Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.0.8
INCOME TAXES
12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
Significant components of the provision for income tax expense (benefit) are as follows:
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
 
 
(in thousands)
Current—federal
 
$
1,238

 
$
2,235

 
$
(23,340
)
Current—foreign
 
41,664

 
34,541

 
38,328

Current—state
 
3,864

 
3,917

 
4,391

Total current
 
46,766

 
40,693

 
19,379

Deferred—federal
 
(852
)
 
(386
)
 
(29,153
)
Deferred—foreign
 
(14,606
)
 
(14,591
)
 
(13,463
)
Deferred—state
 
(430
)
 
4,020

 
(2,987
)
Total deferred
 
(15,888
)
 
(10,957
)
 
(45,603
)
Income tax expense (benefit)
 
$
30,878

 
$
29,736

 
$
(26,224
)
 
 
 
 
 
 
 

Current income tax expense increased $6.1 million for the year ended December 31, 2013 as compared to the prior year due principally to results attributable to the 2012 acquisitions of foreign entities. Current income tax expense increased $21.3 million for the year ended December 31, 2012 as compared to the prior year due principally to the carryback of domestic net operating losses in 2011 which generated $24.2 million of federal tax refunds.
Deferred income tax benefit increased $4.9 million for the year ended December 31, 2013 as compared to the prior year due principally to an increase in the blended state tax rate. Deferred income tax benefit decreased $34.6 million for the year ended December 31, 2012 as compared to the prior year due principally to the reversal of valuation allowances recorded against United States federal and state deferred tax assets driven primarily by deferred tax attributes relating to the acquisition of the remaining interests in Front Line in the first quarter of 2011 and an increase in the blended state tax rate in 2012.
The domestic net loss before income taxes was $103.9 million, $232.3 million and $200.4 million for 2013, 2012 and 2011, respectively. Non-United States income before income taxes was $98.8 million, $100.1 million and $103.8 million for 2013, 2012 and 2011, respectively.
Significant components of the Company’s deferred tax liabilities and assets are as follows:
 
 
December 31,
 
 
2013
 
2012
 
 
(in thousands)
Deferred tax liabilities:
 
 
 
 
          Intangible assets
 
$
234,454

 
$
281,071

          Prepaid expenses
 
7,089

 
4,575

          Long-term debt
 
51,166

 
41,949

Total deferred tax liabilities
 
292,709

 
327,595

 
 
 
 
 
Deferred tax assets:
 
 
 
 
          Intangible and fixed assets
 
8,991

 
27,723

          Accrued expenses
 
59,944

 
53,125

          Net operating loss carryforwards
 
393,628

 
379,111

          Foreign tax credit carryforwards
 
42,323

 
38,710

          Equity compensation
 
24,930

 
47,542

          Investments in nonconsolidated
 
 
 
 
              affiliates
 

 
5,267

          Other
 
14,597

 
14,114

Total gross deferred tax assets
 
544,413

 
565,592

 
 
 
 
 
          Valuation allowance
 
435,578

 
425,404

          Total deferred tax assets
 
108,835

 
140,188

          Net deferred tax liabilities
 
$
(183,874
)
 
$
(187,407
)
 
 
 
 
 

The valuation allowance was recorded due to the uncertainty of the ability to generate sufficient taxable income necessary to realize certain deferred tax assets in future years. If, at a later date, it is determined that due to a change in circumstances, the Company will utilize all or a portion of those deferred tax assets, the Company will reverse the corresponding valuation allowance with the offset to income tax benefit. In the first quarter of 2011, the Company recognized an income tax benefit of $39.5 million due to the partial release of its valuation allowance. This release was related to the Company’s ability to consider Front Line’s net deferred tax liabilities as a source of future taxable income within the consolidated federal tax provision as a result of the acquisition of the remaining Front Line equity interests in 2011. For further discussion of events involving Front Line, see Note 3Acquisitions.
During 2013 and 2012, the Company recorded net deferred tax liabilities of $15.1 million and $21.3 million, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations.
Deferred tax assets related to intangibles and fixed assets principally relate to differences in book and tax basis of tax-deductible goodwill created from the Company’s various stock acquisitions. As of December 31, 2013, the Company has United States federal and state deferred tax assets related to net operating loss carryforwards of $289.8 million and $70.5 million, respectively. Based on current statutory carryforward periods, these losses will expire on various dates between the years 2016 and 2033. The amount of United States net operating loss carryforwards that will expire if not utilized in 2016, 2017 and 2018 is $18.3 million, $14.6 million and $40.0 million, respectively. The Company’s federal net operating loss is partially subject to statutory limitations on the amount that can be used in any given year.
The reconciliation of income tax computed at the United States federal statutory tax rates to income tax expense (benefit) is:
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
 
 
(in thousands)
Income tax benefit at United States statutory rates
 
$
(1,798
)
 
$
(46,256
)
 
$
(33,820
)
State income taxes, net of federal tax benefits
 
3,864

 
3,917

 
4,391

Differences between foreign and United States statutory rates
 
(21,182
)
 
(25,637
)
 
(25,158
)
Non-United States income inclusions and exclusions
 
18,525

 
9,901

 
11,288

Nondeductible items
 
7,570

 
9,005

 
9,252

Tax contingencies
 
697

 
4,316

 
2,632

Change in valuation allowance
 
15,912

 
79,214

 
7,412

Other, net
 
7,290

 
(4,724
)
 
(2,221
)
 
 
$
30,878

 
$
29,736

 
$
(26,224
)
 
 
 
 
 
 
 


During 2013 and 2012, the Company recorded income tax expense of approximately $30.9 million and $29.7 million, respectively, on losses before tax of $5.1 million and $132.2 million, respectively. Income tax expense is principally attributable to the Company’s earnings in foreign tax jurisdictions.
In 2013 and 2012, there were no significant income tax benefits recognized from valuation allowance reversals attributable to acquisitions. During 2011, the Company recorded an income tax benefit of approximately $26.2 million on a loss before income tax of $96.6 million. This income tax benefit was principally attributable to the reversal of valuation allowances recorded against United States federal and state deferred tax assets driven primarily by deferred tax attributes of $39.5 million relating to the acquisition of the remaining interests in Front Line in the first quarter of 2011 and the carryback of the Front Line tax loss for the short period January 1, 2011 to February 4, 2011 caused by the acquisition.
Differences between foreign and United States statutory rates of $21.2 million, $25.6 million and $25.2 million for the years ended December 31, 2013, 2012 and 2011, respectively, are primarily attributable to the Company’s Luxembourg holding company structure and tax rulings received from the Luxembourg tax authorities.
The Company regularly assesses the likelihood of additional assessments in each taxing jurisdiction resulting from current and subsequent years’ examinations. Liabilities for income taxes are established for future income tax assessments when it is probable there will be future assessments and the amount thereof can be reasonably estimated. Once established, liabilities for uncertain tax positions are adjusted only when there is more information available or when an event occurs necessitating a change to the liabilities. The Company believes that the resolution of income tax matters for open years will not have a material effect on its consolidated financial statements although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. For the years ended December 31, 2013, 2012 and 2011, the Company has recognized $0.1 million, $0.7 million and $0.7 million, respectively, of interest and penalties related to uncertain tax positions. As of December 31, 2013 and 2012, the Company has accrued interest related to uncertain tax positions of $1.2 million and $1.6 million, respectively.
The tax years 2005 through 2013 remain open to examination by the major tax jurisdictions to which the Company is subject.

At December 31, 2013 and 2012, the Company had $12.9 million and $16.0 million, respectively, of unrecognized tax benefits. All of these unrecognized tax benefits would favorably impact the effective tax rate if recognized at some point in the future. The following table summarizes the activity related to the Company’s unrecognized tax benefits for the years ended December 31, 2013, 2012 and 2011:
 
 
2013
 
2012
 
2011
 
 
(in thousands)
Balance at January 1
 
$
15,974

 
$
13,357

 
$
10,917

Additions:
 
 
 
 
 
 
          Increase in tax for current year positions
 
396

 
2,978

 
1,991

          Increase in tax for prior year positions
 
800

 
652

 

          Decrease in tax for prior year positions
 
(75
)
 

 
(86
)
          Interest and penalties for prior years
 
148

 
686

 
727

Reductions:
 
 
 
 
 
 
          Expiration of applicable statue of limitations
 
(572
)
 

 

          Settlements for prior year positions
 
(3,212
)
 
(1,716
)
 

Foreign exchange
 
(599
)
 
247

 
(192
)
Reclassification to other liabilities
 

 
(230
)
 

Balance at December 31
 
$
12,860

 
$
15,974

 
$
13,357