Note 21 — Income Taxes
Accounting guidance requires deferred tax assets and liabilities to be recognized for temporary differences between the tax basis and financial reporting basis of assets and liabilities, computed at the expected tax rates for the periods in which the assets or liabilities will be realized, as well as for the expected tax benefit of net operating loss and tax credit carryforwards. A full valuation allowance was recorded against the deferred tax assets at December 31, 2016 and 2015 for the Company’s United States operations.
The realization of deferred income tax assets is dependent on the generation of taxable income in appropriate jurisdictions during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in determining the amount of the valuation allowance. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management determines if it is more likely than not that the Company will not fully realize the benefits of these deductible differences in the United States.
As of December 31, 2016, Fulghum owned 86% of the equity interests in the subsidiaries located in Chile and Uruguay. As of December 31, 2015, Fulghum owned 87% of the equity interests in the subsidiaries located in Chile and Uruguay. Fulghum’s management concluded the earnings of these foreign subsidiaries should be taxed at the full United States tax rate and are not permanently reinvested under accounting guidance. As such, the Company has provided for U.S. deferred tax liability and foreign withholdings taxes of $5.8 million on approximately $12.5 million of unremitted earnings.
The domestic and foreign components of loss from continuing operations before income taxes for the years ended December 31, 2016, 2015 and 2014 are as follows:
|
|
|
For the Years Ended December 31, |
|
|||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Domestic |
|
$ |
(46,483 |
) |
|
$ |
(33,389 |
) |
|
$ |
(31,356 |
) |
|
Foreign |
|
|
(144,009 |
) |
|
|
(27,223 |
) |
|
|
(9,553 |
) |
|
Total |
|
$ |
(190,492 |
) |
|
$ |
(60,612 |
) |
|
$ |
(40,909 |
) |
The income tax provision (benefit) for continuing operations for the years ended December 31, 2016, 2015 and 2014 was as follows:
|
|
|
For the Years Ended December 31, |
|
|||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(17,360 |
) |
|
$ |
— |
|
|
$ |
(2,615 |
) |
|
State |
|
|
(3,932 |
) |
|
|
538 |
|
|
|
61 |
|
|
Foreign |
|
|
1,599 |
|
|
|
680 |
|
|
|
459 |
|
|
Total Current |
|
$ |
(19,693 |
) |
|
$ |
1,218 |
|
|
$ |
(2,095 |
) |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(44,489 |
) |
|
$ |
(337 |
) |
|
$ |
(323 |
) |
|
State |
|
|
(89 |
) |
|
|
(563 |
) |
|
|
7 |
|
|
Foreign |
|
|
(27 |
) |
|
|
— |
|
|
|
— |
|
|
Total Deferred |
|
$ |
(44,605 |
) |
|
$ |
(900 |
) |
|
$ |
(316 |
) |
|
Income tax (benefit) expense from continuing operations |
|
$ |
(64,298 |
) |
|
$ |
318 |
|
|
$ |
(2,411 |
) |
A reconciliation of the income taxes at the federal statutory rate to the effective tax rate for continuing operations is as follows:
|
|
|
For the Years Ended December 31, |
|
|||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Federal income tax benefit calculated at the federal statutory rate |
|
$ |
(66,671 |
) |
|
$ |
(20,611 |
) |
|
$ |
(13,942 |
) |
|
Impact of foreign earnings |
|
|
(480 |
) |
|
|
79 |
|
|
|
678 |
|
|
State income tax benefit net of federal benefit |
|
|
(2,936 |
) |
|
|
(1,668 |
) |
|
|
(1,209 |
) |
|
Nondeductible expenses |
|
|
291 |
|
|
|
135 |
|
|
|
126 |
|
|
Return to provision |
|
|
(121 |
) |
|
|
59 |
|
|
|
91 |
|
|
Goodwill impairment |
|
|
4,088 |
|
|
|
— |
|
|
|
— |
|
|
Minority interest, net of state tax benefit |
|
|
(154 |
) |
|
|
353 |
|
|
|
504 |
|
|
Prior and current period Canadian net operating losses |
|
|
(17,183 |
) |
|
|
— |
|
|
|
— |
|
|
Basis difference in subsidiaries |
|
|
756 |
|
|
|
(692 |
) |
|
|
103 |
|
|
Partnership basis difference |
|
|
— |
|
|
|
55 |
|
|
|
44 |
|
|
Change in valuation allowance |
|
|
17,766 |
|
|
|
21,927 |
|
|
|
10,557 |
|
|
State rate change |
|
|
(1,856 |
) |
|
|
3,451 |
|
|
|
1,144 |
|
|
State NOL rate adjustment/other adjustment |
|
|
— |
|
|
|
(778 |
) |
|
|
— |
|
|
Other items |
|
|
2,202 |
|
|
|
(1,992 |
) |
|
|
(507 |
) |
|
Income tax (benefit) expense from continuing operations |
|
|
(64,298 |
) |
|
|
318 |
|
|
|
(2,411 |
) |
For the years ended December 31, 2016, 2015 and 2014, the amount of tax expense related to discontinued operations was $71.9 million, $0.1 million and $2.8 million, respectively.
The components of the net deferred tax liability as of December 31, 2016 and 2015 are as follows:
|
|
|
As of December 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Accruals for financial statement purposes not allowed for income taxes |
|
$ |
3,582 |
|
|
$ |
5,031 |
|
|
Basis difference in prepaid expenses |
|
|
(431 |
) |
|
|
(481 |
) |
|
Inventory |
|
|
5,969 |
|
|
|
4,004 |
|
|
Unrealized gain |
|
|
(86 |
) |
|
|
(114 |
) |
|
Net operating loss and AMT credit carryforward |
|
|
39,365 |
|
|
|
75,228 |
|
|
R&D credit carryforward |
|
|
6,191 |
|
|
|
6,191 |
|
|
Basis difference relating to intangibles |
|
|
(8,962 |
) |
|
|
(8,626 |
) |
|
Basis difference in property, plant and equipment |
|
|
21,767 |
|
|
|
(17,555 |
) |
|
Stock option exercises |
|
|
1,013 |
|
|
|
4,486 |
|
|
Basis difference in foreign subsidiaries |
|
|
(5,801 |
) |
|
|
(5,270 |
) |
|
Basis difference in partnership interest |
|
|
(35,994 |
) |
|
|
10,361 |
|
|
Other items |
|
|
2,241 |
|
|
|
1,569 |
|
|
Valuation allowance |
|
|
(36,680 |
) |
|
|
(82,125 |
) |
|
Total deferred tax liabilities, net |
|
$ |
(7,826 |
) |
|
$ |
(7,301 |
) |
The total gross deferred tax assets at December 31, 2016 and 2015 were $80.1 million and $106.9 million, respectively. The total gross deferred tax liabilities at December 31, 2016 and 2015 were $51.3 million and $32.1 million, respectively.
As of December 31, 2016, the Company had the following available carryforwards and tax attributes to offset future taxable income:
|
Description |
|
Amount |
|
|
Expiration |
|
|
|
|
(in thousands) |
||||
|
Net Operating Losses - Federal |
|
$ |
32,672 |
|
|
2034 |
|
Net Operating Losses - Canadian |
|
$ |
64,840 |
|
|
2031 |
|
Net Operating Losses - States (Post-Appointment and Pre-tax) |
|
|
|
|
|
|
|
Alabama |
|
$ |
1,234 |
|
|
2017 - 2031 |
|
Arkansas |
|
|
19 |
|
|
2021 |
|
California |
|
|
2,929 |
|
|
2017 - 2035 |
|
Colorado |
|
|
6,156 |
|
|
2026 - 2035 |
|
Georgia |
|
|
1,370 |
|
|
2028 - 2036 |
|
Hawaii |
|
|
6,189 |
|
|
2028 - 2034 |
|
Illinois |
|
|
86,620 |
|
|
2018 - 2027 |
|
Louisiana |
|
|
88 |
|
|
2028 - 2036 |
|
Mississippi |
|
|
1,349 |
|
|
2020 - 2036 |
|
New York |
|
|
1,427 |
|
|
2017 |
|
Pennsylvania |
|
|
1,612 |
|
|
2035 - 2036 |
|
South Carolina |
|
|
8 |
|
|
2036 |
|
Virginia |
|
|
40 |
|
|
2036 |
|
|
|
$ |
109,041 |
|
|
|
|
R&D credit carryforward |
|
$ |
6,191 |
|
|
2027 - 2033 |
|
Alternative minimum tax credit carryforward |
|
$ |
5,052 |
|
|
No Expiration |
|
Foreign tax credit carryforward |
|
$ |
399 |
|
|
2026 |
Tax Contingencies
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance requires that the Company recognize in its consolidated financial statements, only those tax positions that are “more-likely-than-not” of being sustained as of the adoption date, based on the technical merits of the position. The Company performed a comprehensive review of its material tax positions in accordance with accounting guidance.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
As of December 31, |
|
|||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Reconciliation of Unrecognized Tax Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
3,592 |
|
|
$ |
3,592 |
|
|
$ |
4,268 |
|
|
Additions based on tax positions taken during a prior period |
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
Additions based on tax positions related to the current period |
|
|
— |
|
|
|
— |
|
|
|
4.00 |
|
|
Reductions based on tax positions related to prior years |
|
|
— |
|
|
|
— |
|
|
|
(701 |
) |
|
Settlements with taxing authorities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Lapse of statutes of limitations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance at end of year |
|
$ |
3,592 |
|
|
$ |
3,592 |
|
|
$ |
3,592 |
|
Of the $3.6 million of unrecognized tax benefits, $3.6 million, if recognized, would have an impact on the effective tax rate. The Company believes that there will be no material change in the unrecognized tax benefits within the next 12 months. The Company and its subsidiaries are subject to the following material taxing jurisdictions: United States federal, California, Colorado, Florida, Georgia, Illinois, Louisiana, Mississippi, New Hampshire and Texas. The tax years that remain open to examination by the United States federal jurisdiction (not including the current year) are years 2013 through 2015; the tax years that remain open to examination by the Arkansas, Florida, Georgia, Illinois, Louisiana, Maine, Massachusetts, Mississippi, New Hampshire, New York, North Carolina, South Carolina and Virginia jurisdictions are years 2013 through 2015; the tax years that remain open to examination (not including the current year) by the California, Colorado and Texas jurisdictions are years 2012 through 2015. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.
In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. The Company has not accrued any interest and penalties related to uncertain tax positions in the balance sheet or statement of operations as a result of the Company’s net operating loss position.
While management believes the Company has adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from the Company’s accrued positions as a result of uncertain and complex application of tax regulations. Additionally, the recognition and measurement of certain tax benefits includes estimates and judgment by management and inherently includes subjectivity. Accordingly, additional provisions on federal and state tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.