INCOME TAXES
The domestic and foreign components of income before (benefit) provision for income taxes were as follows (in thousands): |
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Domestic | $ | 101,714 |
| | $ | 87,328 |
| | $ | 164,105 |
|
Foreign | (43,025 | ) | | (78,612 | ) | | (54,459 | ) |
Total | $ | 58,689 |
| | $ | 8,716 |
| | $ | 109,646 |
|
The (benefit) provision for income taxes consisted of the following (in thousands): |
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | 25,613 |
| | $ | 14,798 |
| | $ | 46,775 |
|
State | 11,083 |
| | 8,763 |
| | 11,120 |
|
Foreign | 4,589 |
| | 9,844 |
| | 5,719 |
|
| 41,285 |
| | 33,405 |
| | 63,614 |
|
Deferred | | | | | |
Federal | (85,488 | ) | | 21,814 |
| | 12,254 |
|
State | 1,085 |
| | 1,644 |
| | 2,766 |
|
Foreign | 1,068 |
| | (8,274 | ) | | (13,090 | ) |
| (83,335 | ) | | 15,184 |
| | 1,930 |
|
(Benefit) provision for income taxes | $ | (42,050 | ) | | $ | 48,589 |
| | $ | 65,544 |
|
The Company's effective tax rate for fiscal years 2017, 2016 and 2015 was (71.6)%, 557.5% and 59.8%, respectively. The effective income tax rate varied from the amount computed using the statutory federal income tax rate as follows (in thousands): |
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Tax expense at US statutory rate | $ | 20,541 |
| | $ | 3,051 |
| | $ | 38,376 |
|
State income taxes, net of federal benefit | 4,547 |
| | 6,010 |
| | 8,449 |
|
Foreign rate differential | 3,733 |
| | 3,646 |
| | 3,951 |
|
Valuation allowance | 16,552 |
| | 22,564 |
| | 1,824 |
|
Uncertain tax position interest and penalties | 3,730 |
| | 107 |
| | 32 |
|
Goodwill impairment | — |
| | 11,905 |
| | 10,974 |
|
Other | 1,856 |
| | 1,306 |
| | 1,938 |
|
Adjustment for Tax Cuts and Jobs Act | (93,009 | ) | | — |
| | — |
|
(Benefit) provision for income taxes | $ | (42,050 | ) | | $ | 48,589 |
| | $ | 65,544 |
|
(12) INCOME TAXES (Continued)
Effects of the Tax Cuts and Jobs Act
On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Tax Act”) was signed into law, making significant changes to the federal tax law. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated its best estimate of the impact of the Tax Act in its year end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the date of this filing and as a result has recorded a net benefit of $93.0 million as a component of income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. This provisional net income tax benefit is comprised of a $100.5 million tax benefit for the remeasurement of deferred tax assets and liabilities to the 21% rate at which they are expected to reverse, offset by a one-time tax expense on deemed repatriation of $7.5 million. This one-time charge is after the utilization of $7.5 million of foreign tax credits which had full valuation allowances applied to them previously. This one-time tax expense is expected to be paid over a period of eight years.
Due to the timing of the Tax Act and potential uncertainty or diversity of views in accounting for the impact of the Tax Act, the SEC provided guidance in SAB 118 on accounting for the tax effects of the Tax Act (See Note 2, “Significant Accounting Policies”). In accordance with that guidance, the Company has determined that the components of the net benefit of $93.0 million recorded in the fourth quarter of 2017 were provisional amounts and reasonable estimates at December 31, 2017. Additional work is necessary to do a more detailed analysis of all provisional amounts associated with the Tax Act referenced above as a result of pending issuance of Notices and Regulations related to the Tax Act and finalization of foreign earnings and profits for 2017. The Company will continue to evaluate the impact of the Tax Act on its business and the consolidated financial statements and will make any adjustments to its provisional amounts in subsequent reporting periods upon obtaining, preparing or analyzing additional information affecting the income tax effects initially reported as a provisional amount. Any subsequent adjustment to these amounts will be recorded to tax expense in the quarter of 2018 when the analysis is complete.
During the year ended December 31, 2016, the Company allocated $16.8 million of tax benefits related to tax deductible foreign currency losses to accumulated other comprehensive loss and as such these benefits are not included within the (benefit) provision for income taxes.
(12) INCOME TAXES (Continued)
The components of the total net deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows (in thousands): |
| | | | | | | |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Provision for doubtful accounts | 7,417 |
| | 11,189 |
|
Closure, post-closure and remedial liabilities | 28,189 |
| | 40,829 |
|
Accrued expenses | 15,382 |
| | 19,826 |
|
Accrued compensation | 1,903 |
| | 2,747 |
|
Net operating loss carryforwards(1) | 46,650 |
| | 46,752 |
|
Tax credit carryforwards(2) | 17,504 |
| | 25,348 |
|
Uncertain tax positions accrued interest and federal benefit | 921 |
| | 1,241 |
|
Stock-based compensation | 2,268 |
| | 1,993 |
|
Other | 3,258 |
| | 555 |
|
Total deferred tax assets | 123,492 |
| | 150,480 |
|
Deferred tax liabilities: | | | |
Property, plant and equipment | (144,325 | ) | | (207,799 | ) |
Permits and other intangible assets | (107,407 | ) | | (161,295 | ) |
Prepaids | (8,080 | ) | | (11,030 | ) |
Total deferred tax liabilities | (259,812 | ) | | (380,124 | ) |
Total net deferred tax liability before valuation allowance | (136,320 | ) | | (229,644 | ) |
Less valuation allowance | (68,355 | ) | | (55,189 | ) |
Net deferred tax liabilities | $ | (204,675 | ) | | $ | (284,833 | ) |
| |
(1) | As of December 31, 2017, the net operating loss carryforwards included (i) state net operating loss carryovers of $186.7 million which will begin to expire in 2018, (ii) federal net operating loss carryforwards of $48.0 million which will begin to expire in 2025, and (iii) foreign net operating loss carryforwards of $116.1 million which will begin to expire in 2018. |
| |
(2) | As of December 31, 2017, the foreign tax credit carryforwards of $17.5 million will expire between 2020 and 2024. |
The Company has not accrued for any remaining undistributed foreign earnings not subject to the one-time transition tax on mandatory deemed repatriation of cumulative foreign earnings. These amounts continue to be indefinitely reinvested in foreign operations.
A valuation allowance is required to be established when, based on an evaluation of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, as of December 31, 2017 and 2016, the Company had a valuation allowance of $68.4 million and $55.2 million, respectively. The total allowance as of December 31, 2017 consisted of $17.5 million of foreign tax credits, $3.9 million of acquired federal net operating losses, $11.9 million of state net operating loss carryforwards, $22.6 million of foreign net operating loss carryforwards, and $12.5 million of deferred tax assets of a Canadian subsidiary. The allowance as of December 31, 2016 consisted of $25.0 million of foreign tax credits, $1.5 million of acquired federal net operating losses, $5.0 million of state net operating loss carryforwards and $18.0 million of foreign net operating loss carryforwards and $5.7 million of deferred tax assets of a Canadian subsidiary. The change in valuation allowance in 2017 was impacted by incremental allowance recorded on net operating losses generated by certain Canadian subsidiaries in 2017 for which the Company is currently recording a full valuation allowance against. This increase was offset by a $7.5 million decrease due to the reversal of allowances resulting from impacts of the enactment of the Tax Act and specifically the utilization of foreign tax credits in connection with the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. The foreign tax credits utilized had previously had full valuation allowances recorded against them. The valuation allowances attributable to foreign tax assets are due to the significant downturn in the operations of certain of the Company’s Canadian businesses in current and recent years and uncertainty as to whether these
(12) INCOME TAXES (Continued)
Canadian businesses will generate sufficient future taxable income to utilize these deferred tax assets. The Company therefore concluded that the recording of valuation allowances were required as of December 31, 2017.
The changes to unrecognized tax benefits (excluding related penalties and interest) from January 1, 2015 through December 31, 2017, were as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Unrecognized tax benefits as of January 1 | $ | 1,738 |
| | $ | 2,064 |
| | $ | 2,537 |
|
Additions to current year tax positions | 1,457 |
| | — |
| | — |
|
Additions to prior year tax positions | 2,031 |
| | — |
| | — |
|
Settlements | (231 | ) | | (533 | ) | | (217 | ) |
Foreign currency translation | 126 |
| | 207 |
| | (256 | ) |
Unrecognized tax benefits as of December 31 | $ | 5,121 |
| | $ | 1,738 |
| | $ | 2,064 |
|
At December 31, 2017, 2016 and 2015, the Company had recorded $5.1 million, $1.7 million and $2.1 million, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate.
The Company's policy is to recognize interest and penalties related to income tax matters as a component of income tax expense. The liability for unrecognized tax benefits at December 31, 2017 included accrued interest of $0.9 million, $0.3 million and $0.4 million for the payment of interest accrued at December 31, 2017, 2016 and 2015, respectively. Interest expense that is recorded as a tax expense against the liability for unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 included interest and penalties of $0.5 million, $0.1 million and $0.1 million, respectively.
The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company may be subject to examination by the Internal Revenue Service (the "IRS") for calendar years 2014 through 2016. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. The Company may also be subject to examinations by state and local revenue authorities for calendar years 2013 through 2016. The Company is currently not under examination by the IRS. The Company has ongoing U.S. state and local jurisdictional audits, as well as Canadian federal and provincial audits, all of which the Company believes will not result in material liabilities.
Due to expiring statute of limitation periods and the resolution of tax audits, the Company believes that total unrecognized tax benefits will decrease by approximately $1.4 million within the next 12 months.