Income Taxes
The domestic and foreign components of income operations before income taxes and equity method investments were as follows (in thousands):
|
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2017 | | 2016 | | 2015 |
Domestic | $ | 97,718 |
| | $ | 89,988 |
| | $ | 85,665 |
|
Foreign | (476 | ) | | 82 |
| | (311 | ) |
Income from operations before income taxes and equity method investments | $ | 97,242 |
| | $ | 90,070 |
| | $ | 85,354 |
|
The provision for income taxes was comprised of the following components (in thousands):
|
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2017 | | 2016 | | 2015 |
Current provision: | | | | | |
Federal | $ | 5,340 |
| | $ | 13,454 |
| | $ | 2,714 |
|
State | 2,523 |
| | 2,394 |
| | 1,247 |
|
Foreign | 38 |
| | (45 | ) | | 77 |
|
| 7,901 |
| | 15,803 |
| | 4,038 |
|
Deferred (benefit) provision: | | | | | |
Federal | (28,013 | ) | | 17,170 |
| | 27,817 |
|
State | 3,313 |
| | 2,831 |
| | 5,825 |
|
| (24,700 | ) | | 20,001 |
| | 33,642 |
|
Non-current (benefit) resulting from allocating tax benefits directly to additional paid in capital and changes in liabilities: | | | | | |
Federal | (60 | ) | | (1,573 | ) | | (2,568 | ) |
State | — |
| | (445 | ) | | (746 | ) |
| (60 | ) | | (2,018 | ) | | (3,314 | ) |
(Benefit) provision for income taxes | $ | (16,859 | ) | | $ | 33,786 |
| | $ | 34,366 |
|
For the years ended December 31, 2017, 2016 and 2015 the non-current benefits related to liabilities for uncertain tax positions was $0.1 million, $0.2 million and $0.3 million, respectively.
The schedule of effective income tax rate reconciliation is as follows:
|
| | | | | | | | |
| Year Ended
December 31, |
| 2017 | | 2016 | | 2015 |
Statutory U.S. Federal tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
Increase (decrease) in tax rate resulting from: | | | | | |
Net deferred tax liability remeasurement | (52.0 | )% | | — | % | | — | % |
State taxes—net of Federal benefit | 3.9 | % | | 3.4 | % | | 4.8 | % |
Stock-based compensation | (2.8 | )% | | — | % | | — | % |
ESSP | (1.5 | )% | | (0.7 | )% | | 0.2 | % |
Excess executive compensation | 0.4 | % | | 0.7 | % | | 0.5 | % |
Section 199 deductions | (0.4 | )% | | (0.4 | )% | | (0.4 | )% |
Other, net | 0.1 | % | | (0.5 | )% | | 0.1 | % |
Effective tax rate | (17.3 | )% | | 37.5 | % | | 40.2 | % |
We paid income taxes, net of refunds, of $15.9 million, $18.1 million and $6.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. A summary of the tax effect of the significant components of deferred income taxes is as follows (in thousands):
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Gross deferred tax liabilities: | | | |
Goodwill and other assets | $ | 100,967 |
| | $ | 131,367 |
|
Unbilled receivables | 11,693 |
| | 18,608 |
|
Property and equipment | 7,303 |
| | 2,657 |
|
Total | 119,963 |
| | 152,632 |
|
| | | |
Gross deferred tax assets: | | | |
Retirement and other liabilities | (20,636 | ) | | (27,258 | ) |
Allowance for potential contract losses and other contract reserves | (1,598 | ) | | (3,005 | ) |
Federal and state operating loss carryforwards | (1,252 | ) | | (560 | ) |
Less: Valuation allowance | 717 |
| | 272 |
|
Total | (22,769 | ) | | (30,551 | ) |
Net deferred tax liabilities | $ | 97,194 |
| | $ | 122,081 |
|
In connection with our initial analysis of the impact of the Tax Cuts and Jobs Act, our income tax expense was reduced by $50.6 million for the year ended December 31, 2017 from a re-measurement of our existing deferred tax assets and liabilities. We have not completed our accounting for the income tax effects of certain elements of the Tax Cuts and Jobs Act, specifically related to the future deductibility of certain executive compensation expenses, acquisition accounting for InfoZen, and a detailed review of capitalized assets that qualify for immediate deduction. We have recorded provisional adjustments for these matters for the year ended December 31, 2017.
At December 31, 2017, we had state and foreign net operating losses of approximately $9.9 million and $3.5 million, respectively. The state net operating losses expire beginning 2019 through 2035. We recorded a valuation allowance against the foreign net operating losses as we do not believe the loss will be fully utilized in the future.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):
|
| | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 |
Gross unrecognized tax benefits at beginning of year | $ | 293 |
| | $ | 519 |
| | $ | 785 |
|
Lapse in statute of limitations | (105 | ) | | (285 | ) | | (266 | ) |
Increases in tax positions for current year | 32 |
| | 59 |
| | — |
|
Gross unrecognized tax benefits at end of year | $ | 220 |
| | $ | 293 |
| | $ | 519 |
|
The total liability for gross unrecognized tax benefits as of December 31, 2017, 2016 and 2015 includes $0.2 million, $0.2 million and $0.4 million, respectively, of unrecognized net tax benefits which, if ultimately recognized, would reduce our annual effective tax rate in a future period.
We are subject to income taxes in the U.S., various state and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require significant judgment to apply. We are no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for the years before 2013. We are no longer subject to U.S. state tax examinations by tax authorities for the years before 2012. We believe it is reasonably possible that $0.1 million of gross unrecognized tax benefits will be settled within the next year due to expirations of statute of limitations.