12. Income Taxes
The following table summarizes the components of the income tax provision (in thousands):
|
|
Year Ended September 30, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
52,718 |
|
|
$ |
23,403 |
|
|
$ |
17,414 |
|
|
Foreign |
|
1,366 |
|
|
|
1,183 |
|
|
|
1,765 |
|
|
State |
|
8,975 |
|
|
|
2,426 |
|
|
|
7,579 |
|
|
Total current taxes |
$ |
63,059 |
|
|
$ |
27,012 |
|
|
$ |
26,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
$ |
(656 |
) |
|
$ |
25,935 |
|
|
$ |
14,798 |
|
|
Foreign |
|
- |
|
|
|
321 |
|
|
|
(657 |
) |
|
State |
|
78 |
|
|
|
3,347 |
|
|
|
2,868 |
|
|
Total deferred taxes |
$ |
(578 |
) |
|
$ |
29,603 |
|
|
$ |
17,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
$ |
62,481 |
|
|
$ |
56,615 |
|
|
$ |
43,767 |
|
The following table is a reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate for the periods presented:
|
|
Year Ended September 30, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. federal income taxes at statutory rate |
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State income taxes, net of federal benefit |
|
3.9 |
% |
|
|
4.2 |
% |
|
|
4.6 |
% |
|
Non-deductible professional fees related to RSG acquisition |
|
0.0 |
% |
|
|
0.4 |
% |
|
|
2.2 |
% |
|
Other |
|
(0.6 |
%) |
|
|
(1.0 |
%) |
|
|
(0.5 |
%) |
|
Effective tax rate |
|
38.3 |
% |
|
|
38.6 |
% |
|
|
41.3 |
% |
Deferred income taxes reflect the tax consequences of temporary differences between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax law. These temporary differences are determined according to ASC 740 Income Taxes. Temporary differences that give rise to deferred tax assets and liabilities are as follows (in thousands):
|
|
September 30, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Deferred compensation |
$ |
14,237 |
|
|
$ |
15,166 |
|
|
Allowance for doubtful accounts |
|
1,318 |
|
|
|
2,060 |
|
|
Accrued vacation and other |
|
6,602 |
|
|
|
6,616 |
|
|
Unrealized loss on financial derivatives |
|
- |
|
|
|
279 |
|
|
Inventory valuation |
|
10,564 |
|
|
|
6,193 |
|
|
Tax loss carryforwards |
|
20,575 |
|
|
|
34,505 |
|
|
Other |
|
958 |
|
|
|
913 |
|
|
Total deferred tax assets |
$ |
54,254 |
|
|
$ |
65,732 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Excess tax over book depreciation and amortization |
$ |
(192,637 |
) |
|
$ |
(201,214 |
) |
|
Total deferred tax liabilities |
|
(192,637 |
) |
|
|
(201,214 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities |
$ |
(138,383 |
) |
|
$ |
(135,482 |
) |
Due to the RSG acquisition on October 1, 2015, the Company acquired $135.3 million of federal and state net operating loss (“NOL”) carryforwards related to its domestic operations. The federal losses are subject to an annual Section 382 limit of $37.3 million. The Company utilized $37.3 million of federal NOLs and $2.3 million of state NOLs for the year ended September 30, 2017. These NOLs are scheduled to expire at various dates through 2035. The deferred tax asset of $20.6 million remaining as of September 30, 2017 is related to the federal and state NOL carryforward and AMT credit carryforward.
The Company’s Canadian subsidiary, Beacon Roofing Supply Canada Company (“BRSCC”), is treated as a Controlled Foreign Corporation (“CFC”). BRSCC’s taxable income, which reflects all of the Company’s Canadian operations, is being taxed only in Canada and would generally be taxed in the United States only upon an actual or deemed distribution. The Company expects that BRSCC’s earnings will be indefinitely reinvested for the foreseeable future and therefore no United States deferred tax asset or liability for the differences between the book basis and the tax basis of BRSCC has been recorded at September 30, 2017. Unremitted earnings of $44.5 million were considered permanently reinvested at September 30, 2017. Of this amount, $22.4 million of the unremitted earnings were previously taxed in the United States and the remittance on these earnings would not generate additional United States tax.
As of September 30, 2017, goodwill was $1.25 billion, of which there remains an amortizable basis of $297.4 million for income tax purposes. The Company had $34.5 million of excess tax benefits available for potential deferred tax write-offs as of September 30, 2017, primarily related to previously recognized stock-based compensation.
As of September 30, 2017, there were no uncertain tax positions which, if recognized, would affect the Company’s effective tax rate. The Company’s accounting policy is to recognize any interest and penalties related to income tax matters in income tax expense in the consolidated statements of operations. A reconciliation of the beginning and ending amounts of the gross unrecognized income tax benefits is as follows:
|
|
Year Ended September 30, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
|
Balance, beginning of year |
$ |
- |
|
|
$ |
82 |
|
|
Current year uncertain tax positions |
|
- |
|
|
|
- |
|
|
Settlements |
|
- |
|
|
|
(82 |
) |
|
Balance, end of year |
$ |
- |
|
|
$ |
- |
|
The Company has operations in 48 U.S. states and 6 provinces in Canada. The Company is currently under audit in certain state and local jurisdictions for various years. These audits may involve complex issues, which may require an extended period of time to resolve. The Company has provided for its estimate of taxes payable in the accompanying financial statements. Additional taxes are reasonably possible; however the amounts cannot be estimated at this time. The Company is no longer subject to U.S. federal income tax examinations for any fiscal years ended on or before September 30, 2013. For the majority of states, the Company is also no longer subject to tax examinations for any fiscal years ended on or before September 30, 2013. In Canada, the Company is no longer subject to tax examinations for any fiscal years ended on or before September 30, 2013. For the Canadian provinces, the Company is no longer subject to tax examinations for any fiscal years ended on or before September 30, 2014.