Income Taxes
The components of income from continuing operations before income taxes are as follows:
|
| | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
Domestic | | $ | 146,383 |
| | $ | 236,200 |
| | $ | 140,738 |
|
Foreign | | (45,689 | ) | | (19,574 | ) | | (1,411 | ) |
Income from continuing operations before income taxes | | $ | 100,694 |
| | $ | 216,626 |
| | $ | 139,327 |
|
The components of the provision for income taxes are as follows:
|
| | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
Current benefit (provision): | | |
| | |
| | |
|
Federal | | $ | (8,652 | ) | | $ | (19,385 | ) | | $ | — |
|
State | | (1,237 | ) | | 267 |
| | (8,926 | ) |
Foreign | | (2,335 | ) | | (2,481 | ) | | (4,470 | ) |
Total current benefit (provision) | | (12,224 | ) | | (21,599 | ) | | (13,396 | ) |
| | | | | | |
Deferred benefit (provision): | | |
| | |
| | |
|
Federal | | 299,693 |
| | (58,250 | ) | | (42,659 | ) |
State | | 2,356 |
| | (6,232 | ) | | 3,285 |
|
Foreign | | (5,539 | ) | | 5,827 |
| | 1,535 |
|
Total deferred benefit (provision) | | 296,510 |
| | (58,655 | ) | | (37,839 | ) |
Total income tax benefit (provision), net | | $ | 284,286 |
| | $ | (80,254 | ) | | $ | (51,235 | ) |
The actual tax provisions for the years ended December 31, 2017, 2016 and 2015 reconcile to the amounts computed by applying the statutory federal tax rate to income from continuing operations before income taxes as shown below:
|
| | | | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Statutory rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes, net of Federal benefit | | (12.2 | )% | | 5.0 | % | | 3.8 | % |
Permanent differences | | (0.3 | )% | | 1.4 | % | | 1.7 | % |
Tax credits | | (8.1 | )% | | (4.2 | )% | | (8.4 | )% |
Valuation allowance | | 4.6 | % | | (0.3 | )% | | 1.4 | % |
Enactment of Tax Cuts and Job Act of 2017 | | (301.4 | )% | | — | % | | — | % |
Other | | 0.1 | % | | 0.1 | % | | 3.3 | % |
Total effective tax rate | | (282.3 | )% | | 37.0 | % | | 36.8 | % |
The components of our deferred tax assets and liabilities are as follows:
|
| | | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| | (In thousands) |
Deferred tax assets: | | |
| | |
|
Net operating losses, credit and other carryforwards | | $ | 278,540 |
| | $ | 178,925 |
|
Unrealized losses on investments, net | | 22,260 |
| | 47,737 |
|
Accrued expenses | | 23,583 |
| | 39,596 |
|
Stock-based compensation | | 9,148 |
| | 14,389 |
|
Other assets | | 11,890 |
| | 15,008 |
|
Total deferred tax assets | | 345,421 |
| | 295,655 |
|
Valuation allowance | | (66,886 | ) | | (75,372 | ) |
Deferred tax assets after valuation allowance | | 278,535 |
| | 220,283 |
|
| | | | |
Deferred tax liabilities: | | |
| | |
|
Depreciation and amortization | | (708,599 | ) | | (962,838 | ) |
Other liabilities | | (1,509 | ) | | (1,319 | ) |
Total deferred tax liabilities | | (710,108 | ) | | (964,157 | ) |
Total net deferred tax liabilities | | $ | (431,573 | ) | | $ | (743,874 | ) |
Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
We evaluate our deferred tax assets for realization and record a valuation allowance when we determine that it is more likely than not that the amounts will not be realized. Overall, our net deferred tax assets were offset by a valuation allowance of $66.9 million and $75.4 million as of December 31, 2017 and 2016, respectively. The change in the valuation allowance primarily relates to an increase in the net operating loss carryforwards of certain foreign subsidiaries and a decrease associated with unrealized gains that are capital in nature.
Tax benefits of net operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. As of December 31, 2017, we had net operating loss carryforwards of $798.5 million, including $168.4 million of foreign net operating loss carryforwards. A substantial portion of these net operating loss carryforwards will begin to expire in 2029. As of December 31, 2017, we have tax credit carryforwards of $126.2 million and $84.0 million for federal and state income tax purposes, respectively. If not utilized, the federal tax credit carryforwards will begin to expire in 2026 and the state tax credit carryforwards will begin to expire in 2018.
As of December 31, 2017, we had undistributed earnings attributable to foreign subsidiaries for which no provision for U.S. income taxes or foreign withholding taxes has been made because it is expected that such earnings will be reinvested outside the U.S. indefinitely. It is not practicable to determine the amount of the unrecognized deferred tax liability at this time.
Accounting for the U.S. Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was enacted in December 2017 and has significantly impacted our effective tax rate and the tax benefit calculated for the year ended December 31, 2017. We have provisionally recorded a benefit of $303.5 million to reflect the change in the value of our deferred tax assets and liabilities resulting from the change in the federal corporate tax rate from 35% to 21%. This amount includes a provisional estimate of zero related to valuation allowances on foreign tax credit carryovers. In order to complete this analysis, we must refine our forecast of qualifying foreign source income under the 2017 Tax Act including the effects of the new foreign-derived intangible income provisions. We will account for the effects, if any, of the global intangible low-taxed income provisions (“GILTI”) of the 2017 Tax Act as incurred. We also have recorded a provisional estimate of zero related to the tax on deemed mandatory repatriation of our unrepatriated foreign earnings. We are gathering more detailed historical financial information from our non-consolidated foreign affiliates in order to complete our analysis of the impacts of the 2017 Tax Act on our financial position and operating results.
Due to the timing of the enactment and the complexity involved in applying the provisions of the 2017 Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017. As we collect and prepare necessary data, and interpret the 2017 Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustment may materially impact the provision for income taxes and the effective tax rate in the period in which the adjustments are made.
Accounting for Uncertainty in Income Taxes
In addition to filing U.S. federal income tax returns, we file income tax returns in all states that impose an income tax. As of December 31, 2017, we are not currently under a U.S. federal income tax examination, however, the IRS can perform tax examination as early as tax year 2008. We are also subject to frequent state income tax audits and have open state examinations in years as early as 2008. We also file income tax returns in the United Kingdom, Brazil, India and a number of other foreign jurisdictions. We generally are open to income tax examination in these foreign jurisdictions for taxable years beginning in 2003. As of December 31, 2017, we are currently being audited by the Indian tax authorities for fiscal years 2003 through 2012. We have no other on-going significant income tax examinations in process in our foreign jurisdictions.
A reconciliation of the beginning and ending amount of unrecognized income tax benefits is as follows:
|
| | | | | | | | | | | | |
| | For the Years Ended December 31, |
Unrecognized tax benefit | | 2017 | | 2016 | | 2015 |
| | (In thousands) |
Balance as of beginning of period | | $ | 63,502 |
| | $ | 62,366 |
| | $ | 44,839 |
|
Additions based on tax positions related to the current year | | 1,116 |
| | 2,132 |
| | 11,748 |
|
Additions based on tax positions related to prior years | | 258 |
| | 3 |
| | 5,779 |
|
Reductions based on tax positions related to prior years | | (852 | ) | | (734 | ) | | — |
|
Reductions based on tax settlements | | — |
| | (265 | ) | | — |
|
Reductions based on expirations of statute of limitations | | (728 | ) | | — |
| | — |
|
Balance as of end of period | | $ | 63,296 |
| | $ | 63,502 |
| | $ | 62,366 |
|
As of December 31, 2017, we had $63.3 million of unrecognized income tax benefits, all of which, if recognized, would affect our effective tax rate. As of December 31, 2016, we had $63.5 million of unrecognized income tax benefits, all of which, if recognized, would affect our effective tax rate. We do not believe that the total amount of unrecognized income tax benefits will significantly increase or decrease within the next twelve months due to the lapse of statute of limitations or settlement with tax authorities.
For the years ended December 31, 2017, 2016 and 2015, our income tax provision included an insignificant amount of interest and penalties.
Estimates of our uncertain tax positions are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such an event, we will record additional income tax provision or benefit in the period in which such resolution occurs.