Income Taxes
The following table presents the Company's income tax expense:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Current expense: | | | | | |
Federal | $ | 4,868 |
| | $ | 43,638 |
| | $ | 41,549 |
|
State | 8,337 |
| | 8,500 |
| | 4,966 |
|
Foreign | 133 |
| | — |
| | — |
|
| 13,338 |
| | 52,138 |
| | 46,515 |
|
Deferred (benefit) expense: | | | | | |
Federal | (323,326 | ) | | 6,789 |
| | 19,666 |
|
State | 17,731 |
| | (1,335 | ) | | 1,866 |
|
Foreign | 541 |
| | — |
| | — |
|
| (305,054 | ) | | 5,454 |
| | 21,532 |
|
Income tax (benefit) expense | $ | (291,716 | ) | | $ | 57,592 |
| | $ | 68,047 |
|
| | | | | |
Rate Reconciliation — Expected tax expense is computed by applying the United States federal corporate income tax rate of 35.0% to earnings before income taxes. Actual tax expense differs from expected tax expense as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Computed "expected" tax expense | $ | 67,798 |
| | $ | 53,490 |
| | $ | 65,277 |
|
Increase (decrease) in income taxes resulting from: | | | | | |
State income taxes, net of federal income tax benefit | 4,871 |
| | 4,657 |
| | 4,441 |
|
Statutory rate change effect on deferred taxes | (367,000 | ) | | — |
| | — |
|
Other | 2,615 |
| | (555 | ) | | (1,671 | ) |
Income tax (benefit) expense | $ | (291,716 | ) | | $ | 57,592 |
| | $ | 68,047 |
|
| | | | | |
Deferred Income Taxes — The components of the net deferred tax asset (liability) included in "Deferred income taxes" in the consolidated balance sheets were:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
| (In thousands) |
Deferred tax assets: | | | |
Claims accrual | $ | 70,564 |
| | $ | 11,355 |
|
Allowance for doubtful accounts | 5,117 |
| | 1,133 |
|
Amortization of stock options | 4,717 |
| | 3,101 |
|
Accrued liabilities | 37,654 |
| | 1,388 |
|
Vacation accrual | 3,585 |
| | — |
|
Other | 7,227 |
| | 2,345 |
|
Total deferred tax assets | 128,864 |
| | 19,322 |
|
Valuation allowance | — |
| | — |
|
Total deferred tax assets, net | 128,864 |
| | 19,322 |
|
Deferred tax liabilities: | | | |
Property and equipment, principally due to differences in depreciation | (429,917 | ) | | (192,363 | ) |
Prepaid taxes, licenses, and permits deducted for tax purposes | (10,217 | ) | | (2,737 | ) |
Intangible assets | (365,564 | ) | | — |
|
Other | (2,243 | ) | | (2,222 | ) |
Deferred tax liabilities | (807,941 | ) | | (197,322 | ) |
Deferred income taxes | $ | (679,077 | ) | | $ | (178,000 | ) |
| | | |
Valuation Allowance — As of December 31, 2017, the Company had a federal net operating loss carryforward with estimated tax effects of $0.2 million. The federal net operating loss will expire at various times between 2030 and 2032. As of December 31, 2017, the Company had state income tax credit carryforwards for which a deferred tax asset was recorded in the amount of $1.8 million and expires in the year 2021. The Company has not established a valuation allowance as it has been determined that, based upon available evidence, a valuation allowance is not required. Management asserts that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. All other deferred tax assets are expected to be realized and utilized by continued profitability in future periods.
Cumulative Undistributed Foreign Earnings — As of December 31, 2017, foreign withholding taxes have not been provided on approximately $58.7 million of cumulative undistributed earnings of foreign subsidiaries. The earnings are considered to be permanently reinvested outside the United States. As such, the Company is not required to provide withholding taxes on these earnings until they are repatriated in the form of dividends or otherwise.
Unrecognized Tax Benefits — The Company's unrecognized tax benefits as of December 31, 2017 would favorably impact the Company's effective tax rate if subsequently recognized.
See Note 2 for accounting policy related to the Company's income taxes.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2017, 2016 and 2015 is as follows:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (In thousands) |
Unrecognized tax benefits at beginning of year | $ | 729 |
| | $ | — |
| | $ | — |
|
Increases for tax positions taken prior to beginning of year | 5,432 |
| | 729 |
| | — |
|
Increases for tax positions taken in the current year | 935 |
| | — |
| | — |
|
Unrecognized tax benefits at end of year | $ | 7,096 |
| | $ | 729 |
| | $ | — |
|
| | | | | |
Interest and Penalties — Accrued interest and penalties as of December 31, 2017 were approximately $0.3 million. The Company had no interest and penalties accrued as of December 31, 2016 or 2015.
Tax Examinations — Certain of the Company's subsidiaries are currently under examination by various state jurisdictions for tax years ranging from 2011 to 2016. At the completion of these examinations, management does not expect any adjustments that would have a material impact on the Company's effective tax rate. Years subsequent to 2012 remain subject to examination.
Regulatory Developments — On December 22, 2017, the United States enacted significant changes to US tax law following the passage and signing of H.R.1, "An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018" (previously known as "The Tax Cuts and Jobs Act" and hereafter "the Act"). The new tax law is complex and includes various changes which may impact the Company. Management estimates that the Act will have a net beneficial impact of $364.2 million, discussed below.
| |
• | The Company is subject to the provisions of ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities as a result of a change in statutory tax rate be recognized in the period in which the tax rate change was enacted. The Company currently expects the enacted reduction in the US corporate income tax rate, to result in a one-time, non-cash decrease to income tax expense of $367.0 million in 2017. |
| |
• | The Act requires a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits ("E&P"). A proportional deduction on the deemed repatriation will result in a repatriation transition tax of 15.5% for cash and liquid assets and 8.0% for non-liquid assets. The tax will be assessed regardless of whether or not the Company has cash in its foreign subsidiaries and regardless of whether the Company brings back the earnings. The tax is determined based on the greater of E&P as of two measurement dates (November 2, 2017 or December 31, 2017). The amount of cash and liquid assets is determined based on the greater of the amounts calculated using the two alternative measurement periods. The estimated Transition Tax for 2017 is $2.8 million. |
Due to the complexities involved in accounting for the enactment of the Act, SEC Staff Accounting Bulletin ("SAB") 118 allows taxpayers to provide a provisional estimate of the impacts of the Act on the income tax provision for 2017. The accounting for the statutory rate change and Transition Tax described above is estimated using provisional amounts and is not yet complete. We will continue to assess our provision for income taxes as future guidance is issued but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outline in SAB No. 118.