Income Taxes
Following is a summary of the provision for income taxes (in thousands):
|
| | | | | | | | | |
Years Ended December 31, | 2017 | 2016 | 2015 |
Federal: | | | |
Current | $ | 27,877 |
| $ | 15,657 |
| $ | 4,810 |
|
Deferred | (4,397 | ) | 9,919 |
| 25,955 |
|
Total federal | 23,480 |
| 25,576 |
| 30,765 |
|
State: | |
| | |
Current | 5,520 |
| 4,567 |
| 1,914 |
|
Deferred | (338 | ) | 19 |
| 2,500 |
|
Total state | 5,182 |
| 4,586 |
| 4,414 |
|
Total provision for income taxes | $ | 28,662 |
| $ | 30,162 |
| $ | 35,179 |
|
Following is a reconciliation of our provision for income taxes based on the Federal statutory tax rate to our effective tax rate (dollars in thousands):
|
| | | | | | | | | | | | | | | |
Years Ended December 31, | 2017 | 2016 | 2015 |
Federal statutory tax | $ | 36,562 |
| 35.0 | % | $ | 33,728 |
| 35.0 | % | $ | 35,165 |
| 34.0 | % |
State taxes, net of federal tax benefit | 3,814 |
| 3.7 |
| 2,990 |
| 3.1 |
| 3,769 |
| 3.6 |
|
Percentage depletion deduction | (1,368 | ) | (1.3 | ) | (1,352 | ) | (1.4 | ) | (1,444 | ) | (1.4 | ) |
Domestic production activities deduction | (2,765 | ) | (2.7 | ) | (1,624 | ) | (1.7 | ) | (306 | ) | (0.3 | ) |
Non-controlling interests | (2,346 | ) | (2.3 | ) | (3,177 | ) | (3.3 | ) | (2,639 | ) | (2.6 | ) |
Nondeductible expenses | 1,128 |
| 1.1 |
| 1,094 |
| 1.1 |
| 219 |
| 0.2 |
|
Tax Cuts and Jobs Act of 2017 | (3,664 | ) | (3.5 | ) | — |
| — |
| — |
| — |
|
Other | (2,699 | ) | (2.6 | ) | (1,497 | ) | (1.5 | ) | 415 |
| 0.5 |
|
Total | $ | 28,662 |
| 27.4 | % | $ | 30,162 |
| 31.3 | % | $ | 35,179 |
| 34.0 | % |
On December 22, 2017 the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Reform”) was signed into law. As a result of Tax Reform, the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment; therefore, we were required to revalue our deferred tax assets and liabilities at December 31, 2017 at the new rate. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. The Company has recognized the provisional tax impacts of Tax Reform in its consolidated financial statements for the year ended December 31, 2017. The majority of the $3.7 million provisional benefit above is related to the revaluation of deferred tax assets and liabilities at December 31, 2017 as a result of Tax Reform. The ultimate impact may differ from this provisional amount, possibly materially, as a result of additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of Tax Reform. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.
Following is a summary of the deferred tax assets and liabilities (in thousands):
|
| | | | | | |
December 31, | 2017 | 2016 |
Long-term deferred tax assets: | |
| |
Receivables | $ | 526 |
| $ | 573 |
|
Inventory | 1,513 |
| 2,212 |
|
Insurance | 7,401 |
| 12,524 |
|
Deferred compensation | 8,985 |
| 12,740 |
|
Other accrued liabilities | 1,525 |
| 2,294 |
|
Accrued compensation | 1,738 |
| 11,031 |
|
Other | 1,379 |
| 2,481 |
|
Net operating loss carryforwards | 2,614 |
| 2,341 |
|
Valuation allowance | (2,471 | ) | (2,153 | ) |
Total long-term deferred tax assets | 23,210 |
| 44,043 |
|
Long-term deferred tax liabilities: | | |
Property and equipment | 16,832 |
| 29,400 |
|
Contract income recognition | 7,739 |
| 20,084 |
|
Total long-term deferred tax liabilities | 24,571 |
| 49,484 |
|
Net long-term deferred tax liabilities | $ | (1,361 | ) | $ | (5,441 | ) |
As of December 31, 2017, our deferred tax asset for net operating loss carryforwards relates to state and local net operating loss carryforwards with the significant carryforwards expiring beginning in 2035. We have provided a valuation allowance on the net deferred tax assets for certain state and local jurisdictions because we do not believe it is more likely than not that they will be realized.
The following is a summary of the change in valuation allowance (in thousands):
|
| | | | | | | | | |
December 31, | 2017 | 2016 | 2015 |
Beginning balance | $ | 2,153 |
| $ | 641 |
| $ | 1,185 |
|
Additions (deductions), net | 318 |
| 1,512 |
| (544 | ) |
Ending balance | $ | 2,471 |
| $ | 2,153 |
| $ | 641 |
|
The additions to the valuation allowance are related to the revaluation of our net deferred tax assets related to U.S. Tax Reform enacted during the year ended December 31, 2017 discussed above. Deductions to the valuation allowance are insignificant for the year ended December 31, 2017.
Uncertain tax positions: We file income tax returns in the U.S. and various state and local jurisdictions. We are currently under examination by various state taxing authorities for various tax years. We do not anticipate that any of these audits will result in a material change in our financial position. We are no longer subject to U.S. federal examinations by tax authorities for years before 2012. With few exceptions, as of December 31, 2017, we are no longer subject to state examinations by taxing authorities for years before 2010.
We had approximately $3.2 million and $3.3 million of total gross unrecognized tax benefits as of December 31, 2017 and 2016, respectively. There were approximately $3.1 million and $3.2 million of unrecognized tax benefits that would affect the effective tax rate in any future period at December 31, 2017 and 2016, respectively. We do not anticipate a significant increase or decrease in our unrecognized tax benefits that will impact our effective tax rate in 2018.
The following is a tabular reconciliation of unrecognized tax benefits (in thousands) the balance of which is included in other long-term liabilities on the consolidated balance sheets:
|
| | | | | | | | | |
December 31, | 2017 | 2016 | 2015 |
Beginning balance | $ | 3,262 |
| $ | 1,578 |
| $ | 887 |
|
Gross increases – current period tax positions | — |
| 1,902 |
| 1,006 |
|
Gross decreases – current period tax positions | (73 | ) | (125 | ) | (156 | ) |
Gross increases – prior period tax positions | 1 |
| 2 |
| — |
|
Gross decreases – prior period tax positions | (6 | ) | (5 | ) | — |
|
Settlements with taxing authorities/lapse of statute of limitations | (13 | ) | (90 | ) | (159 | ) |
Ending balance | $ | 3,171 |
| $ | 3,262 |
| $ | 1,578 |
|
We record interest on uncertain tax positions in interest expense in our consolidated statements of operations. During the years ended December 31, 2017, 2016 and 2015, we recognized approximately $0.2 million interest expense, $0.1 million interest expense and $0.1 million of interest income, respectively. Approximately $0.4 million and $0.2 million of accrued interest related to our uncertain tax position liability was included in other long-term liabilities in our consolidated balance sheets at December 31, 2017 and 2016, respectively.