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13. INCOME TAXES
The provision (benefit) for income taxes from continuing operations for the years ended December 31, 2018, 2017 and 2016 (in millions):
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2018 |
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2017 |
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2016 |
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Current |
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|
|
|
|
|
|
|
|
|
|
|
|
Federal (1) |
|
$ |
0.2 |
|
|
$ |
(0.4 |
) |
|
$ |
— |
|
|
State |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
0.6 |
|
|
Foreign (1) |
|
|
1.5 |
|
|
|
0.5 |
|
|
|
— |
|
|
|
|
$ |
2.2 |
|
|
$ |
0.7 |
|
|
$ |
0.6 |
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|
Deferred |
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|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
5.0 |
|
|
|
70.1 |
|
|
|
12.0 |
|
|
State |
|
|
2.2 |
|
|
|
12.5 |
|
|
|
0.5 |
|
|
Foreign |
|
|
(1.5 |
) |
|
|
(0.7 |
) |
|
|
— |
|
|
|
|
|
5.7 |
|
|
|
81.9 |
|
|
|
12.5 |
|
|
Total provision for taxes |
|
$ |
7.9 |
|
|
$ |
82.6 |
|
|
$ |
13.1 |
|
|
(1) |
Amount reported as of and for the year ended December 31, 2017 has been revised. See Note 3. |
The income tax provision (benefit) differs from the amount of income tax determined by applying the Company’s federal corporate income tax rate of 21% to pre-tax income for the year ended December 31, 2018, and federal corporate income tax rate of 35% to pre-tax income for the years ended December 31, 2017 and 2016 due to the following (in millions):
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2018 |
|
|
2017 |
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|
2016 |
|
|
Computed “expected” tax provision (benefit) (1) |
|
$ |
4.5 |
|
|
$ |
90.3 |
|
|
$ |
11.7 |
|
|
Change in income tax resulting from: |
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|
|
|
|
|
|
|
|
|
|
|
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State taxes, net of federal benefit |
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|
1.5 |
|
|
|
8.5 |
|
|
|
1.4 |
|
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Change in fair value of earnout |
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|
0.4 |
|
|
|
— |
|
|
|
— |
|
|
Non-deductible executive compensation (1) |
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|
0.3 |
|
|
|
0.7 |
|
|
|
— |
|
|
Change in federal tax rate |
|
|
— |
|
|
|
(17.3 |
) |
|
|
— |
|
|
Change in state tax rate |
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
Stock compensation (1) |
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|
0.5 |
|
|
|
(1.0 |
) |
|
|
— |
|
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Change in unrecognized tax benefits |
|
|
(0.3 |
) |
|
|
— |
|
|
|
— |
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Other (1) |
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|
0.5 |
|
|
|
1.4 |
|
|
|
— |
|
|
|
|
$ |
7.9 |
|
|
$ |
82.6 |
|
|
$ |
13.1 |
|
|
(1) |
Amount reported as of and for the year ended December 31, 2017 has been revised. See Note 3. |
The components of the deferred tax assets and liabilities at December 31, 2018 and 2017 consist of the following (in millions):
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2018 |
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|
|
2017 |
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Deferred tax assets: |
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|
|
|
|
|
|
|
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Accrued expenses (1) |
|
$ |
2.1 |
|
|
$ |
1.8 |
|
|
Accounts receivable (1) |
|
|
0.6 |
|
|
|
0.6 |
|
|
Net operating loss carryforward |
|
|
72.6 |
|
|
|
77.6 |
|
|
Stock-based compensation |
|
|
1.4 |
|
|
|
0.9 |
|
|
Credits |
|
|
0.2 |
|
|
|
0.7 |
|
|
Deferred state taxes |
|
|
2.8 |
|
|
|
2.3 |
|
|
Other (1) |
|
|
2.1 |
|
|
|
1.6 |
|
|
Net deferred tax assets |
|
$ |
81.8 |
|
|
$ |
85.5 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Intangible assets (1) |
|
$ |
(70.1 |
) |
|
$ |
(68.3 |
) |
|
Property and equipment |
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|
(1.3 |
) |
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|
(0.2 |
) |
|
Tax gain deferral - FCC auction for broadcast spectrum (1) |
|
|
(57.1 |
) |
|
|
(57.6 |
) |
|
|
|
|
(128.5 |
) |
|
|
(126.1 |
) |
|
|
|
$ |
(46.7 |
) |
|
$ |
(40.6 |
) |
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(1) |
Amount reported as of and for the year ended December 31, 2017 has been revised. See Note 3. |
As of December 31, 2018, the Company has federal and state net operating loss carryforwards of approximately $299 million and $145 million, respectively, available to offset future taxable income. The federal net operating loss carryforwards will expire during the years 2022 through 2037, to the extent they are not utilized. Any federal net operating losses incurred after 2017 can be carried forward indefinitely and the Company did not incur net operating losses in 2018. The state net operating loss carryforwards will expire during the years 2019 through 2037, to the extent they are not utilized.
Utilization of the Company’s U.S. federal and certain state net operating loss and tax credit carryovers may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization. As of December 31, 2018, the Company believes that utilization of its federal net operating losses and foreign tax credits are not limited under any ownership change limitations provided under the Internal Revenue Code.
Due to the enactment of Tax Cuts and Jobs Act (“the Tax Act”) in December 2017, the Company is subject to a tax on global intangible low-taxed income (“GILTI”). GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences including outside basis differences expected to reverse as GILTI. The Company has elected to account for GILTI as a period cost, and therefore has included GILTI expense in its effective tax rate calculation for the period.
The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018. As a result, the Company recorded a provisional decrease in value of its net deferred tax liabilities of $17.3 million, with a corresponding net adjustment to deferred income tax benefit of $17.3 million for the year ended December 31, 2017.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification 740 (“ASC 740”). In the third quarter of 2018, the Company obtained additional information which increased by $0.2 million the Company’s provisional accounting for certain tax effects of the U.S. transition tax from $17.3 million as reported at December 31, 2017, to $17.5 million as of December 31, 2018.
The Company periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than not that the deferred tax assets are realizable, adjusts the valuation allowance accordingly. Valuation allowances are established and maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a valuation allowance for deferred tax assets is highly subjective and requires significant judgment. The Company has considered the following possible sources of taxable income when assessing the realization of the deferred tax assets: (1) future reversals of existing taxable temporary differences; (2) taxable income in prior carryback years; (3) future taxable income exclusive of reversing temporary differences and carryforwards; and (4) tax planning strategies. Based on the Company’s analysis and a review of all positive and negative evidence such as historical operations, future projections of taxable income and tax planning strategies that are prudent and feasible, the Company determined that it was more likely than not that the deferred tax assets will be realized.
The Company addresses uncertainty in tax positions according to the provisions of ASC 740, “Income Taxes”, which clarifies the accounting for income taxes by establishing the minimum recognition threshold and a measurement attribute for tax positions taken or expected to be taken in a tax return in order to be recognized in the financial statements.
The following table summarizes the activity related to the Company’s unrecognized tax benefits (in millions):
As of December 31, 2018, the Company had $6.0 million of gross unrecognized tax benefits for uncertain tax positions, of which $0.5 million would affect the effective tax rate if recognized.
The Company does not anticipate that the amount of unrecognized tax benefits as of December 31, 2018 will significantly increase or decrease within the next 12 months.
The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. As of December 31, 2018, the Company had no significant accrued interest and penalties related to uncertain tax positions due to the net operating losses.
The Company is subject to taxation in the United States, various states, and various foreign jurisdictions. The tax years 2015 to 2017 and 2014 to 2017 remain open to examination by federal and state taxing jurisdictions, respectively. For foreign jurisdictions, the tax years 2006 to 2017 may remain open to examination by certain foreign jurisdictions. Net operating losses from years from which the statute of limitations have expired (2014 and prior for federal and 2013 and prior for state) could be adjusted in the event that the taxing jurisdictions challenge the amounts of net operating loss carryforwards from such years.
The Company intends to permanently reinvest its unremitted earnings in its foreign subsidiaries, and accordingly has not provided deferred tax liabilities on those earnings. The Company has not determined at this time an estimate of total amount of unremitted earnings, as it is not practical at this time.
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