19. INCOME TAX
We are subject to taxation in the United States and Canada as well as various state jurisdictions. As of December 31, 2016, tax years for 2013, 2014, and 2015 are subject to examination by the tax authorities. With few exceptions, as of December 31, 2016, we are no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for tax years before 2013. The Company’s income (loss) before income taxes is as follows: |
| | | | | | | | | | | |
| Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
| | | Restated | | Restated |
United States | $ | (100,290 | ) | | $ | (264,146 | ) | | $ | (160,028 | ) |
Foreign | 23,359 |
| | 25,161 |
| | (16,695 | ) |
Loss before income taxes | $ | (76,931 | ) | | $ | (238,985 | ) | | $ | (176,723 | ) |
Income tax expense (benefit) reflected in the consolidated statement of operations consisted of:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
Current: | | | Restated | | Restated |
Federal | $ | (2,924 | ) | | $ | — |
| | $ | — |
|
State | 166 |
| | 12 |
| | 120 |
|
Foreign | 841 |
| | 1,441 |
| | 545 |
|
| (1,917 | ) | | 1,453 |
| | 665 |
|
Deferred: | | | | | |
Federal | (41,054 | ) | | (3,295 | ) | | — |
|
State | (5,032 | ) | | (330 | ) | | — |
|
Foreign | (56 | ) | | (17,718 | ) | | (642 | ) |
| (46,142 | ) | | (21,343 | ) | | (642 | ) |
Income tax expense (benefit) | $ | (48,059 | ) | | $ | (19,890 | ) | | $ | 23 |
|
The effective tax rate differs from the U.S. federal statutory rate as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
| (In thousands) |
| | | Restated | | Restated |
Computed income tax expense (benefit) at statutory rate | $ | (28,833 | ) | | $ | (85,757 | ) | | $ | (58,996 | ) |
Tax depletion in excess of basis | (10,794 | ) | | (5,317 | ) | | (9,273 | ) |
Non-deductible acquisition costs | — |
| | — |
| | 2,979 |
|
Intercompany interest | (6,651 | ) | | (6,488 | ) | | (4,174 | ) |
State and foreign income taxes, net | (4,632 | ) | | (8,897 | ) | | (9,321 | ) |
Change in valuation allowance for net deferred tax assets | 59,536 |
| | 149,987 |
| | 97,829 |
|
Release of valuation allowance arising from amalgamation | — |
| | (32,441 | ) | | — |
|
Restatement adjustment | — |
| | (1,992 | ) | | (19,373 | ) |
Indian coal tax credits (“ICTC”) | (9,923 | ) | | (13,756 | ) | | (15,205 | ) |
Change in state effective tax rate | (7,548 | ) | | 2,713 |
| | (385 | ) |
Change in federal rate | — |
| | (7,951 | ) | | — |
|
Change in Canadian rate | — |
| | (3,083 | ) | | 17 |
|
Foreign income inclusion | 8,093 |
| | 486 |
| | 13,031 |
|
Alternative minimum tax refund | (2,923 | ) | | — |
| | — |
|
Kemmerer deferred tax asset removal | — |
| | (13,238 | ) | | — |
|
San Juan purchase accounting release of valuation allowance | (46,086 | ) | | — |
| | — |
|
Other, net | 1,702 |
| | 5,844 |
| | 2,894 |
|
Income tax expense (benefit) | $ | (48,059 | ) | | $ | (19,890 | ) | | $ | 23 |
|
As a result of the restatement described in Note 2 - Restatement Of Previously Issued Consolidated Financial Statements to the consolidated financial statements, we recorded deferred tax assets and corresponding valuation allowances of zero, $5.9 million, and $20.3 million in the years ended December 31, 2016, 2015, and 2014, respectively.
The $59.5 million increase in valuation allowance for the year ended December 31, 2016 is due to the tax effect of the change in current year temporary items, credits, net operating losses, and postretirement medical benefit and pension obligations.
During 2016, as part of the San Juan Acquisition, the Company acquired $46.1 million in deferred tax liabilities. Changes in the acquiring company’s deferred tax assets or liabilities subsequent to a business combination are required to be recorded in income during the period in which the transaction occurs. Accordingly, the $46.1 million decrease in the Company’s net deferred tax assets resulted in the release of a corresponding $46.1 million valuation allowance and recognition of a tax benefit as of December 31, 2016.
During 2015 the Company completed an amalgamation of two of our Canadian subsidiaries as part of a tax planning strategy. The amalgamation resulted in a decrease in the Company’s Canadian net deferred tax asset, necessitating the $32.4 million release of a portion of the Company’s valuation allowance. The $13.2 million Kemmerer deferred tax asset removal for the year ended December 31, 2015 is due to the Company dropping the Kemmerer mine and assets into the Company’s master limited partnership on August 1, 2015.
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below: |
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
| (In thousands) |
Deferred tax assets: | | | Restated |
Net operating losses | $ | 249,687 |
| | $ | 198,045 |
|
Credit carryforwards | 69,170 |
| | 62,390 |
|
Accrued compensation and benefits | 7,399 |
| | 5,847 |
|
Asset retirement obligations | 156,550 |
| | 125,672 |
|
Postretirement medical benefit and pension obligations | 143,374 |
| | 123,595 |
|
Deferred revenue | 11,110 |
| | 13,591 |
|
Black lung accrual | 8,299 |
| | 7,405 |
|
Unrealized gain/(loss) on derivatives | 4,774 |
| | 14,377 |
|
Canadian resource pool | 4,174 |
| | 4,088 |
|
Lease obligations | 8,415 |
| | 13,341 |
|
Other | 9,668 |
| | 9,008 |
|
Total deferred tax assets | 672,620 |
| | 577,359 |
|
Valuation allowance | (563,338 | ) | | (519,774 | ) |
Net deferred tax assets | 109,282 |
| | 57,585 |
|
| | | |
Deferred tax liabilities: | | | |
Property, plant and equipment, differences due to depreciation and amortization | $ | (83,411 | ) | | $ | (38,136 | ) |
Investment in partnerships | (13,365 | ) | | (6,284 | ) |
Finance lease receivable | (7,362 | ) | | (9,446 | ) |
Other | (5,144 | ) | | (3,719 | ) |
Total deferred tax liabilities | (109,282 | ) | | (57,585 | ) |
| | | |
Net deferred tax asset (liability) | $ | — |
| | $ | — |
|
As of December 31, 2016, the Company had significant deferred tax assets. The deferred tax assets include U.S. federal, state and foreign NOLs, AMT credit carryforwards, ICTC carryforwards, and net deductible reversing temporary differences related to on-going differences between book and taxable income. The Company determined that since its net deductible temporary differences will not reverse for the foreseeable future, and it is unable to forecast regular taxable income when they do reverse, a full valuation allowance is required for these deferred tax assets. The net valuation allowance increased by $43.6 million during the year ended December 31, 2016.
As of December 31, 2016, the Company has available U.S. federal net operating loss carryforwards to reduce future regular taxable income of $581.4 million, expiring between 2018 and 2036. The Company has ICTC carryforwards of $64.4 million available to reduce future income taxes, which expire between 2026 and 2036.
Currently the Company has an excess tax over book basis in its investment in Canadian subsidiaries and the Company does not expect this deferred tax asset to reverse in the foreseeable future. Accordingly, there has been no recognition of any deferred tax asset on the outside basis of investments in subsidiaries.
Foreign Income Taxes
As of December 31, 2016, the Company has available foreign net operating loss carryforwards to reduce future regular taxable income of approximately $52.3 million expiring in years 2031 through 2035.
Uncertain tax positions
The Company recorded zero and $4.0 million in uncertain tax positions for the year ended December 31, 2016 and December 31, 2015, respectively. The Company recognizes interest and penalties related to income tax matters in income tax expense, for which none was recorded for the years ended December 31, 2016, 2015 or 2014. No uncertain tax positions are expected to change in the next 12 months.