Income Taxes
Impact of U.S. Federal Income Tax Reform
In December, 2017, the “Tax Cuts and Jobs Act” (the “Tax Act”) was signed into law. The significant provisions impacting the Company are as follows:
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• | Effective January 1, 2018, the U.S. corporate income tax rate reduced from 35.0 percent to 21.0 percent; |
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• | the Company recognized a one-time tax benefit of $74.7 million due to the remeasurement of deferred tax balances to the new statutory rate; |
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• | the Company is eligible to claim 100 percent bonus depreciation on qualified property placed in service from September 28, 2017 through December 31, 2022 - this provision phases out 20 percent annually after 2022 through 2027. |
ASC 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin ("SAB") 118 which allows companies to record provisional amounts during a one-year measurement period in order to complete the accounting for income tax effects of the Tax Act. The Company recognized provisional estimates which may be impacted by the Company’s understanding and application of the Tax Act related to the deductibility of acquired assets, state conformity and additional guidance from federal and state agencies as well as the FASB and the SEC. We are continuing to assess the tax effects of the Tax Act, but do not anticipate that the net impact will be material to our 2018 effective tax rate.
The Company is subject to income taxation in the United States, foreign countries and various state jurisdictions in which it operates. In accordance with income tax reporting accounting standards, the Company recognizes tax benefits or expense on the temporary differences between the financial reporting and tax bases of its assets and liabilities.
Components of Income before Income Taxes from Continuing Operations
The components of income before taxes for domestic and foreign operations consisted of the following (in thousands):
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| | | | | | | | | | | | |
| | Twelve Months Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Domestic | | $ | 176,853 |
| | $ | 329,818 |
| | $ | 331,813 |
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Foreign | | 18,693 |
| | 16,140 |
| | 14,906 |
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Total | | $ | 195,546 |
| | $ | 345,958 |
| | $ | 346,719 |
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Income Tax Provision/(Benefit)
The provision for income taxes is composed of the following (in thousands): |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | (44,385 | ) | | $ | 89,014 |
| | $ | 108,119 |
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State | 664 |
| | 5,204 |
| | 6,501 |
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Foreign | 558 |
| | 1,262 |
| | 996 |
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Total current | (43,163 | ) | | 95,480 |
| | 115,616 |
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Deferred: | | | | | |
Federal | 40,816 |
| | 27,950 |
| | 9,458 |
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State | 1,962 |
| | 1,673 |
| | 125 |
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Foreign | 1,029 |
| | 1,265 |
| | 1,190 |
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Total deferred | 43,807 |
| | 30,888 |
| | 10,773 |
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Total income tax provision | $ | 644 |
| | $ | 126,368 |
| | $ | 126,389 |
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Reconciliation of Effective Tax Rate
The effective tax rate on income before income taxes differed from the federal statutory income tax rate as follows (in thousands):
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| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Income tax expense at federal statutory rate | $ | 68,441 |
| | $ | 121,085 |
| | $ | 121,352 |
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State income taxes, net of federal income tax benefit | 2,723 |
| | 5,487 |
| | 4,293 |
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Federal tax reform impact | (74,738 | ) | | — |
| | — |
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Other | 4,218 |
| | (204 | ) | | 744 |
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Total income tax expense | $ | 644 |
| | $ | 126,368 |
| | $ | 126,389 |
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Deferred Taxes
The major components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):
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| | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Accrued vacation | $ | 690 |
| | $ | 1,183 |
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Accrued bonus | 628 |
| | 9,340 |
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State taxes | 318 |
| | 2,187 |
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Accrued property taxes | 1,573 |
| | 2,077 |
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Other | 3,679 |
| | 1,910 |
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Stock-based compensation expense | 1,983 |
| | 3,126 |
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Net operating loss | 635 |
| | — |
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Less: valuation allowance | 422 |
| | — |
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Total deferred tax assets | 9,084 |
| | 19,823 |
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Deferred tax liabilities: | | | |
Prepaid expenses | 4,275 |
| | 5,049 |
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Depreciation | 118,743 |
| | 86,981 |
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Foreign deferred | 4,569 |
| | 3,131 |
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Total deferred tax liabilities | 127,587 |
| | 95,161 |
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Net deferred tax liabilities | $ | 118,503 |
| | $ | 75,338 |
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Net Operating Loss and Tax Credit Carryforwards
At December 31, 2017, the Company recognized $0.2 million of state net operating loss carryforward which will expire between 2032 and 2037. The Company also recognized $0.4 million of foreign net operating loss carryforward which does not expire.
As of December 31, 2016, the Company recognized a federal capital loss carryforward which was remeasured to $0.7 million, pursuant to the Tax Act. The carryforward begins to expire in 2021. As of December 31, 2017, the Company also recognized $0.7 million and $0.2 million of foreign tax credit and charitable contribution carryforward balances which will expire in 2028 and 2023, respectively.