015 and 2016, 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 2013. The Company is no longer subject to state income tax examinations by tax authorities in its major state jurisdictions for years before 2012. Certain state returns were amended as a result of the Internal Revenue Service examination closures for 2007 through 2009, and the statutes remain open for those amendments. 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 2004.

The Company is currently under audit in the non-U.S. tax jurisdictions of Brazil and Chile. The Company believes that it is reasonably possible that the Chile audit will be completed within the next twelve months.