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, 2014

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



	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Current:
Federal	$	17		$	1,238		$	2,235
Foreign	12,727			41,664			34,541
State	9,550			3,864			3,917
Total current	22,294			46,766			40,693
Deferred:
Federal	(10,827		)	(852		)	(386		)
Foreign	(4,249		)	(14,606		)	(14,591		)
State	(2,588		)	(430		)	4,020
Total deferred	(17,664		)	(15,888		)	(10,957		)
Income tax expense	$	4,630		$	30,878		$	29,736

The domestic net loss before income taxes was $16.2 million, $103.9 million and $232.3 million for 2014, 2013 and 2012, respectively. Foreign income (loss) before income taxes was a loss of $83.6 million and income of $98.8 million and $100.1 million for 2014, 2013 and 2012, respectively.

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



	December 31,
	2014			2013
	(in thousands)
Deferred tax liabilities:
Intangible assets	$	232,521		$	234,454
Prepaid expenses	2,518			7,089
Long-term debt	8,521			51,166
Total deferred tax liabilities	243,560			292,709

Deferred tax assets:
Intangible and fixed assets	—			8,991
Accrued expenses	59,081			59,944
Net operating loss carryforwards	526,811			538,644
Foreign tax credit carryforwards	55,806			42,323
Equity compensation	9,868			24,930
Other	2,065			14,597
Total gross deferred tax assets	653,631			689,429

Valuation allowance	593,305			580,594
Total deferred tax assets	60,326			108,835
Net deferred tax liabilities	$	(183,234	)	$	(183,874	)

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.

The decrease in the long-term debt deferred tax liability is primarily attributable to the release of deferred taxes related to interest expense deductions for tax purposes on the Company’s 2.875% convertible senior notes that were redeemed in September 2014 partially offset by a deferred tax liability established for the equity component and related transaction costs of the Company’s 2.5% convertible senior notes issued in May 2014.

During 2014 and 2013, the Company recorded net deferred tax liabilities of $23.2 million and $15.1 million, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations.

As of December 31, 2014, the Company has United States federal, state and foreign deferred tax assets related to net operating loss carryforwards of $248.1 million, $62.7 million and $216.0 million, respectively. Based on current statutory carryforward periods, these losses will expire on various dates between the years 2024 and 2033. 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 is:



	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Income tax benefit at United States statutory rates	$	(34,937	)	$	(1,798	)	$	(46,256	)
State income taxes, net of federal tax benefits	9,550			3,864			3,917
Differences between foreign and United States statutory rates	(10,735		)	(21,182		)	(25,637		)
Non-United States income inclusions and exclusions	2,926			18,525			9,901
Nondeductible items	55,469			7,570			9,005
Tax contingencies	950			697			4,316
Change in valuation allowance	(6,168		)	15,912			79,214
Other, net	(12,425		)	7,290			(4,724		)
	$	4,630		$	30,878		$	29,736

During 2014, 2013 and 2012, the Company recorded income tax expense of approximately $4.6 million, $30.9 million and $29.7 million, respectively, on losses before tax of $99.8 million, $5.1 million and $132.2 million, 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.

Differences between foreign and United States statutory rates of $(10.7) million, $(21.2) million and $(25.6) million for the years ended December 31, 2014, 2013 and 2012, respectively, are primarily attributable to the Company’s Luxembourg holding company structure and tax rulings received from the Luxembourg tax authorities.

Nondeductible items for 2014 primarily relate to the goodwill impairment that is not deductible for tax purposes.

During 2014, the Company recorded an income tax benefit of $12.9 million from the release of valuation allowances related to deferred tax liabilities associated with certain acquisitions. In 2013 and 2012, there were no significant income tax benefits recognized for valuation allowance reversals attributable to 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 Company recognizes interest and penalties related to uncertain tax positions in income tax expense. For the years ended December 31, 2014, 2013 and 2012, the Company has recognized $0.5 million, $0.1 million and $0.7 million, respectively, of interest and penalties related to uncertain tax positions. As of December 31, 2014 and 2013, the Company has accrued interest related to uncertain tax positions of $1.3 million and $1.2 million, respectively.

The tax years 2005 through 2014 remain open to examination by the major tax jurisdictions to which the Company is subject.

At December 31, 2014 and 2013, the Company had $12.6 million and $12.9 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, 2014, 2013 and 2012:



	2014			2013			2012
	(in thousands)
Balance at January 1	$	12,860		$	15,974		$	13,357
Additions:
Increase for current year positions	306			396			2,978
Increase for prior year positions	1,089			800			652
Decrease for prior year positions	—			(75		)	—
Interest and penalties for prior years	511			148			686
Reductions:
Expiration of applicable statute of limitations	(236		)	(572		)	—
Settlements for prior year positions	(1,225		)	(3,212		)	(1,716		)
Foreign exchange	(686		)	(599		)	247
Reclassification to other liabilities	—			—			(230		)
Balance at December 31	$	12,619		$	12,860		$	15,974

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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