Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.8.0.1
INCOME TAXES
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
INCOME TAXES

16.

INCOME TAXES

On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018.    

The Company recorded a net one-time benefit of $44,889, all non-cash, related to enactment of the Tax Act, including a re-measurement of deferred tax liabilities using the lower U.S. corporate income tax rate, a reassessment of permanently reinvested earnings, a deemed repatriation tax, and a reduction in a deferred tax asset with regard to foreign tax credit carryforwards.

The adjustments to deferred tax assets and liabilities and the liability related to the transition tax are provisional amounts based on information available as of December 31, 2017. These amounts may change due to, among other things, further refinement of the Company’s calculations, changes in interpretations and assumptions that the Company has made, and additional guidance that may be issued by the U.S. government. The Company will complete its analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net income from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined.

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

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

Income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

259,652

 

 

$

274,756

 

 

$

280,535

 

Foreign

 

 

88,015

 

 

 

85,890

 

 

 

64,842

 

Total

 

$

347,667

 

 

$

360,646

 

 

$

345,377

 

 

Current and deferred income taxes were as follows:

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

71,288

 

 

$

65,303

 

 

$

54,435

 

Foreign

 

 

35,874

 

 

 

32,047

 

 

 

29,306

 

State

 

 

10,682

 

 

 

11,936

 

 

 

10,632

 

Total current expense

 

$

117,844

 

 

$

109,286

 

 

$

94,373

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

10,420

 

 

$

(13,667

)

 

$

(14,046

)

Foreign

 

 

(3,339

)

 

 

1,674

 

 

 

(4,270

)

State

 

 

4,014

 

 

 

6,526

 

 

 

3,301

 

Total deferred taxes

 

$

11,095

 

 

$

(5,467

)

 

$

(15,015

)

Income taxes

 

$

128,939

 

 

$

103,819

 

 

$

79,358

 

 

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,

 

 

 

2015

 

 

2016

 

 

2017

 

Computed statutory tax expense

 

$

121,683

 

 

$

126,226

 

 

$

120,882

 

Foreign inflation adjustments

 

 

(1,295

)

 

 

(281

)

 

 

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

 

 

9,559

 

 

 

11,999

 

 

 

12,786

 

Foreign losses not benefited and changes in valuation allowance

 

 

(2,408

)

 

 

(34,757

)

 

 

249

 

Foreign tax rate differential

 

 

(2,660

)

 

 

(942

)

 

 

(245

)

Foreign dividends

 

 

 

 

68,684

 

 

 

13,662

 

Foreign tax credits

 

 

 

 

(62,815

)

 

 

(21,647

)

Impacts related to 2017 Tax Act (1)

 

 

 

 

 

 

(44,889

)

Changes in uncertain tax positions

 

 

3,717

 

 

 

921

 

 

 

983

 

Other — net

 

 

343

 

 

 

(5,216

)

 

 

(2,423

)

Income taxes

 

$

128,939

 

 

$

103,819

 

 

$

79,358

 

 

(1)

Includes 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.

U.S. income taxes have been provided on deemed repatriated earnings of $352,632 related to the Company’s non-U.S. companies as of December 31, 2017 as a result of the enactment of the Tax Act. The Company recorded a net transition tax of $14,512 on the deemed repatriated earnings during the year ended December 31, 2017. Before the Tax Act, U.S. income taxes and foreign withholding taxes had not been provided on earnings of $316,346 and $251,439 that had not been distributed by the Company’s non-U.S. companies as of December 31, 2015 and 2016, respectively. The Company’s intention before enactment of the Tax Act was to permanently reinvest these earnings, thereby indefinitely postponing their remittance to the U.S. While the Company’s investment in foreign subsidiaries continues to be permanent in duration, the Company may periodically repatriate a portion of these earnings to the extent that it does not incur additional U.S. tax liability.  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, 2016 and 2017 consisted of the following:

 

 

 

December 31,

 

 

 

2016

 

 

2017

 

Deferred liabilities:

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

$

176,781

 

 

$

147,208

 

Intangible  asset — other

 

 

36,052

 

 

 

30,770

 

Intangible  asset — tradenames

 

 

112,747

 

 

 

72,967

 

Investment in partnerships

 

 

107,066

 

 

 

67,449

 

Total deferred liabilities

 

 

432,646

 

 

 

318,394

 

Deferred assets:

 

 

 

 

 

 

 

 

Deferred lease expenses

 

 

24,026

 

 

 

14,714

 

Exchange (gain) loss

 

 

(731

)

 

 

220

 

Deferred revenue - NCM

 

 

130,005

 

 

 

85,816

 

Capital lease obligations

 

 

85,721

 

 

 

67,369

 

Other tax loss carryforwards

 

 

15,883

 

 

 

15,564

 

Other tax credit carryforwards

 

 

48,033

 

 

 

38,436

 

Other expenses, not currently deductible for tax purposes

 

 

11,270

 

 

 

13,801

 

Total deferred assets

 

 

314,207

 

 

 

235,920

 

Net deferred income tax liability before valuation allowance

 

 

118,439

 

 

 

82,474

 

Valuation allowance against deferred assets – non-current

 

 

14,524

 

 

 

35,246

 

Net deferred income tax liability

 

$

132,963

 

 

$

117,720

 

Net deferred tax liability — Foreign

 

$

7,571

 

 

$

3,073

 

Net deferred tax liability — U.S.

 

 

125,392

 

 

 

114,647

 

Total

 

$

132,963

 

 

$

117,720

 

 

A significant portion of our foreign tax credit carryforwards expire in 2024.  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 2037.

The Company’s valuation allowance changed from $14,524 at December 31, 2016 to $35,246 at December 31, 2017 (see Note 20). The increase was a result of the Tax Act and its 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, 2015, 2016 and 2017:

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2016

 

 

2017

 

Balance at January 1,

 

$

16,515

 

 

$

17,133

 

 

$

17,403

 

Gross increases - tax positions in prior periods

 

 

40

 

 

 

13

 

 

 

92

 

Gross decreases - tax positions in prior periods

 

 

 

 

 

 

(12

)

Gross increases - current period tax positions

 

 

2,112

 

 

 

923

 

 

 

265

 

Settlements

 

 

(871

)

 

 

(924

)

 

 

(177

)

Foreign currency translation adjustments

 

 

(663

)

 

 

258

 

 

 

695

 

Balance at December 31,

 

$

17,133

 

 

$

17,403

 

 

$

18,266

 

 

The Company had $18,190 and $20,232 of unrecognized tax benefits, including interest and penalties, as of December 31, 2016 and 2017, respectively. Of these amounts, $18,190 and $20,232  represent the amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate for the years ended December 31, 2016 and 2017, respectively. The Company had $4,111 and $5,288 accrued for interest and penalties as of December 31, 2016 and 2017, 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 2014. The Company is no longer subject to state income tax examinations by tax authorities in its major state jurisdictions for years before 2013. 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 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.