Income Taxes
Components of Loss from continuing operations before taxes by jurisdiction are as follows (amounts in thousands):
|
| | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Domestic | $ | (122,842 | ) | | (84,202 | ) | | (80,021 | ) |
Foreign | 14,783 |
| | 209 |
| | 290 |
|
Loss from continuing operations before taxes | $ | (108,059 | ) | | (83,993 | ) | | (79,731 | ) |
The Company's Income tax expense (benefit) from continuing operations is as follows (amounts in thousands):
|
| | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current: | |
| | |
| | |
|
Federal | $ | (426 | ) | | — |
| | — |
|
State | 2,669 |
| | 3,008 |
| | 2,305 |
|
Foreign | 1,823 |
| | 42 |
| | 62 |
|
| 4,066 |
| | 3,050 |
| | 2,367 |
|
Deferred: | |
| | |
| | |
|
Federal | (4,593 | ) | | 4,000 |
| | 3,894 |
|
State | 501 |
| | 206 |
| | 266 |
|
Foreign | (382 | ) | | (5 | ) | | (22 | ) |
| (4,474 | ) | | 4,201 |
| | 4,138 |
|
Total Income tax expense (benefit) from continuing operations | $ | (408 | ) | | 7,251 |
| | 6,505 |
|
Total Income tax expense (benefit) from continuing operations differs from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following (amounts in thousands):
|
| | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Computed expected tax benefit | $ | (37,821 | ) | | (29,398 | ) | | (27,906 | ) |
Change in valuation allowance affecting income tax expense | 31,811 |
| | 30,859 |
| | 27,890 |
|
US tax effect of foreign earnings and dividends | 5,110 |
| | 44 |
| | 113 |
|
Other foreign tax rate differentials | 1,434 |
| | 31 |
| | 43 |
|
Expense (income) not resulting in tax impact | 2,013 |
| | (381 | ) | | 803 |
|
Tax amortization of indefinite-lived assets | 4,001 |
| | 4,000 |
| | 3,890 |
|
2017 Federal tax reform enactment | (9,020 | ) | | — |
| | — |
|
State and local income taxes, net of federal benefit | 2,059 |
| | 2,091 |
| | 1,671 |
|
Other, net | 5 |
| | 5 |
| | 1 |
|
Total Income tax expense (benefit) from continuing operations | $ | (408 | ) | | 7,251 |
| | 6,505 |
|
Components of deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows (amounts in thousands):
|
| | | | | | |
| As of December 31, |
| 2017 | | 2016 |
Accounts receivable reserves | $ | 1,357 |
| | 1,165 |
|
Accrued liabilities | 10,751 |
| | 10,696 |
|
Net operating loss carryforwards | 172,138 |
| | 236,062 |
|
Derivative financial instruments | 1,705 |
| | 3,296 |
|
Other deferred tax assets | 6,929 |
| | 10,044 |
|
Valuation allowance | (104,006 | ) | | (126,164 | ) |
Total deferred tax assets | 88,874 |
| | 135,099 |
|
Intangible assets | (95,007 | ) | | (141,664 | ) |
Convertible notes | (3,067 | ) | | (6,376 | ) |
Property, plant and equipment | (2,006 | ) | | (2,934 | ) |
Other deferred tax liabilities | (2,105 | ) | | (1,894 | ) |
Total deferred tax liabilities | (102,185 | ) | | (152,868 | ) |
Net deferred tax liabilities | $ | (13,311 | ) | | (17,769 | ) |
On December 22, 2017, new tax reform legislation that significantly reforms the Internal Revenue Code of 1986, as amended, was enacted (the "2017 Tax Act"). The 2017 Tax Act includes numerous changes to existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction is effective for the Company as of January 1, 2018. This rate reduction, along with the repeal of the corporate Alternative Minimum Tax ("AMT") resulted in a reduction of our deferred tax liabilities and a corresponding deferred and current tax benefit.
The 2017 Tax Act is comprehensive containing several other provisions, some of which will not materially impact the Company. Other provisions, such as the limitation of deductions for interest expense and limitations on the usage of net operating loss carryforwards ("NOLs") generated in future years, could have significant impact to the Company’s future tax position and cash taxes. The provisions of the 2017 Tax Act related to foreign earnings are not expected to impact the Company. These estimates are based on the Company's initial analysis of the 2017 Tax Act and may be adjusted in future periods as required. The 2017 Tax Act has significant complexity and future implementation guidance from the Internal Revenue Service, clarifications of state tax law or the completion of the Company’s 2017 tax return filings could all impact these estimates. The Company does not believe potential adjustments in future periods would materially impact the Company's financial condition or results of operations.
For the year ended December 31, 2017, the valuation allowance decreased by $22,158,000. The change in the valuation allowance is primarily attributable to the impact of the 2017 Tax Act corporate income tax rate change from 35% to 21% and changes in estimated blended state tax rates, which net decreased the valuation allowance by $64,679,000. This decrease was offset by $31,811,000 related to federal income tax expense and an increase of $10,710,000 related to change in state tax deferred items and other adjustments.
At December 31, 2017, the Company has $752,516,000, $115,041,000 and $150,453,000 in NOLs for federal, California and other state tax purposes, respectively. The federal net operating losses expire at various times from 2024 through 2036. The state net operating loss carryforwards will expire through 2036. Approximately $129,521,000 of the Company’s net operating losses are subject to Internal Revenue Code Section 382 limitations. The Company has $1,064,000 of federal income tax credits, of which $638,000 will expire in 2018 and $426,000 of AMT credit which will be refunded in years 2018 through 2021 as a result of the 2017 Tax Act. The Company also has $883,000 of state credits that will expire through year 2026.
As of December 31, 2017, the 2014 to 2017 tax years remain open to examination by the IRS and the 2013 to 2017 tax years remain open to examination by certain state tax authorities. The Company’s foreign tax returns subsequent to 2013 are open for review by the foreign taxing authorities.
A reconciliation of the beginning and ending amount of uncertain tax positions, which is recorded in other long term liabilities, is as follows (amounts in thousands):
|
| | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
As of the beginning of the year | $ | 3,956 |
| | 2,907 |
| | 191 |
|
Increases for tax positions of current years | 1,033 |
| | 1,049 |
| | 1,104 |
|
Increases (reductions) for tax positions of prior years | (4 | ) | | — |
| | 1,612 |
|
As of the end of the year | $ | 4,985 |
| | 3,956 |
| | 2,907 |
|
When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest expense from the first period the interest would begin accruing according to the relevant tax law. Any accrual of interest and penalties related to underpayment of income taxes on uncertain tax positions is included in Income tax expense from continuing operations in the accompanying consolidated statements of operations. As of December 31, 2017, accrued interest and penalties related to uncertain tax positions were approximately $86,000. The Company does not expect a significant change in uncertain tax positions in the next twelve months.