Note 9 – Income Tax

The provision for income taxes is different from the amount computed by applying U.S. statutory rates to consolidated income before taxes. The significant reason for these differences is as follows:


	Quarter Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(Dollars in thousands)	2015		2014		2015		2014
Expected tax provision	$	315	$	1,838	$	8,436	$	4,630
Increase (decrease) in tax expense resulting from:
Change in valuation allowance, other		810		(1,611)		38		(4,019)
Foreign tax provision		42		770		117		3,450
Foreign withholding tax provision		156		146		492		435
Reversal of tax expense on undistributed foreign earnings		--		--		(3,394)		--
Tax effect of foreign tax rates on current income		(741)		(227)		(1,035)		(611)
State and local tax provision		(81)		2		265		257
Tax litigation settlement		180		394		540		605
Tax litigation settlement adjustment		(164)		--		(854)		--
Actual tax provision	$	517	$	1,312	$	4,605	$	4,747

Pursuant to ASC 740-10, Income Taxes, a provision should be made for the tax effect of earnings of foreign subsidiaries that are not permanently invested outside the United States. During the second quarter of 2015, we adjusted our capital allocation strategy to require that earnings available in Australia be reinvested in Australia. The adjustment was primarily supported by increased investment opportunities in Australia. Accordingly, as of June 30, 2015, our intent is that earnings of our Australian subsidiaries are indefinitely invested outside the United States.

We have accrued $11.5 million in total income tax liabilities as of September 30, 2015, of which $4.4 million has been classified as Taxes Payable – Current and $7.1 million has been classified as Taxes Payable – Long-Term. As part of current tax liabilities, we have accrued $2.7 million in connection with the settlement of the IRS claims against our subsidiary, Craig Corporation, relating to its 1996 tax year. This is an obligation of Craig Corporation, and not of Reading International, Inc. We believe that the $11.5 million represents an adequate provision for our income tax exposures, including income tax contingencies related to foreign withholding taxes.