NOTE 12. INCOME TAXES
For financial reporting purposes, the consolidated income tax expense is based on consolidated reported financial accounting income or loss before income taxes.
The components of our income tax provision are as follows:
|
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|
For the years ended December 31, |
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|
|
|
2017 |
|
|
2016 |
|
|
2015 |
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|||
|
|
|
(in thousands) |
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|||||||||
|
Current provision: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(1,653 |
) |
|
$ |
4,467 |
|
|
$ |
1,933 |
|
|
State |
|
|
2,282 |
|
|
|
7,070 |
|
|
|
3,442 |
|
|
Foreign |
|
|
99 |
|
|
|
88 |
|
|
|
78 |
|
|
Total current |
|
|
728 |
|
|
|
11,625 |
|
|
|
5,453 |
|
|
Deferred provision: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(114,140 |
) |
|
|
(5,148 |
) |
|
|
17,765 |
|
|
State |
|
|
1,856 |
|
|
|
(5,984 |
) |
|
|
(731 |
) |
|
Total deferred |
|
|
(112,284 |
) |
|
|
(11,132 |
) |
|
|
17,034 |
|
|
Total income tax (benefit) expense |
|
$ |
(111,556 |
) |
|
$ |
493 |
|
|
$ |
22,487 |
|
The significant components of the deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Deferred Tax Assets |
|
|
|
|
|
|
|
|
|
Net Operating Losses |
|
$ |
5,512 |
|
|
$ |
9,145 |
|
|
Insurance Accruals |
|
|
5,747 |
|
|
|
12,084 |
|
|
Tax Credits |
|
|
9,416 |
|
|
|
8,623 |
|
|
Cash Flow Hedge-OCI |
|
|
246 |
|
|
|
3,431 |
|
|
Intangibles |
|
|
6,429 |
|
|
|
10,794 |
|
|
Doubtful Accounts |
|
|
921 |
|
|
|
1,528 |
|
|
Compensation Accruals |
|
|
9,313 |
|
|
|
9,481 |
|
|
Other |
|
|
1,321 |
|
|
|
2,310 |
|
|
Total gross deferred tax assets |
|
|
38,905 |
|
|
|
57,396 |
|
|
Less: Valuation Allowance |
|
|
(5,470 |
) |
|
|
(9,116 |
) |
|
Deferred Tax Assets |
|
$ |
33,435 |
|
|
$ |
48,280 |
|
|
Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
$ |
219,611 |
|
|
$ |
318,986 |
|
|
Trademark |
|
|
40,398 |
|
|
|
61,823 |
|
|
Returns Club |
|
|
941 |
|
|
|
— |
|
|
Cancellation of Debt Income |
|
|
2,199 |
|
|
|
6,192 |
|
|
Linens, uniforms and supplies |
|
|
3,532 |
|
|
|
3,959 |
|
|
Other |
|
|
519 |
|
|
|
348 |
|
|
Deferred Tax Liabilities |
|
|
267,200 |
|
|
|
391,308 |
|
|
Net Deferred Taxes |
|
$ |
(233,765 |
) |
|
$ |
(343,028 |
) |
Due to the Tax Act (which was enacted in December 2017), our U.S. deferred tax assets and liabilities as of December 31, 2017 were re-measured from 35% to 21%. The provisional effects of the Tax Act resulted in a deferred tax benefit in the amount of $132.1 million of which $3.6 million is attributable to the change in valuation allowance as of December 31, 2017. The largest impact was to our fixed assets deferred liability in the amount of $117.5 million and our trademarks in the amount of $22.8 million, respectively.
As of December 31, 2017 and 2016, certain subsidiaries of ours had available federal net operating loss carryforwards (“NOLs”) totaling approximately $26.1 million, respectively. We believe it is more likely than not the benefit from the remaining Federal NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $5.5 million on the deferred tax assets related to these federal NOL carryforwards. As of December 31, 2017, the remaining NOLs have been re-measured due to the Tax Act from 35% to 21%, resulting in a decrease to the gross deferred tax asset of $3.6 million. In November 2014, Blackstone completed a secondary offering in which it registered and sold 23.0 million of the Company’s shares, bringing its ownership percentage to 45.2%, and creating an ownership change for federal income tax purposes. As a result of this secondary offering, and the resulting ownership change the Company’s federal net operating losses will be limited under Internal Revenue Code Section 382 with annual limitations that became applicable in 2015 through 2019. State net operating loss carryforwards are also available for use subject to similar limitations in many cases. As of December 31, 2016, we have fully utilized all available federal NOLs, except those belonging to certain inactive subsidiaries. We also have alternative minimum tax (“AMT”) credit carry forwards, as of December 31, 2017 and 2016, in the gross amount of $9.4 million and $8.6 million, respectively. Due to the Tax Act, for tax years beginning in 2018, 2019 and 2020, to the extent that AMT credit carryovers exceed regular tax liability, 50% of the excess AMT credit carryover are refundable. Any remaining AMT credits will be fully refundable in 2021.
The following is a reconciliation of the statutory federal income tax rate to the effective tax rate reported in the consolidated financial statements:
|
|
|
For the years ended December 31, |
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|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|||||
|
|
|
(in thousands) |
|
|
|||||||||
|
Statutory U.S. federal income tax provision |
|
$ |
14,200 |
|
|
$ |
(214 |
) |
|
$ |
17,219 |
|
|
|
State tax, net of federal benefit |
|
|
2,497 |
|
|
|
1,052 |
|
|
|
2,221 |
|
|
|
Foreign tax, net of federal benefit |
|
|
99 |
|
|
|
88 |
|
|
|
50 |
|
|
|
Nondeductible stock compensation |
|
|
(264 |
) |
|
|
— |
|
|
|
1,948 |
|
|
|
Nondeductible restructuring costs |
|
|
5,350 |
|
|
|
— |
|
|
|
— |
|
|
|
Permanent items |
|
|
412 |
|
|
|
389 |
|
|
|
800 |
|
|
|
Tax credits |
|
|
(1,123 |
) |
|
|
(548 |
) |
|
|
(84 |
) |
|
|
Unrecognized tax benefit |
|
|
301 |
|
|
|
174 |
|
|
|
— |
|
|
|
Change in valuation allowance |
|
|
(3,647 |
) |
|
|
95 |
|
|
|
353 |
|
|
|
Return to provision |
|
|
(952 |
) |
|
|
(351 |
) |
|
|
(688 |
) |
|
|
Changes in deferred taxes |
|
|
— |
|
|
|
(169 |
) |
|
|
541 |
|
|
|
Effects of the Tax Cuts and Jobs Acts |
|
|
(128,429 |
) |
|
|
— |
|
|
|
— |
|
|
|
Other |
|
|
— |
|
|
|
(23 |
) |
|
|
127 |
|
|
|
Income tax expense |
|
$ |
(111,556 |
) |
|
$ |
493 |
|
|
$ |
22,487 |
|
|
The Company files income tax returns in the U.S. Federal jurisdiction and several state jurisdictions. The Company has open tax years back to 2010. We utilize our available tax attributes at the federal and state levels to the extent allowed by applicable law. The Company anticipates that it is reasonably possible a state may challenge our use of certain state tax benefits, although we believe any proposed adjustment pertaining to the use of those state tax benefits would not result in a material change to our financial position. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
For the years ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Unrecognized tax benefits, beginning of the year |
|
$ |
2,990 |
|
|
$ |
2,990 |
|
|
$ |
— |
|
|
Gross increase in unrecognized tax positions in the current year |
|
|
— |
|
|
|
— |
|
|
|
2,990 |
|
|
Unrecognized tax benefits, end of the year |
|
$ |
2,990 |
|
|
$ |
2,990 |
|
|
$ |
2,990 |
|
At December 31, 2017 and 2016, there are $3.0 million of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. We do not expect any significant changes in our unrecognized tax benefits over the next twelve months.
Our policy is to classify interest and penalties as a component of income tax expense.