(7) Income Taxes
As a result of the Tax Act, we remeasured our net deferred tax liabilities and recognized a net benefit of $77.6 million. In addition, based on information currently available to us, we recorded a provisional income tax expense of $3.1 million related to the deemed repatriation of foreign earnings. Because we previously asserted permanent reinvestment, we did not have a deferred tax liability related to our foreign earnings. It is our intent to continue to permanently reinvest such earnings. We will continue to obtain and analyze information related to the deemed repatriation of foreign earnings associated with historical ownership and financial information, including depreciation estimates, and will finalize the provision within one year of the enactment date. Additionally, there is currently uncertainty as to what portions if any of the Tax Act will be adopted by the U.S. state and local taxing authorities.
Income (loss) before taxes from continuing operations for the years ended December 31 consisted of the following:
|
|
|
For the Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(In thousands) |
|
|||||||||
|
U.S. |
|
$ |
52,609 |
|
|
$ |
45,430 |
|
|
$ |
(23,750 |
) |
|
Foreign |
|
|
21,515 |
|
|
|
23,468 |
|
|
|
24,502 |
|
|
Total |
|
$ |
74,124 |
|
|
$ |
68,898 |
|
|
$ |
752 |
|
The provision for income taxes from continuing operations for the years ended December 31 consisted of the following:
|
|
|
For the Years Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(In thousands) |
|
|||||||||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
— |
|
|
$ |
(1,124 |
) |
|
$ |
1,124 |
|
|
State |
|
|
990 |
|
|
|
1,093 |
|
|
|
326 |
|
|
Foreign |
|
|
886 |
|
|
|
— |
|
|
|
— |
|
|
Total current |
|
|
1,876 |
|
|
|
(31 |
) |
|
|
1,450 |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
|
(59,257 |
) |
|
|
16,628 |
|
|
|
(8,549 |
) |
|
State |
|
|
7,000 |
|
|
|
1,215 |
|
|
|
(1,190 |
) |
|
Foreign |
|
|
2,277 |
|
|
|
3,838 |
|
|
|
3,467 |
|
|
Total deferred |
|
|
(49,980 |
) |
|
|
21,681 |
|
|
|
(6,272 |
) |
|
Total (benefit) provision for income taxes |
|
$ |
(48,104 |
) |
|
$ |
21,650 |
|
|
$ |
(4,822 |
) |
A reconciliation of the U.S. federal statutory rate to our effective tax rate for the years ended December 31 is as follows:
|
|
|
For the Years Ended December 31, |
|
|
|||||||||||
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|||
|
U.S. federal statutory rate |
|
|
35.0 |
|
% |
|
|
35.0 |
|
% |
|
|
35.0 |
|
% |
|
State taxes, net of federal benefit |
|
|
4.5 |
|
|
|
|
1.6 |
|
|
|
|
(222.4 |
) |
|
|
Nondeductible expenses and other |
|
|
0.1 |
|
|
|
|
1.1 |
|
|
|
|
128.1 |
|
|
|
U.S. mandatory repatriation |
|
|
4.2 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
Adjustment of net deferred tax liability for enacted tax rate change |
|
|
(104.7 |
) |
|
|
|
0.2 |
|
|
|
|
(97.6 |
) |
|
|
Foreign rate differential |
|
|
(4.0 |
) |
|
|
|
(6.5 |
) |
|
|
|
(484.3 |
) |
|
|
Effective tax rate |
|
|
(64.9 |
) |
% |
|
|
31.4 |
|
% |
|
|
(641.2 |
) |
% |
The effective income tax (benefit) rate of (64.9%) for the year ended December 31, 2017 was primarily impacted by the accounting for the U.S. tax reform enacted on December 22, 2017 which reduced the federal income tax rate from 35% to 21%. The company recognized a net benefit of $77.6 million related to the remeasurement of its net deferred tax liabilities for this rate change, affecting the rate by (104.7%). Additionally, the company recorded a provisional expense of $3.1 million for the mandatory repatriation of foreign earnings, affecting the rate by 4.2%.
Our effective income tax rates in the years ended December 31, 2016 and 2015 were affected by enacted rate changes to the U.K. income tax rate from 20% to 18% during 2015, and from 18% to 17% during 2016. The changes in the U.K. income tax rate resulted in a $0.9 million benefit and a $1.4 million benefit during the years ended December 31, 2016 and December 31, 2015, respectively. The 2015 effective tax rate was further affected by the losses in North America driven by asset impairment and restructuring expenses.
The components of the net deferred tax liability at December 31 are approximately as follows:
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
44,228 |
|
|
$ |
71,126 |
|
|
Deferred revenue and expenses |
|
|
8,435 |
|
|
|
11,050 |
|
|
Accrued compensation and other benefits |
|
|
4,118 |
|
|
|
2,465 |
|
|
Allowance for doubtful accounts |
|
|
1,532 |
|
|
|
2,026 |
|
|
Equity compensation |
|
|
7,092 |
|
|
|
10,937 |
|
|
Capital leases |
|
|
12,999 |
|
|
|
18,984 |
|
|
Other |
|
|
1,456 |
|
|
|
513 |
|
|
Total deferred tax assets |
|
|
79,860 |
|
|
|
117,101 |
|
|
Valuation allowance |
|
|
(1,126 |
) |
|
|
(1,126 |
) |
|
Net deferred tax assets |
|
|
78,734 |
|
|
|
115,975 |
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
Fixed assets |
|
|
(218,605 |
) |
|
|
(309,010 |
) |
|
Intangibles and goodwill |
|
|
(33,165 |
) |
|
|
(46,585 |
) |
|
Other |
|
|
(718 |
) |
|
|
(1,070 |
) |
|
Total deferred tax liabilities |
|
|
(252,488 |
) |
|
|
(356,665 |
) |
|
Net deferred tax liabilities |
|
$ |
(173,754 |
) |
|
$ |
(240,690 |
) |
A net deferred tax liability of approximately $19.3 million and $18.5 million related to our U.K. operations has been combined with the net deferred tax liabilities of our U.S. operations in the Consolidated Balance Sheets at December 31, 2017 and 2016, respectively.
At December 31, 2017, we had U.S. federal net operating loss carryforwards on our federal tax return of approximately $206.4 million, which expire if unused from 2028 to 2034. At December 31, 2017, we had net operating loss carryforwards on the various states’ tax returns in which we operate totaling $114.2 million, which expire if unused from 2018 to 2036.
Management evaluates the ability to realize our deferred tax assets on a quarterly basis and adjusts the amount of our valuation allowance if necessary. Over the past three years, we have generated $122.2 million of federal taxable income. Management currently believes that the ability to generate adequate future taxable income through operations and the reversal of taxable temporary differences are adequate to recover the unreserved portion of these deferred tax assets.
For income tax purposes, deductible compensation related to share-based awards is based on the value of the award when realized, which may be different than the compensation expense recognized by us in our financial statements, which is based on the award value on the date of grant. The difference between the value of the award upon grant, and the value of the award when ultimately realized, creates either additional tax expense or benefit.
As our stock is publicly traded, it is possible that we have undergone a change in ownership for federal income tax purposes, which can limit the amount of net operating loss currently available as a deduction. We have determined that even if such an ownership change has occurred, it would not impair the realization of the deferred tax asset resulting from the federal net operating loss carryover.
We paid income and franchise taxes of approximately $2.6 million in 2017, $1.8 million in 2016 and $4.9 million in 2015. These amounts are lower than the recorded expense in the years due to net operating loss carryforwards and general business credit utilization.
We are subject to taxation in the U.S. federal jurisdiction, as well as various U.S. state and foreign jurisdictions. We have identified our U.S. federal tax return as our “major” tax jurisdiction. As of December 31, 2017, we are no longer subject to examination by U.S. federal tax authorities for years prior to 2014, to examination for any U.S. state taxing authority prior to 2012, or to examination for any foreign jurisdictions prior to 2013. All subsequent periods remain open to examination.
Uncertain tax positions are recognized and measured using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
As of December 31, 2017, we had approximately $14.1 million of gross unrecognized tax benefits, of which, none would affect our effective tax rate if recognized. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Beginning balance |
|
$ |
5,874 |
|
|
$ |
— |
|
|
Additions based on tax positions related to the current year |
|
|
— |
|
|
|
— |
|
|
Additions for tax positions of prior years |
|
|
8,266 |
|
|
|
5,874 |
|
|
Ending balance |
|
$ |
14,140 |
|
|
$ |
5,874 |
|
Of the amount of unrecognized tax benefits outstanding at December 31, 2017, all of the amount is expected to reverse within the next twelve months.
Our policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of income before taxes. Penalties and associated interest costs, if any, are recorded in rental, selling and general expenses in our Consolidated Statements of Income.