Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.0.6
INCOME TAXES
12 Months Ended
Dec. 31, 2012
INCOME TAXES
21. INCOME TAXES

Income before income taxes consisted of the following:

 

     Year Ended December 31,  
     2010     2011     2012  

Income before income taxes:

      

U.S.

   $ 124,335      $ 114,692      $ 183,207   

Foreign

     83,166        90,940        113,611   
  

 

 

   

 

 

   

 

 

 

Total

   $ 207,501      $ 205,632      $ 296,818   
  

 

 

   

 

 

   

 

 

 

Current:

      

Federal

   $ 35,172      $ 17,070      $ 55,399   

Foreign

     21,933        26,830        53,964   

State

     9,336        7,099        8,494   
  

 

 

   

 

 

   

 

 

 

Total current expense

     66,441        50,999        117,857   
  

 

 

   

 

 

   

 

 

 

Deferred:

      

Federal

     (143     22,100        12,096   

Foreign

     (7,188     (2,332     (6,007

State

     (1,272     2,283        1,452   
  

 

 

   

 

 

   

 

 

 

Total deferred taxes

     (8,603     22,051        7,541   
  

 

 

   

 

 

   

 

 

 

Income taxes

   $ 57,838      $ 73,050      $ 125,398   
  

 

 

   

 

 

   

 

 

 

 

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,  
     2010     2011     2012  

Computed normal tax expense

   $ 72,625      $ 71,972      $ 103,886   

Foreign inflation adjustments

     47        (1,587     (33

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

     5,195        7,310        7,456   

Foreign losses not benefited and other changes in valuation allowance

     (5,685     (676     (711

Foreign tax rate differential

     (4,798     (3,321     (1,545

Foreign dividends

     3,952        4,173        10,576   

Changes in uncertain tax positions

     (8,080     396        13,729   

Other — net

     (5,418     (5,217     (7,960
  

 

 

   

 

 

   

 

 

 

Income taxes

   $ 57,838      $ 73,050      $ 125,398   
  

 

 

   

 

 

   

 

 

 

The Company reinvests the undistributed earnings of its foreign subsidiaries, with the exception of its subsidiary in Ecuador. Accordingly, deferred U.S. federal and state income taxes are provided only on the undistributed earnings of the Company’s Ecuador subsidiary. As of December 31, 2012, the cumulative amount of undistributed earnings of the foreign subsidiaries on which the Company has not recognized income taxes was approximately $339,000. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

 

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, 2011 and 2012 consisted of the following:

 

     December 31,  
     2011      2012  

Deferred liabilities:

     

Theatre properties and equipment

   $ 92,466       $ 96,733   

Deferred intercompany sales

     12,051         14,551   

Intangible asset — other

     24,749         23,944   

Intangible asset — tradenames

     116,333         115,939   

Investment in partnerships

     98,742         113,199   
  

 

 

    

 

 

 

Total deferred liabilities

     344,341         364,366   
  

 

 

    

 

 

 

Deferred assets:

     

Deferred lease expenses

     23,225         27,255   

Theatre properties and equipment

     5,910         5,884   

Deferred revenue — NCM and Fandango

     88,616         90,972   

Capital lease obligations

     51,211         54,551   

Interest rate swap agreements

     5,882         3,825   

Tax loss carryforwards

     10,602         7,700   

Alternative minimum tax and other credit carryforwards

     7,548         6,405   

Other expenses, not currently deductible for tax purposes

     23,750         30,724   
  

 

 

    

 

 

 

Total deferred assets

     216,744         227,316   
  

 

 

    

 

 

 

Net deferred income tax liability before valuation allowance

     127,597         137,050   

Valuation allowance against deferred assets

     15,443         13,326   
  

 

 

    

 

 

 

Net deferred income tax liability

   $ 143,040       $ 150,376   
  

 

 

    

 

 

 

Net deferred tax liability — Foreign

   $ 10,757       $ 2,488   

Net deferred tax liability — U.S.

     132,283         147,888   
  

 

 

    

 

 

 

Total

   $ 143,040       $ 150,376   
  

 

 

    

 

 

 

The Company’s foreign tax credit carryforwards begin expiring 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 2029.

 

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, 2010, 2011 and 2012:

 

     Year Ended December 31,  
     2010     2011     2012  

Balance at January 1,

   $ 23,857      $ 15,197      $ 18,660   

Gross increases — tax positions in prior periods

     —          3,153        14,462   

Gross decreases — tax positions in prior periods

     (1,392     —          (3,321

Gross increases — current period tax positions

     3,551        3,729        3,672   

Gross decreases — current period tax positions

     (613     (633     —     

Settlements

     (10,383     (2,467     —     

Foreign currency translation adjustments

     177        (319     (251
  

 

 

   

 

 

   

 

 

 

Balance at December 31,

   $ 15,197      $ 18,660      $ 33,222   
  

 

 

   

 

 

   

 

 

 

The Company had $22,411 and $34,475 of unrecognized tax benefits, including interest and penalties, as of December 31, 2011 and December 31, 2012, respectively. Of these amounts, $16,274 and $30,085 represent the amount of unrecognized tax benefits that if recognized would impact the effective income tax rate for the years ended December 31, 2011 and 2012, respectively. The Company had $3,751 and $4,576 accrued for interest and penalties as of December 31, 2011 and 2012, respectively.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in certain state and foreign jurisdictions and is 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 2007. The Company is no longer subject to state income tax examinations by tax authorities in its major state jurisdictions for years before 2007. Certain state returns were amended as a result of the Internal Revenue Service examination closures for 2002 through 2006, 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, Chile and Mexico. The Company is currently under examination by the Internal Revenue Service for the 2007, 2008 and 2009 tax years. The Company believes that the U.S. Internal Revenue Service and the Mexico audits will be completed within the next twelve months.