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, 2017

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



	Year Ended December 31,
	2017			2016			2015
	(in thousands)
Current:
Federal	$	(702	)	$	564		$	543
Foreign	50,970			29,902			23,811
State	4,117			5,454			7,379
Total current	54,385			35,920			31,733
Deferred:
Federal	(56,442		)	5,113			(355		)
Foreign	(15,841		)	(11,703		)	(8,278		)
State	744			(1,301		)	(978		)
Total deferred	(71,539		)	(7,891		)	(9,611		)
Income tax expense (benefit)	$	(17,154	)	$	28,029		$	22,122

The domestic income (loss) before income taxes was $(132.6) million, $1.1 million and $(21.4) million for 2017, 2016 and 2015, respectively. Foreign income before income taxes was $123.2 million, $47.2 million and $27.8 million for 2017, 2016 and 2015, respectively.

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



	December 31,
	2017			2016
	(in thousands)
Deferred tax liabilities:
Intangible assets	$	132,041		$	189,131
Prepaid expenses	7,882			8,770
Long-term debt	1,229			3,835
Other	7,533			6,077
Total deferred tax liabilities	148,685			207,813
Deferred tax assets:
Accrued expenses	68,168			45,839
Net operating loss carryforwards	466,023			563,461
Foreign tax and other credit carryforwards	62,136			59,977
Equity compensation	20,549			32,452
Other	2,725			—
Total gross deferred tax assets	619,601			701,729
Valuation allowance	596,437			681,566
Total deferred tax assets	23,164			20,163
Net deferred tax liabilities	$	(125,521	)	$	(187,650	)

Each reporting period, the Company evaluates the realizability of all of its deferred tax assets in each tax jurisdiction. As of December 31, 2017, the Company continued to maintain a full valuation allowance against its net deferred tax assets in certain jurisdictions due to sustained pre-tax losses. As a result of the valuation allowances, no tax benefits have been recognized for losses incurred in those tax jurisdictions in 2017, 2016 and 2015. The reduction in individual deferred tax liabilities and deferred tax assets in 2017 is primarily a result of revaluation of the federal deferred tax balances due to United States tax reform. The valuation allowance balance reduction in 2017 is primarily a result of the reduction in the net United States deferred tax assets revalued using the newly enacted federal tax rate of 21%.

During 2017 and 2016, the Company recorded net deferred tax liabilities of $9.0 million and $15.9 million, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations.

As of December 31, 2017, the Company has United States federal, state and foreign deferred tax assets related to net operating loss carryforwards of $123.1 million, $63.5 million and $279.4 million, respectively. Based on current statutory carryforward periods, these losses will expire on various dates beginning in 2025. 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,
	2017			2016			2015
	(in thousands)
Income tax expense (benefit) at United States statutory rates	$	(3,283	)	$	16,914		$	2,223
State income taxes, net of federal tax benefits	1,544			3,264			3,959
Differences between foreign and United States statutory rates	(10,887		)	(11,116		)	(5,356		)
United States tax reform rate change	(55,685		)	—			—
Non-United States income inclusions and exclusions	3,826			(2,749		)	655
United States income inclusions and exclusions	11,347			(1,317		)	2,095
Nondeductible items	11,380			3,210			4,736
Tax contingencies	1,955			2,390			2,063
Tax expense from acquired goodwill	4,489			5,936			4,483
Change in valuation allowance	18,067			11,820			7,116
Other, net	93			(323		)	148
	$	(17,154	)	$	28,029		$	22,122

Income tax expense is principally attributable to the Company’s earnings in foreign tax jurisdictions along with state income taxes.

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 other years. The differences between statutory rates is also impacted by the Company’s Luxembourg affiliates and tax rulings 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.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted, which amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the TCJA reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate. The rate reduction will take effect on January 1, 2018. The TCJA will cause the Company’s United States deferred tax assets and liabilities to be revalued. Deferred income taxes result from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. The provisional amount recorded to revalue our United States net deferred tax liability balance was a $55.7 million income tax benefit in the Company’s consolidated statement of operations for the year ended December 31, 2017.

The change in the United States income exclusions and inclusions increased due to the one-time transition tax liability under the TCJA. The international provisions of the TCJA, which generally establish a territorial-style system for taxing foreign-sourced income of domestic multinational corporations, includes the requirement that companies pay a one-time transition tax on earnings of certain foreign-sourced subsidiaries that were previously tax-deferred and creates new taxes on certain foreign-sourced earnings. The Company recorded an estimated amount for the one-time transition liability for its foreign subsidiaries of approximately $25.8 million, which does not impact income tax expense for 2017 since the Company has reflected the transition tax liability as a reduction to existing fully-valued tax attribute carryforwards. Additional work is necessary for a more detailed analysis of the Company’s deferred tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to the amount will be recorded in the quarter of 2018 when the analysis is complete, but is not anticipated to impact tax expense due to the existence of the aforementioned fully-valued tax attribute carryforwards. The transition tax inclusion was partially offset by an exclusion pertaining to tax deductions the Company receives for the vesting of restricted shares and non-qualified stock options.

Nondeductible items in 2017 include the Company’s goodwill impairment for Artist Services, which was not deductible for income tax purposes. There were no impairments of goodwill in 2016 or 2015.

The change in the valuation allowance in 2017 and 2016 resulted primarily from changes in the income within jurisdictions with full valuation allowances, including the United States.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:



	Year Ended December 31,
	2017			2016			2015
	(in thousands)
Balance at January 1	$	15,117		$	14,022		$	12,619
Additions:
Increase for current year positions	807			—			1,606
Increase for prior year positions	15,498			1,978			274
Decrease for prior year positions	—			(3		)	—
Interest and penalties for prior years	2,745			546			525
Reductions:
Expiration of applicable statute of limitations	(1,233		)	—			—
Settlements for prior year positions	(2,033		)	(1,188		)	(852		)
Foreign exchange	(271		)	(238		)	(150		)
Balance at December 31	$	30,630		$	15,117		$	14,022

If the Company were to prevail on all uncertain tax positions, the net effect would be a decrease to its income tax provision of approximately $16.8 million. The remaining $13.8 million is offset by deferred tax assets that represent tax benefits that would be received in the event that the Company did not prevail on all uncertain tax positions. It is not expected that the total amounts of unrecognized tax benefits will increase or decrease materially within the next year.

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 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 2009 through 2017 remain open to examination by the primary tax jurisdictions to which the company is subject.