Live Nation Entertainment Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2015

Significant components of the provision for income tax expense are as follows:



	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Current:
Federal	$	543		$	17		$	1,238
Foreign	23,811			12,727			41,664
State	7,379			9,550			3,864
Total current	31,733			22,294			46,766
Deferred:
Federal	(355		)	(10,827		)	(852		)
Foreign	(8,278		)	(4,249		)	(14,606		)
State	(978		)	(2,588		)	(430		)
Total deferred	(9,611		)	(17,664		)	(15,888		)
Income tax expense	$	22,122		$	4,630		$	30,878

The domestic loss before income taxes was $21.4 million, $16.2 million and $103.9 million for 2015, 2014 and 2013, respectively. Foreign income (loss) before income taxes was $27.8 million, $(83.6) million and $98.8 million for 2015, 2014 and 2013, respectively.

Significant components of the Company’s deferred tax liabilities and assets are as follows:



	December 31,
	2015			2014
	(in thousands)
Deferred tax liabilities:
Intangible assets	$	209,316		$	232,521
Prepaid expenses	6,429			2,518
Long-term debt	5,644			8,521
Other	20,759			—
Total deferred tax liabilities	242,148			243,560
Deferred tax assets:
Accrued expenses	41,113			59,081
Net operating loss carryforwards	578,805			526,811
Foreign tax credit carryforwards	56,282			55,806
Equity compensation	26,432			9,868
Other	1,949			2,065
Total gross deferred tax assets	704,581			653,631
Valuation allowance	658,104			593,305
Total deferred tax assets	46,477			60,326
Net deferred tax liabilities	$	(195,671	)	$	(183,234	)

The valuation allowance was recorded due to the Company’s 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.

During 2015 and 2014, the Company recorded net deferred tax liabilities of $29.2 million and $23.2 million, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations.

As of December 31, 2015, the Company has United States federal, state and foreign deferred tax assets related to net operating loss carryforwards of $239.2 million, $76.9 million and $262.7 million, respectively. Based on current statutory carryforward periods, these losses will expire on various dates between the years 2025 and 2034. The Company’s federal net operating loss is 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 rates to income tax expense (benefit) is:



	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Income tax expense (benefit) at United States statutory rates	$	2,223		$	(34,937	)	$	(1,798	)
State income taxes, net of federal tax benefits	3,959			7,548			2,604
Differences between foreign and United States statutory rates	(5,356		)	(10,735		)	(21,182		)
Non-United States income inclusions and exclusions	1,206			(284		)	15,352
United States income inclusions and exclusions	2,095			(1,396		)	4,881
Nondeductible items	4,736			55,469			7,359
Tax contingencies	2,063			950			697
Tax expense from acquired goodwill	4,483			1,299			913
Tax return to accrual	(551		)	(7,013		)	4,350
Change in valuation allowance	7,116			(7,467		)	14,999
Other, net	148			1,196			2,703
	$	22,122		$	4,630		$	30,878

During 2015, 2014 and 2013, the Company recorded income tax expense of $22.1 million, $4.6 million and $30.9 million, respectively, on income before tax of $6.4 million in 2015, and losses before tax of $99.8 million and $5.1 million in 2014 and 2013, respectively. Income tax expense is principally attributable to the Company’s earnings in foreign tax jurisdictions along with state income taxes. The Company does not record current tax benefits associated with losses from operations within tax jurisdictions where the losses cannot be carried back and/or for which future taxable income cannot be reasonably assured.

Amounts included in differences between foreign and United States statutory rates are impacted by changes in the mix of international earnings subject to various tax rates which can differ greatly in their proximity to the United States statutory rate. In 2015, there was an increase in taxable foreign earnings in jurisdictions whose statutory rates are closer to the United States statutory rate which reduced the amount of this difference as compared to prior years. The differences between statutory rates is also impacted by the Company’s Luxembourg holding company structure and tax rulings received from the Luxembourg tax authorities which include the application of a reduced Luxembourg effective rate to the net income before tax resulting from the Company’s financing activities in Luxembourg.

The non-United States income inclusions and exclusions for 2013 are impacted primarily by taxes on a gain associated with a foreign restructuring that occurred within that year. There were no similar items in 2015 and 2014.

Nondeductible items in 2014 are primarily the Company’s goodwill impairment in its International Concerts reporting unit, which was not deductible for income tax purposes. There were no impairments of goodwill in 2015 or 2013.

In 2014, the Company had higher tax return to accrual impacts from its international operations as compared to 2015 and 2013, primarily related to deductions that were able to be carried back to prior returns and therefore created a tax benefit.

The increase in the change in valuation allowance in 2015 was attributable to an increase in net operating losses in certain international jurisdictions that are fully valued for tax purposes thereby requiring an increase in the valuation allowance. Partially offsetting this expense is a tax benefit from the release of valuation allowances related to deferred tax liabilities associated with 2015 acquisitions in the United States. In 2014, the change in valuation allowance decreased because the tax benefit from the release of valuation allowances associated with acquisitions in the United States was greater than the expense resulting from taxable net operating losses in jurisdictions that are fully valued. In 2013, there were no releases of valuation allowances associated with acquisitions.

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 tax years 2005 through 2015 remain open to examination by the major tax jurisdictions to which the Company is subject.

At December 31, 2015 and 2014, the Company had $14.0 million and $12.6 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:



	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Balance at January 1	$	12,619		$	12,860		$	15,974
Additions:
Increase for current year positions	1,606			306			396
Increase for prior year positions	274			1,089			800
Decrease for prior year positions	—			—			(75		)
Interest and penalties for prior years	525			511			148
Reductions:
Expiration of applicable statute of limitations	—			(236		)	(572		)
Settlements for prior year positions	(852		)	(1,225		)	(3,212		)
Foreign exchange	(150		)	(686		)	(599		)
Balance at December 31	$	14,022		$	12,619		$	12,860