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Income Taxes

12 Months Ended

Dec. 31, 2019

11.	Income Taxes

The following table summarizes the domestic and foreign components of our income before income taxes for the years ended December 31, 2019, 2018 and 2017:


	Year Ended December 31,
(Amounts in thousands)	2019		2018		2017
Domestic	$	297,752	$	383,875	$	301,322
Foreign		14,008		27,983		27,730
Income before income taxes	$	311,760	$	411,858	$	329,052

The following table summarizes the components of income tax expense (benefit) for the years ended December 31, 2019, 2018 and 2017:


(Amounts in thousands)	Current		Deferred		Total
2019:
U.S. federal	$	(2,960)	$	67,975	$	65,015
Foreign		5,812		1,169		6,981
State and local		10,704		9,242		19,946
Income tax expense	$	13,556	$	78,386	$	91,942
2018:
U.S. federal	$	(58)	$	65,976	$	65,918
Foreign		11,752		626		12,378
State and local		11,268		6,291		17,559
Income tax expense	$	22,962	$	72,893	$	95,855
2017:
U.S. federal	$	(72)	$	(6,774)	$	(6,846)
Foreign		11,840		(2,231)		9,609
State and local		5,829		7,434		13,263
Income tax expense (benefit)	$	17,597	$	(1,571)	$	16,026

Recorded income tax expense differed from amounts computed by applying the U.S. federal income tax rate of 21% for the year ended December 31, 2019 and 2018, and 35% for the year ended December 31, 2017 to income before income taxes as a result of the following:


	Year Ended December 31,
(Amounts in thousands)	2019		2018		2017
Computed "expected" federal income tax expense	$	65,470	$	86,490	$	115,168
Effect of noncontrolling interest income distribution		(8,558)		(8,401)		(13,724)
Change in valuation allowance		15,469		1,663		413
Effect of state and local income taxes, net of federal tax benefit		18,622		12,980		10,767
Deductible compensation in excess of book		(2,029)		(5,392)		(13,757)
Nondeductible compensation		635		1,167		2,201
Effect of foreign income taxes		2,084		4,544		2,367
Effect of foreign earnings earned and remitted in the same year		(302)		2,317		4,402
Effect of foreign tax credits		(407)		(996)		(5,357)
Effect of Tax Reform, including change in valuation allowance of $20,824		—		—		(84,599)
Other, net		958		1,483		(1,855)
Income tax expense	$	91,942	$	95,855	$	16,026

In connection with emergence from Chapter 11, the Company’s prepetition debt securities, primarily the prepetition notes issued by Six Flags, Inc. (which changed its corporate name to Six Flags Entertainment Corporation (Holdings) upon emergence from bankruptcy in 2010) and SFO, were extinguished. Absent an exception, a debtor recognizes cancellation of debt income ("CODI") upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code ("IRC") provides that a debtor in a bankruptcy case may exclude CODI from income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. As a result of the market value of our equity upon emergence from Chapter 11 bankruptcy proceedings, we were able to retain a significant portion of our federal net operating losses (“NOLs”) and state NOLs (collectively, the "Tax Attributes") after reduction of the Tax Attributes for CODI realized on emergence from Chapter 11. As a result of emergence from Chapter 11, the Company’s NOLs were reduced by approximately $804.8 million of CODI.

Sections 382 and 383 of the IRC impose an annual limitation on the utilization of NOLs and other favorable Tax Attribute carryforwards that a corporation has at the time of a so-called "ownership change" within the meaning of IRC Section 382. The Company’s issuance of stock pursuant to its reorganization under Chapter 11 in 2010 resulted in such an ownership change. The limitation amount is the product of the value of the Company, computed under special rules that apply to a bankruptcy reorganization, and a published rate that applied for the month the Company emerged from Chapter 11. The Company’s limitation amount is approximately $32.5 million for each year to which NOLs and other Tax Attribute carryforwards that existed at emergence are carried. As a result of the Section 382 limitation, the Company may have a cash tax liability in future years even though its deferred tax assets have not been exhausted. A subsequent ownership change could further limit the Company’s utilization of NOLs and other Tax Attributes if a smaller limitation resulted from the subsequent ownership change or applied to NOLs and other Tax Attributes accumulated after emergence from Chapter 11.

Substantially all of our future taxable temporary differences (deferred tax liabilities) relate to the different financial accounting and tax depreciation methods and periods for property and equipment (20 to 25 years for financial reporting purposes and 7 to 12 years for tax reporting purposes) and intangibles. Our net operating loss carryforwards, foreign tax credits, alternative minimum tax credits, accrued insurance expenses and deferred compensation amounts represent future income tax benefits (deferred tax assets). The following table summarizes the components of deferred income tax assets and deferred tax liabilities as of December 31, 2019 and 2018:


	December 31,
(Amounts in thousands)	2019		2018
Deferred tax assets	$	191,349	$	233,980
Less: Valuation allowance		130,641		115,172
Net deferred tax assets		60,708		118,808
Deferred tax liabilities		307,829		292,806
Net deferred tax liability	$	247,121	$	173,998


	December 31,
(Amounts in thousands)	2019		2018
Deferred tax assets:
Federal net operating loss carryforwards	$	12,615	$	19,334
State net operating loss carryforwards		107,303		117,236
Deferred compensation		8,240		6,873
Foreign tax credits		20,469		39,300
Alternative minimum tax credits		3,296		6,591
Accrued insurance, pension liability and other		39,426		44,646
Total deferred tax assets	$	191,349	$	233,980

Deferred tax liabilities:
Property and equipment	$	226,872	$	209,070
Intangible assets and other		80,957		83,736
Total deferred tax liabilities	$	307,829	$	292,806

As of December 31, 2019, we had approximately $0.2 billion and $5.8 billion of net operating loss carryforwards available for U.S. federal income tax and state income tax purposes, respectively, that expire through 2030 and 2038, respectively. Foreign tax credits of $20.5 million expire between 2020 and 2027. We have a valuation allowance of $130.6 million and $115.2 million as of December 31, 2019 and 2018, respectively, due to uncertainties related to our ability to utilize some of our deferred tax assets before they expire. We analyze our ability to use our foreign tax credits based on our most probable outcome for future foreign sourced income. Based on that analysis, we have determined it is not more likely than not that some of our foreign tax credits will not be fully utilized and have established a valuation allowance of approximately $17.1 million at December 31, 2019. The remainder of our valuation allowance at December 31, 2019 and 2018 was based on our inability to use state deferred tax assets related to NOLs that were generated in states where we no longer do business or where we have consistently not generated taxable income. The change in valuation allowance is all attributable to income from operations.

Our unrecognized tax benefit as of each of December 31, 2019 and 2018 was $25.7 million. We classify interest and penalties attributable to income taxes as part of income tax expense. Due to the Company’s NOL position, we have not accrued any penalties and interest.