United states securities and exchange commission



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Although the Company is incorporated under Canadian law, the majority of its global operations are currently subject to tax in the U.S. As a result, the Company believes it is more appropriate to use the U.S. Federal statutory rate in its reconciliation of the statutory rate to its reported income tax rate.

The income tax effects of temporary differences between the book value and tax basis of assets and liabilities are as follows:


F-41

Table of Contents



LIONS GATE ENTERTAINMENT CORP.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




























 

March 31, 2012

 

March 31, 2011

 

 

 

As adjusted

 

(Amounts in thousands)

CANADA

 

 

 

Assets

 

 

 

Net operating losses

$

7,417




 

$

13,835




Property and equipment

1,883




 

1,905




Reserves

24




 

1,395




Other

6,042




 

6,323




Valuation allowance

(14,955

)

 

(21,696

)

 

411




 

1,762




Liabilities

 

 

 

Investment in film and television obligations






 

(25

)

Other

(411

)

 

(395

)

Net Canada






 

1,342




 

 

 

 

UNITED KINGDOM

 

 

 

Assets

 

 

 

Net operating losses

$

1,313




 

$

3,818




Property and equipment

86




 

70




Interest Payable






 

846




Other

111




 

11




Valuation Allowance

(647

)

 

(3,655

)

 

863




 

1,090




Liabilities

 

 

 

Investment in film and television obligations

(863

)

 

(1,090

)

Net United Kingdom






 






 

 

 

 

UNITED STATES

 

 

 

Assets

 

 

 

Net operating losses

$

67,421




 

$

64,454




Accounts payable

20,077




 

15,121




Other assets

51,270




 

54,010




Reserves

52,111




 

58,965




Valuation allowance

(133,604

)

 

(117,149

)

 

57,275




 

75,401




Liabilities

 

 

 

Investment in film and television obligations

(9,012

)

 

(12,972

)

Accounts receivable






 

(444

)

Subordinated notes

(11,638

)

 

(16,255

)

Other

(41,605

)

 

(49,409

)

Net United States

(4,980

)

 

(3,679

)

 

 

 

 

AUSTRALIA

 

 

 

Assets

 

 

 

Net operating losses

$






 

$






Property and equipment

1




 

1




Other

1




 

1




Valuation allowance

(2

)

 

(2

)

F-42



Table of Contents

LIONS GATE ENTERTAINMENT CORP.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




























 






 






Liabilities






 






Net Australia






 






 

 

 

 

TOTAL

$

(4,980

)

 

$

(2,337

)

Due to the uncertainty surrounding the timing of realizing the benefits of its deferred tax assets in future tax returns, the Company has recorded a valuation allowance against its deferred tax assets, net of deferred tax liabilities, with the exception of deferred tax liabilities related to tax deductible goodwill. The deferred tax liabilities associated with tax deductible goodwill cannot be considered a source of taxable income to support the realization of deferred tax assets, because these deferred tax liabilities will not reverse until some indefinite future period. The total change in the valuation allowance was $6.7 million and $16.2 million for fiscal 2012 and fiscal 2011 , respectively. The Company has recorded a deferred tax liability as of March 31, 2012 and 2011 of $5.0 million and $3.7 million , respectively, for tax deductible goodwill arising from the Mandate Pictures, TV Guide Network and Summit acquisitions.

At March 31, 2012 , the Company had U.S. net operating loss carryforwards of approximately $187.8 million available to reduce future federal income taxes which expire beginning in 2019 through 2029. At March 31, 2012 , the Company had state net operating loss carryforwards of approximately $170.4 million available to reduce future state income taxes which expire in varying amounts beginning 2014. At March 31, 2012 , the Company had Canadian loss carryforwards of $28.4 million which will expire beginning in 2014 through 2030, and $8.6 million of UK loss carryforwards available indefinitely to reduce future income taxes. The Company expects the future utilization of the Company’s U.S. NOLs to offset future taxable income will be subject to an annual limitation as a result of ownership changes that have occurred previously or that could occur in the future.

An excess tax benefit occurs when the actual tax benefit realized upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award. The Company recognizes excess tax benefits associated with the exercise of stock options and vesting of restricted share units directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carryforwards resulting from excess tax benefits occurring from April 1, 2006 onward. At March 31, 2012 , deferred tax assets do not include $31.1 million of loss carryovers from stock-based compensation.

U.S. income taxes were not provided on undistributed earnings from Australian and UK subsidiaries. Those earnings are considered to be permanently reinvested in accordance with accounting guidance.

The following table summarizes the changes to the gross unrecognized tax benefits for the years ended March 31, 2012 , 2011 , and 2010 :
F-43

Table of Contents



LIONS GATE ENTERTAINMENT CORP.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
















 

Amounts

in millions)

Gross unrecognized tax benefits at April 1, 2009

$






Increases in tax positions for prior years






Decreases in tax positions for prior years






Increases in tax positions for current year

0.4




Settlements






Lapse in statute of limitations






 

 




Gross unrecognized tax benefits at March 31, 2010

0.4




Increases in tax positions for prior years






Decreases in tax positions for prior years

(0.1

)

Increases in tax positions for current year






Settlements






Lapse in statute of limitations






 

 




Gross unrecognized tax benefits at March 31, 2011

0.3




Increases in tax positions for prior years






Decreases in tax positions for prior years






Increases in tax positions for current year






Settlements






Lapse in statute of limitations






 

 




Gross unrecognized tax benefits at March 31, 2012

$

0.3




 

 




For the years ended March 31, 2012 and 2011 , interest and penalties were not significant. The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. With a few exceptions, the Company is subject to income tax examination by U.S. and state tax authorities for the fiscal years ended March 31, 2008 and forward. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses (“NOLs”) were generated and carried forward, and make adjustments up to the amount of the NOLs. The Company’s fiscal years ended March 31, 2008 and forward are subject to examination by the UK tax authorities. The Company’s fiscal years ended March 31, 2007 and forward are subject to examination by the Canadian tax authorities. The Company’s fiscal years ended March 31, 2008 and forward are subject to examination by the Australian tax authorities. Currently, audits are occurring in various state and local tax jurisdictions.



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