11. Income Taxes
The income tax expense (benefit) consisted of the following components for the years ended December 31 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
190,743 |
|
|
$ |
12,054 |
|
|
$ |
(108 |
) |
|
State |
|
|
38,499 |
|
|
|
10,927 |
|
|
|
5,120 |
|
|
|
|
|
229,242 |
|
|
|
22,981 |
|
|
|
5,012 |
|
|
Deferred tax (benefit) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(438,281 |
) |
|
|
53,094 |
|
|
|
43,772 |
|
|
State |
|
|
(24,904 |
) |
|
|
1,497 |
|
|
|
(97 |
) |
|
|
|
|
(463,185 |
) |
|
|
54,591 |
|
|
|
43,675 |
|
|
Income tax (benefit) expense |
|
$ |
(233,943 |
) |
|
$ |
77,572 |
|
|
$ |
48,687 |
|
The income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35% to the income before income taxes. The sources and tax effects of the differences were as follows, for the years ended December 31 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Income tax expense at 35% statutory federal rate |
|
$ |
84,476 |
|
|
$ |
59,735 |
|
|
$ |
43,774 |
|
|
State and local taxes, net of federal benefit |
|
|
10,676 |
|
|
|
7,697 |
|
|
|
3,315 |
|
|
Nondeductible compensation |
|
|
6,375 |
|
|
|
709 |
|
|
|
652 |
|
|
Nontaxable proceeds on station divestiture |
|
|
(9,146 |
) |
|
|
- |
|
|
|
- |
|
|
Nondeductible earnout payments |
|
|
- |
|
|
|
1,415 |
|
|
|
- |
|
|
Nondeductible acquisition costs |
|
|
3,901 |
|
|
|
12 |
|
|
|
251 |
|
|
Nondeductible meals and entertainment |
|
|
1,546 |
|
|
|
504 |
|
|
|
417 |
|
|
Nondeductible goodwill impairment |
|
|
3,577 |
|
|
|
5,276 |
|
|
|
- |
|
|
Domestic production activities deduction |
|
|
(11,178 |
) |
|
|
- |
|
|
|
- |
|
|
Excess tax benefit on stock-based compensation |
|
|
(8,106 |
) |
|
|
- |
|
|
|
- |
|
|
Disposition of nondeductible goodwill |
|
|
3,279 |
|
|
|
- |
|
|
|
- |
|
|
Impact of federal tax rate reduction |
|
|
(322,193 |
) |
|
|
- |
|
|
|
- |
|
|
Change in beginning of year valuation allowance |
|
|
1,635 |
|
|
|
- |
|
|
|
- |
|
|
Other |
|
|
1,215 |
|
|
|
2,224 |
|
|
|
278 |
|
|
Income tax (benefit) expense |
|
$ |
(233,943 |
) |
|
$ |
77,572 |
|
|
$ |
48,687 |
|
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. The Act reduces the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. Although the federal corporate income tax rate reduction is only effective for tax periods beginning after December 31, 2017, ASC 740 requires the Company to remeasure the existing net deferred tax liability in the period of enactment. The Act also provides for immediate expensing of 100% of the costs of qualified property that are incurred and placed in service during the period from September 27, 2017 to December 31, 2022. Beginning January 1, 2023, the immediate expensing provision is phased down by 20% per year until it is completely phased out as of January 1, 2027. Additionally, effective January 1, 2018, the Act modifies the executive compensation deduction limitation and imposes possible limitations on the deductibility of interest expense. As a result of these provisions of the Act, the Company’s deduction related to executive compensation and interest expense could be limited in future years. The effects of other provisions of the Act are not expected to have a material impact on the Company’s financial statements.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that begins in the reporting period that includes the Act’s enactment date and ends when an entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740, however in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. SAB 118 provides that to the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.
In accordance with SAB 118, the Company has recorded a provisional estimated income tax benefit of $322.2 million for the year ended December 31, 2017 related to the remeasurement of the Company’s net deferred tax liability and other effects of the Act. As a result of the adoption of the Act, the Company remeasured the net deferred tax liability at the reduced federal corporate income tax rate. The remeasurement of the net deferred tax liability reflected in the financial statements is a provisional estimate as we are still analyzing the impact of certain provisions of the Act and refining our calculations which could impact the remeasurement of the net deferred tax liability. The Company also evaluated the future deductibility of executive compensation due to the Act’s elimination of the performance-based compensation exception and the modification of the definition of a covered employee subject to the executive compensation limitation. The Act provided transition relieve for written, binding contracts in place prior to November 2, 2017 related to executive compensation, that have not been modified in any material respect. The Act’s impact on the future deductibility of executive compensation reflected in the financial statements is a provisional estimate as additional guidance is needed to fully determine the impact of these provisions. Additionally, the Company evaluated the state conformity to the Act for states in which the Company operates. The financial statements reflect a provisional estimate related to state conformity to the Act as additional guidance is needed to determine the state impact of certain deduction claimed at the federal level. The Company will recognize any change to the provisional estimates as it refines the accounting for the impact of the Act. The Company expects to complete its analysis of the provisional items during the second half of 2018.
The components of the net deferred tax asset (liability) were as follows, as of December 31 (in thousands):
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
51,802 |
|
|
$ |
26,657 |
|
|
Compensation |
|
|
15,574 |
|
|
|
14,308 |
|
|
Rent |
|
|
2,173 |
|
|
|
3,197 |
|
|
Transaction costs |
|
|
- |
|
|
|
8,238 |
|
|
Pension |
|
|
28,033 |
|
|
|
- |
|
|
Other |
|
|
12,732 |
|
|
|
7,348 |
|
|
Total deferred tax assets |
|
|
110,314 |
|
|
|
59,748 |
|
|
Valuation allowance for deferred tax assets |
|
|
(2,155 |
) |
|
|
- |
|
|
Total deferred tax assets |
|
|
108,159 |
|
|
|
59,748 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
(72,423 |
) |
|
|
(15,882 |
) |
|
Other intangible assets |
|
|
(312,460 |
) |
|
|
(35,628 |
) |
|
Goodwill |
|
|
(31,062 |
) |
|
|
(35,780 |
) |
|
FCC licenses |
|
|
(305,293 |
) |
|
|
(98,494 |
) |
|
Other |
|
|
(4,854 |
) |
|
|
(13 |
) |
|
Total deferred tax liabilities |
|
|
(726,092 |
) |
|
|
(185,797 |
) |
|
Net deferred tax liabilities |
|
$ |
(617,933 |
) |
|
$ |
(126,049 |
) |
As of December 31, 2017, the Company had a valuation allowance related to deferred tax assets of $2.2 million which were not likely to be realized, an increase of $2.2 million from December 31, 2016. During the year ended December 31, 2017, our valuation allowance increased primarily due to the Company’s belief, based upon consideration of the positive and negative evidence, that certain deferred tax assets related to one of the VIEs were not likely to be realized. Additionally, our valuation allowance increased $0.5 million for deferred tax assets acquired in 2017 which the Company believes, based upon consideration of the positive and negative evidence, are not likely to be realized.
As of December 31, 2017, the Company's reserve for uncertain tax positions totaled approximately $23.3 million. For the years ended December 31, 2017, 2016, and 2015 there were $23.3 million, $3.7 million and $3.7 million of gross unrecognized tax benefits, respectively, that would reduce the effective tax rate if the underlying tax positions were sustained or settled favorably.
A reconciliation of the beginning and ending balances of the gross liability for uncertain tax positions is as follows (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Uncertain tax position liability at the beginning of the year |
|
$ |
3,677 |
|
|
$ |
3,677 |
|
|
$ |
3,677 |
|
|
Increases resulting from merger transaction |
|
|
22,605 |
|
|
|
- |
|
|
|
- |
|
|
Increases related to tax positions taken during the current period |
|
|
1,847 |
|
|
|
- |
|
|
|
- |
|
|
Decreases related to tax positions taken during prior periods |
|
|
(2,440 |
) |
|
|
- |
|
|
|
- |
|
|
Decreases related to settlements with taxing authorities |
|
|
(806 |
) |
|
|
- |
|
|
|
- |
|
|
Decreases related to expiration of statute of limitations |
|
|
(1,625 |
) |
|
|
- |
|
|
|
- |
|
|
Uncertain tax position liability at the end of the year |
|
$ |
23,258 |
|
|
$ |
3,677 |
|
|
$ |
3,677 |
|