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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Taxes [Abstract] |
Income Taxes | Note 14 - Income Taxes Income (loss) before income tax expense includes the following (dollars in thousands):
|  | Year Ended December 31,
|  | 2013 |  | 2012 |  | 2011
United States | $ | 8,745 | $ | 836 | $ | (1,391)
Foreign |  | 3,973 |  | 1,446 |  | (379)
Income (loss) before income tax expense and equity earnings of unconsolidated joint ventures and entities | $ | 12,718 | $ | 2,282 | $ | (1,770)
Net (income) expense attributable to noncontrolling interests: |  |  |  |  |  |
United States |  | 24 |  | 578 |  | (604)
Foreign |  | (128) |  | (86) |  | (336)
Equity earnings and gain on sale of unconsolidated subsidiary: |  |  |  |  |  |
United States |  | (1) |  | 27 |  | 33
Foreign |  | 1,370 |  | 1,594 |  | (1,585)
Gain on sale of discontinued operation: |  |  |  |  |  |
United States |  | -- |  | -- |  | --
Foreign |  | -- |  | (405) |  | 1,888
Income (loss) before income tax expense | $ | 13,983 | $ | 3,990 | $ | (2,374)
Significant components of the provision for income taxes are as follows (dollars in thousands):
|  | Year Ended December 31,
|  | 2013 |  | 2012 |  | 2011
Current income tax expense |  |  |  |  |  |
Federal | $ | 1,121 | $ | 964 | $ | 1,332
State |  | 432 |  | 584 |  | 531
Foreign |  | 1,283 |  | 1,370 |  | 1,067
Total |  | 2,836 |  | 2,918 |  | 2,930
Deferred income tax expense (benefit) |  |  |  |  |  |
Federal |  | -- |  | -- |  | --
State |  | -- |  | -- |  | --
Foreign |  | 2,106 |  | 1,986 |  | (15,260)
Total |  | 2,106 |  | 1,986 |  | (15,260)
Total income tax expense (benefit) | $ | 4,942 | $ | 4,904 | $ | (12,330)
Deferred income taxes reflect the “temporary differences” between the financial statement carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, adjusted by the relevant tax rate. The components of the deferred tax assets and liabilities are as follows (dollars in thousands):
|  | December 31,
Components of Deferred Tax Assets |  | 2013 |  | 2012
Deferred Tax Assets: |  |  |  |
Net operating loss carry-forwards | $ | 21,228 | $ | 31,040
Impairment reserves |  | 2,915 |  | 3,578
Alternative minimum tax credit carry-forwards |  | 3,291 |  | 3,118
Compensation and employee benefits |  | 3,867 |  | 3,242
Deferred revenue and expense |  | 2,398 |  | 2,688
Land, tangible assets, and option real properties |  | 5,477 |  | 2,882
Other |  | 3,685 |  | 4,003
Total Deferred Tax Assets |  | 42,861 |  | 50,551
Valuation allowance |  | (34,022) |  | (37,903)
Net deferred tax asset | $ | 8,839 | $ | 12,648
In accordance with FASB ASC 740-10 – Income Taxes (“ASC 740-10”), we record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. ASC 740-10 presumes that a valuation allowance is required when there is substantial negative evidence about realization of deferred tax assets, such as a pattern of losses in recent years, coupled with facts that suggest such losses may continue. Because of such negative evidence available for the U.S., Puerto Rico, and New Zealand, as of December 31, 2013, we recorded a valuation allowance of $34.0 million. After consideration of a number of factors for the Reading Australia group, including its recent history of financial income, its expected future earnings, the increase in market value of its real estate assets, and having executed a credit facility of over $100.0 million to resolve potential liquidity issues, the Company determined as of July 1, 2011 that it was more likely than not that deferred tax assets in Reading Australia group will be realized. Accordingly, we reversed the full valuation allowance in Australia, resulting in a net deferred tax asset of $14.4 million as of December 31, 2011, with approximately $3.4 million classified as current and $11.0 million as non-current. As of December 31, 2013, we had U.S. net operating loss carry-forwards of $15.2 million, of which $8.7 million expire between 2025 and 2030, while $6.5 million expire between 2030 and 2035. In addition to the above net operating loss carry-forwards having expiration dates, we have the following carry-forwards that have no expiration date at December 31, 2013:
| · |  | approximately $3.3 million in U.S. alternative minimum tax credit carry-forwards;
| · |  | approximately $26.0 million in Australian ordinary and capital loss carry-forwards, including accrued but unpaid interest on loans from its US parent company; and
| · |  | approximately $11.8 million in New Zealand loss carry-forwards.
We disposed of our Puerto Rico operations during 2005 and plan no further investment in Puerto Rico for the foreseeable future. We have approximately $14.1 million in Puerto Rico loss carry-forwards expiring no later than 2018. No material future tax benefits from Puerto Rico loss carry-forwards can be recognized by the Company unless it re-enters the Puerto Rico market for which the Company has no current plans. We expect no other substantial limitations on the future use of U.S. or foreign loss carry-forwards except as may occur for certain losses occurring in New Zealand related to the Landplan operations, which may only be used to offset income and gains from those particular activities, and cannot be shared with their respective consolidated group. U.S. income taxes have not been recognized on the temporary differences between book value and tax basis of investment in foreign subsidiaries. These differences become taxable upon a sale of the subsidiary or upon distribution of assets from the subsidiary to U.S. shareholders. We expect neither of these events will occur in the foreseeable future for any of our foreign subsidiaries. The provision for income taxes is different from amounts computed by applying U.S. statutory rates to consolidated losses before taxes. The significant reason for these differences follows (dollars in thousands):
|  | Year Ended December 31,
|  | 2013 |  | 2012 |  | 2011
Expected tax provision (benefit) | $ | 4,894 | $ | 1,397 | $ | (831)
Increase (decrease) in tax expense resulting from: |  |  |  |  |  |
Change in valuation allowance |  | (3,882) |  | (558) |  | (15,260)
Expired foreign loss carry-forward |  | -- |  | -- |  | 1,100
Foreign tax provision |  | 3,389 |  | 3,356 |  | 1,067
Tax effect of foreign tax rates on current income |  | (294) |  | (126) |  | 24
State and local tax provision |  | 296 |  | 408 |  | 361
Tax/Audit Litigation Settlement |  | 1,140 |  | 1,140 |  | 1,375
Effect of tax rate change |  | -- |  | -- |  | --
Other items |  | (601) |  | (713) |  | (166)
Actual tax provision (benefit) | $ | 4,942 | $ | 4,904 | $ | (12,330)
Pursuant to ASC 740-10, a provision should be made for the tax effect of earnings of foreign subsidiaries that are not permanently invested outside the United States. Our intent is that earnings of our foreign subsidiaries are not permanently invested outside the United States. Current earnings were available for distribution in the Reading Australia consolidated group of subsidiaries as of December 31, 2013. There is no withholding tax on dividends paid by an Australian company to its 80% or more U.S. public company shareholder, thus we have not provided foreign withholding taxes for these current retained earnings. We believe the U.S. tax impact of a dividend from our Australian subsidiary, net of loss carry forward and potential foreign tax credits, would not have a material effect on the tax provision as of December 31 2013. We have accrued $20.8 million in income tax liabilities as of December 31, 2013, of which $8.3 million has been classified as current taxes payable and $12.5 million have been classified as non-current tax liabilities. As part of current taxes payable, we have accrued $3.5 million in connection with federal and state liabilities arising from the “Tax/Audit Litigation” matter which has now been settled (see Note 19 – Commitments and Contingencies). As part of noncurrent tax liabilities, we have accrued an additional $11.5 million related to the “Tax Audit/Litigation” matter. Amounts assessed by the IRS and expected to be assessed by state income tax agencies in connection with the “Tax Audit/Litigation” matter are no longer recorded under the cumulative probability approach prescribed by FASB ASC 740-10-25 but are recorded as a fixed and determinable liability. We believe the $20.8 million in tax liabilities represents an adequate provision for our income tax exposures. The following table is a summary of the activity related to unrecognized tax benefits, excluding interest and penalties, for the years ending December 31, 2013, December 31, 2012, and December 31, 2011 (dollars in thousands):
|  | Year Ended |  | Year Ended |  | Year Ended
|  | December 31, |  | December 31, |  | December 31,
|  | 2013 |  | 2012 |  | 2011
Unrecognized tax benefits – gross beginning balance | $ | 2,171 | $ | 1,974 | $ | 8,058
Gross increases – prior period tax provisions |  | (11) |  | 197 |  | --
Gross increases – current period tax positions |  | -- |  | -- |  | 151
Settlements |  | -- |  | -- |  | (6,235)
Statute of limitations lapse |  | -- |  | -- |  | --
Unrecognized tax benefits – gross ending balance | $ | 2,160 | $ | 2,171 | $ | 1,974
In accordance with FASB ASC 740-10-25 – Income Taxes - Uncertain Tax Positions (“ASC 740-10-25”) we elected to record interest and penalties related to income tax matters as part of income tax expense. We had approximately $10.8 million and $11.4 million of gross tax benefits as of the adoption date and December 31, 2007, respectively, plus $1.7 million and $2.3 million of tax interest unrecognized on the financial statements as of each date, respectively. The gross tax benefits mostly reflect operating loss carry-forwards and the IRS Tax Audit/Litigation case described below. We recorded a reduction to our gross unrecognized tax benefits of approximately $3.4 million and an increase to tax interest of approximately $8.8 million during the period January 1, 2010 to December 31, 2010 and the total balance at December 31, 2010 was approximately $20.6 million (of which approximately $12.6 million represents IRS interest). Having settled the Tax Audit/Litigation matter described in Note 19 – Commitments and Contingencies, we further recorded a net reduction to our gross unrecognized tax benefits of approximately $6.1 million and a reduction to tax interest of approximately $10.4 million during the period January 1, 2011 to December 31, 2011, resulting in a total balance at December 31, 2011 of approximately $4.1 million, consisting of $1.9 million tax and $2.2 million interest. Of the $4.1 million gross unrecognized tax benefit at December 31, 2011, approximately $3.0 million would impact the effective tax rate if recognized. During the period January 1, 2012 to December 31, 2012 we recorded an increase of $0.2 million to our gross unrecognized tax benefits and an increase to tax interest of approximately $1.1 million, resulting in a total balance of $5.3 million consisting of $2.1 million in tax and $3.2 million in interest. Of the $5.3 million gross unrecognized tax benefit at December 31, 2012, approximately $4.3 million would impact the effective rate if recognized. During the period January 1, 2013 to December 31, 2013 we recorded no material change to our gross unrecognized tax benefits and a decrease to tax interest of approximately $1.4 million, resulting in a total balance of $3.9 million consisting of $2.1 million in tax and $1.8 million in interest. Of the $3.9 million gross unrecognized tax benefit at December 31, 2013, approximately $2.9 million would impact the effective rate if recognized. It is difficult to predict the timing and resolution of uncertain tax positions. Based upon the Company’s assessment of many factors, including past experience and judgments about future events, it is probable that within the next 12 months the reserve for uncertain tax positions will increase within a range of $0.5 million to $1.5 million. The reasons for such change include but are not limited to tax positions expected to be taken during 2013, revaluation of current uncertain tax positions, and expiring statutes of limitation. Our company and subsidiaries are subject to U.S. federal income tax, income tax in various U.S. states, and income tax in Australia, New Zealand, and Puerto Rico. Generally, changes to our federal and most state income tax returns for the calendar year 2007 and earlier are barred by statutes of limitations. Certain U.S. subsidiaries filed federal and state tax returns for periods before these entities became consolidated with us. These subsidiaries were examined by IRS for the years 1996 to 1999 and significant tax deficiencies were assessed for those years. Those deficiencies have been settled, as discussed in “Tax Audit/Litigation,” Note 19 – Commitments and Contingencies. Our income tax returns for Australia filed since inception in 1995 are generally open for examination. The income tax returns filed in New Zealand and Puerto Rico for calendar year 2007 and afterward remain open for examination as of December 31, 2013.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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