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Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Taxes

(11) Income Taxes

Income tax expense (benefit) consists of the following:

 

     Current     Deferred     Total  

Year ended December 31, 2012:

       

U.S. federal

    $ —        $ 7,977      $ 7,977   

State and local

      823        826        1,649   

Foreign

      1,103        (1,253 )      (150 ) 
  

 

 

    

 

 

    

 

 

  
   $ 1,926      $ 7,550      $ 9,476   
  

 

 

    

 

 

    

 

 

  

Year ended December 31, 2011:

       

U.S. federal

    $ —       $ 2,963      $ 2,963   

State and local

      1,075        1,125        2,200   

Foreign

      1,847        (387 )      1,460   
  

 

 

    

 

 

    

 

 

  
   $ 2,922      $ 3,701      $ 6,623   
  

 

 

    

 

 

    

 

 

  

Year ended December 31, 2010:

       

U.S. federal

    $ (1,290 )    $ (14,174 )    $ (15,464 ) 

State and local

      477        (3,767 )      (3,290 ) 

Foreign

      1,932        (6,647 )      (4,715 ) 
  

 

 

    

 

 

    

 

 

  
   $ 1,119      $ (24,588 )    $ (23,469 ) 
  

 

 

    

 

 

    

 

 

  

 

As of December 31, 2012 and December 31, 2011, the Company had income taxes (payable) receivable of $(252) and $381, included in accrued expenses and other current assets, respectively.

The U.S. and foreign components of earnings (loss) before income taxes are as follows:

 

     2012     2011     2010  

U.S.

    $ 20,444      $ 16,641      $ (59,353 ) 

Foreign

      (1,147 )      (1,468 )      (4,218 ) 
  

 

 

    

 

 

    

 

 

  

Total

    $ 19,297      $ 15,173      $ (63,571 ) 
  

 

 

    

 

 

    

 

 

  

A reconciliation of significant differences between the reported amount of income tax expense (benefit) and the expected amount of income tax expense (benefit) that would result from applying the U.S. federal statutory income tax rate of 35 percent to income before taxes is as follows:

 

     2012     2011     2010  

Income tax expense (benefit) at U.S. federal statutory rate

    $ 6,754      $ 5,310      $ (22,250 ) 

State and local income taxes, net of federal income tax benefit

      1,667        958        (4,945 ) 

Book expenses not deductible for tax purposes

      1,058        746        662   

Stock-based compensation

      270        464        518   

Amortization of non-deductible goodwill

      —          1        3   

Undistributed earnings of Canadian subsidiaries (a)

      —          (4,023 )      1,083   

Valuation allowance

      (331 )      382        1,487   

Rate change (b)

      49        1,743        —    

Other differences, net

      9        1,042        (27 ) 
  

 

 

    

 

 

    

 

 

  

Income tax expense (benefit)

    $ 9,476      $ 6,623      $ (23,469 ) 
  

 

 

    

 

 

    

 

 

  

 

(a) For the period ended December 31, 2011, management asserted that the undistributed earnings of our Canadian subsidiaries were permanently reinvested and a deferred tax benefit of $4,023 was recognized from the release of the December 31, 2010 deferred tax liability. In periods prior to December 31, 2011, the undistributed earnings of our Canadian subsidiaries were not designated as permanently reinvested.
(b) In 2012, Ontario Bill 114 was signed into law. The enacted legislation freezes the general corporate income tax rate at 11.5%, cancelling the previously enacted rate reductions for 2012 and 2013 to 11% and 10%, respectively. As a result, a non-cash charge of $49 to income tax expense was recorded for the increase of the Canadian net deferred tax liability.

In 2011, the “Internal Revenue Code for a New Puerto Rico” was signed into law. Under the enacted legislation, the Puerto Rico corporate income tax rate was lowered from 39% to 30%. As a result, a non-cash charge of $1,743 to income tax expense was recorded for the reduction of the Puerto Rico net deferred tax asset.

 

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and (liabilities) are presented below:

 

     2012     2011  

Deferred tax assets:

     

Allowance for doubtful accounts

    $ 2,964      $ 2,954   

Accrued liabilities not deducted for tax purposes

      35,580        33,583   

Asset retirement obligation

      65,994        61,565   

Net operating loss carry forwards

      155,154        148,913   

Tax credit carry forwards

      3,765        3,724   

Charitable contributions carry forward

      592        469   
  

 

 

    

 

 

  

Gross deferred tax assets

      264,049        251,208   

Less: valuation allowance

      (3,424 )      (3,755 ) 
  

 

 

    

 

 

  

Net deferred tax assets

      260,625        247,453   
  

 

 

    

 

 

  

Deferred tax liabilities:

     

Property, plant and equipment

      (48,271 )      (36,967 ) 

Intangibles

      (308,266 )      (291,926 ) 

Investment in partnerships

      (1,244 )      (1,065 ) 
  

 

 

    

 

 

  

Gross deferred tax liabilities

      (357,781 )      (329,958 ) 
  

 

 

    

 

 

  

Net deferred tax liabilities

    $ (97,156 )    $ (82,505 ) 
  

 

 

    

 

 

  

Classification in the consolidated balance sheets:

     

Current deferred tax assets

    $ 10,817      $ 9,812   

Current deferred tax liabilities

      —          —    

Noncurrent deferred tax assets

      —          —    

Noncurrent deferred tax liabilities

      (107,973 )      (92,317 ) 
  

 

 

    

 

 

  

Net deferred tax liabilities

    $ (97,156 )    $ (82,505 ) 
  

 

 

    

 

 

  

During 2012, we generated $7,065 of U.S. net operating losses, primarily attributable to the accelerated tax depreciation provisions available under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that was signed into law by the President on December 17, 2010. As of December 31, 2012, we had approximately $356,149 of U.S. net operating loss carry forwards remaining to offset future taxable income. Of this amount, $22,403 is subject to an IRC §382 limitation, but will be available to be fully utilized by no later than 2017. These carry forwards expire between 2020 through 2032. In addition, we have $3,512 of various credits available to offset future U.S. federal income tax.

As of December 31, 2012, we have approximately $466,749 of state net operating loss carry forwards before valuation allowances. These state net operating losses are available to reduce future taxable income and expire at various times and amounts. In addition, we have $253 of various credits available to offset future state income tax. Management has determined that a valuation allowance related to state net operating loss carry forwards in certain jurisdictions is necessary. The valuation allowance for these deferred tax assets as of December 31, 2012 and December 31, 2011 was $3,410 and $3,742, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2012, 2011, and 2010 was a (decrease) increase of $(332), $410 and $1,653, respectively.

During 2012, we generated $3,263 of Puerto Rico net operating losses. As of December 31, 2012, we had approximately $25,258 of Puerto Rico net operating losses available to offset future taxable income. These carry forwards expire between 2016 and 2022.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those jurisdictions during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income, and tax-planning strategies in making this assessment. In order to fully realize the deferred tax assets,

 

the Company will need to generate future taxable income before the expiration of the carry forwards governed by the tax code. Based on the current level of pretax earnings and projected decreases in future depreciation and amortization, the Company will generate the minimum amount of future taxable income to support the realization of the deferred tax assets. Additionally, the company has a significant amount of deferred tax liabilities that will reverse during the same period and jurisdiction and are of the same character as the temporary differences giving rise to the deferred tax assets. As a result, management believes that it is more likely than not that we will realize the benefits of these deferred tax assets, net of the existing valuation allowances at December 31, 2012. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

We have not recognized a deferred tax liability of approximately $6,741 for the undistributed earnings of our Canadian operations that arose in 2012 and prior years as management considers these earnings to be indefinitely invested outside the U.S. As of December 31, 2012, the undistributed earnings of these subsidiaries were approximately $19,261.

Under ASC 740, we provide for uncertain tax positions, and the related interest, and adjust recognized tax benefits and accrued interest accordingly. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

Balance as of December 31, 2010

    $ 322   

Additions for tax positions related to current year

      7   

Additions for tax positions related to prior years

      —     

Reductions for tax positions related to prior years

      —     

Lapse of statute of limitations

      (194 ) 

Settlements

      —     
  

 

 

  

Balance as of December 31, 2011

    $ 135   

Additions for tax positions related to current year

      3   

Additions for tax positions related to prior years

      —     

Reductions for tax positions related to prior years

      —     

Lapse of statute of limitations

      (63 ) 

Settlements

      —     
  

 

 

  

Balance as of December 31, 2012

    $ 75   
  

 

 

  

Included in the balance of unrecognized benefits at December 31, 2012 is $75 of tax benefits that, if recognized in future periods, would impact our effective tax rate.

During the years ended December 31, 2012 and December 31, 2011, we recognized interest and penalties of $3 and $7, respectively, as components of income tax expense in connection with our liabilities related to uncertain tax positions. Interest and penalties included in the balance at December 31, 2012 and December 31, 2011, was $14 and $27, respectively.

We are subject to income taxes in the U.S. and nearly all states. In addition, the Company is subject to income taxes in Canada and the Commonwealth of Puerto Rico. We are no longer subject to U.S federal income tax examinations by tax authorities for years before 2010 since the IRS has completed review of our income tax returns through 2009, or for any U.S. state income tax audit prior to 2002. With respect to Canada and Puerto Rico, we are no longer subject to income tax audits for years before 2008 and 2007, respectively.

Within the next twelve months, it is reasonably possible, that we could decrease our unrecognized tax benefits up to $40 as a result of the expiration of statute of limitations.
LAMAR MEDIA CORP [Member]
  
Income Taxes

(6) Income Taxes

Income tax expense (benefit) consists of the following:

 

     Current     Deferred     Total  

Year ended December 31, 2012:

       

U.S. federal

    $ —        $ 8,093      $ 8,093   

State and local

      824        820        1,644   

Foreign

      1,103        (1,253 )      (150 ) 
  

 

 

    

 

 

    

 

 

  
   $ 1,927      $ 7,660      $ 9,587   
  

 

 

    

 

 

    

 

 

  

Year ended December 31, 2011:

       

U.S. federal

    $ —        $ 3,088      $ 3,088   

State and local

      1,075        1,295        2,370   

Foreign

      1,847        (386 )      1,461   
  

 

 

    

 

 

    

 

 

  
   $ 2,922      $ 3,997      $ 6,919   
  

 

 

    

 

 

    

 

 

  

Year ended December 31, 2010:

       

U.S. federal

    $ (1,290 )    $ (14,130 )    $ (15,420 ) 

State and local

      529        (3,607 )      (3,078 ) 

Foreign

      1,932        (6,647 )      (4,715 ) 
  

 

 

    

 

 

    

 

 

  
   $ 1,171      $ (24,384 )    $ (23,213 ) 
  

 

 

    

 

 

    

 

 

  

As of December 31, 2012 and December 31, 2011, the company had income taxes receivable of $0 and $599, respectively, included in other current assets.

The U.S. and foreign components of earnings (loss) before income taxes are as follows:

 

     2012     2011     2010  

U.S.

    $ 20,780      $ 16,999      $ (59,193 ) 

Foreign

      (1,147 )      (1,468 )      (4,218 ) 
  

 

 

    

 

 

    

 

 

  

Total

    $ 19,633      $ 15,531      $ (63,411 ) 
  

 

 

    

 

 

    

 

 

  

A reconciliation of significant differences between the reported amount of income tax expense (benefit) and the expected amount of income tax expense (benefit) that would result from applying the U.S. federal statutory income tax rate of 35 percent to income before taxes is as follows:

 

     2012     2011     2010  

Income tax expense (benefit) at U.S. federal statutory rate

    $ 6,871      $ 5,436      $ (22,193 ) 

State and local income taxes, net of federal income tax benefit

      1,684        975        (4,205 ) 

Book expenses not deductible for tax purposes

      1,058        746        662   

Stock-based compensation

      270        464        518   

Amortization of non-deductible goodwill

      —          1        3   

Undistributed earnings of Canadian subsidiaries (a)

      —          (4,023 )      1,083   

Valuation allowance

      (354 )      382        942   

Rate Change (b)

      49        1,743        —     

Other differences, net

      9        1,195        (23 ) 
  

 

 

    

 

 

    

 

 

  

Income tax expense (benefit)

    $ 9,587      $ 6,919      $ (23,213 ) 
  

 

 

    

 

 

    

 

 

  

 

(a) In periods prior to December 31, 2011, the undistributed earnings of our Canadian subsidiaries were not designated as permanently reinvested. For the period ended December 31, 2011, management asserted that the undistributed earnings of our Canadian subsidiaries were permanently reinvested and a deferred tax benefit of $4,023 was recognized from the release of the December 31, 2010 deferred tax liability.
(b) In 2012, Ontario Bill 114 was signed into law. The enacted legislation freezes the general corporate income tax rate at 11.5%, cancelling the previously enacted rate reductions for 2012 and 2013 to 11% and 10%, respectively. As a result, a non-cash charge of $49 to income tax expense was recorded for the increase of the Canadian net deferred tax liability.

In 2011, the “Internal Revenue Code for a New Puerto Rico” was signed into law. Under the enacted legislation, the Puerto Rico corporate income tax rate was lowered from 39% to 30%. As a result, a non-cash charge of $1,743 to income tax expense was recorded for the reduction of the Puerto Rico net deferred tax asset.

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and (liabilities) are presented below:

 

     2012     2011  

Deferred tax assets:

     

Allowance for doubtful accounts

    $ 2,964      $ 2,954   

Accrued liabilities not deducted for tax purposes

      35,580        33,583   

Asset retirement obligation

      65,994        61,565   

Net operating loss carry forwards

      105,918        99,811   

Tax credit carry forwards

      18,537        18,496   

Charitable contributions carry forward

      592        469   
  

 

 

    

 

 

  

Gross deferred tax assets

      229,585        216,878   

Less: valuation allowance

      (2,851 )      (3,205 ) 
  

 

 

    

 

 

  

Net deferred tax assets

      226,734        213,673   
  

 

 

    

 

 

  

Deferred tax liabilities:

     

Property, plant and equipment

      (48,271 )      (36,967 ) 

Intangibles

      (307,630 )      (291,291 ) 

Investment in partnerships

      (1,244 )      (1,065 ) 
  

 

 

    

 

 

  

Gross deferred tax liabilities

      (357,145 )      (329,323 ) 
  

 

 

    

 

 

  

Net deferred tax liabilities

    $ (130,411 )    $ (115,650 ) 
  

 

 

    

 

 

  

Classification in the consolidated balance sheets:

     

Current deferred tax assets

    $ 10,817      $ 9,812   

Current deferred tax liabilities

      —          —     

Noncurrent deferred tax assets

      —          —     

Noncurrent deferred tax liabilities

      (141,228 )      (125,462 ) 
  

 

 

    

 

 

  

Net deferred tax liabilities

    $ (130,411 )    $ (115,650 ) 
  

 

 

    

 

 

  

During 2012, we generated $6,730 of U.S. net operating losses, primarily attributable to the accelerated tax depreciation provisions available under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that was signed into law by the President on December 17, 2010. As of December 31, 2012, we had approximately $220,723 of U.S. net operating loss carry forwards remaining to offset future taxable income. Of this amount, $22,403 is subject to an IRC §382 limitation, but will be available to be fully utilized by no later than 2017. These carry forwards expire between 2020 and 2031. In addition, we have $18,284 of various credits available to offset future U.S. federal income tax.

 

As of December 31, 2012, we have approximately $429,362 state net operating loss carry forwards before valuation allowances. These state net operating losses are available to reduce future taxable income and expire at various times and amounts. In addition, we have $253 of various credits available to offset future state income tax. Management has determined that a valuation allowance related to state net operating loss carry forwards is necessary. The valuation allowance for these deferred tax assets as of December 31, 2012 and December 31, 2011 was $2,836 and $3,192, respectively. The net change in the total valuation allowance for each of the years ended December 31, 2012, 2011, and 2010 was a (decrease) increase of $(356), $407 and $1,106, respectively.

During 2012, we generated $3,263 of Puerto Rico net operating losses. As of December 31, 2012, we had approximately $25,258 of Puerto Rico net operating losses available to offset future taxable income. These carry forwards expire between 2016 and 2022.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those jurisdictions during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income, and tax-planning strategies in making this assessment. In order to fully realize the deferred tax assets, the company will need to generate future taxable income before the expiration of the carry forwards governed by the tax code. Based on the current level of pretax earnings for financial reporting purposes and projected decreases in future depreciation and amortization, we will generate the minimum amount of future taxable income to support the realization of the deferred tax assets. Additionally, the company has a significant amount of deferred tax liabilities that will reverse during the same period and jurisdiction and is of the same character as the temporary differences giving rise to the deferred tax assets. As a result, management believes that it is more likely than not that we will realize the benefits of these deferred tax assets, net of the existing valuation allowances at December 31, 2012. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

We have not recognized a deferred tax liability of approximately $6,741 for the undistributed earnings of our Canadian operations that arose in 2012 and prior years as management considers these earnings to be indefinitely invested outside the U.S. As of December 31, 2012, the undistributed earnings of these subsidiaries were approximately $19,261.

 

Under ASC 740, we provide for uncertain tax positions, and the related interest, and adjust recognized tax benefits and accrued interest accordingly. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

Balance as of December 31, 2010

    $ 322   

Additions for tax positions related to current year

      7   

Additions for tax positions related to prior years

      —    

Reductions for tax positions related to prior years

      —    

Lapse of statute of limitations

      (194 ) 

Settlements

      —    
  

 

 

  

Balance as of December 31, 2011

    $ 135   

Additions for tax positions related to current year

      3   

Additions for tax positions related to prior years

      —     

Reductions for tax positions related to prior years

      —     

Lapse of statute of limitations

      (63 ) 

Settlements

      —     
  

 

 

  

Balance as of December 31, 2012

    $ 75   
  

 

 

  

Included in the balance of unrecognized benefits at December 31, 2012 is $75 of tax benefits that, if recognized in future periods, would impact our effective tax rate.

During the years ended December 31, 2012 and December 31, 2011, we recognized interest and penalties of $3 and $7, respectively, as components of income tax expense in connection with our liabilities related to uncertain tax positions. Interest and penalties included in the balance at December 31, 2012 and December 31, 2011, was $14 and $27, respectively.

We are subject to income taxes in the U.S. and nearly all states. In addition, the Company is subject to income taxes in Canada and the Commonwealth of Puerto Rico. We are no longer subject to U.S federal income tax examinations by tax authorities for years before 2010 since the IRS has completed review of our income tax returns through 2009, or for any U.S. state income tax audit prior to 2002. With respect to Canada and Puerto Rico, we are no longer subject to income tax audits for years before 2008 and 2007, respectively.

Within the next twelve months, it is reasonably possible, that we could decrease our unrecognized tax benefits up to $40 as a result of the expiration of statute of limitations.