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11. INCOME TAXES
 12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
INCOME TAXES

For the years ended December 31, 2014, 2013 and 2012, we recognized income tax expense (benefit) comprised of the following (in thousands):

 

   December 31, 
   2014   2013   2012 
             
State current tax  $1,283   $643   $1,160 
Other current tax   29    (39)   32 
Federal deferred tax   869    3,794    (46,901)
State deferred tax   (214)   (888)   (9,518)
                
Income tax expense (benefit)  $1,967   $3,510   $(55,227)

 

A reconciliation of the statutory U.S. federal rate and effective rates is as follows (in thousands):

 

   Years Ended December 31, 
   2014   2013   2012 
             
Federal tax   34.00%    34.00%    34.00% 
State franchise tax, net of federal benefit   -3.64%    -14.20%    17.49% 
Other Non deductible expenses   0.00%    0.07%    -2.42% 
Meals and entertainment   4.85%    1.98%    2.22% 
Noncontrolling Interest in Partnerships   -2.88%    -1.48%    1.79% 
Equity compensation   -8.72%    35.39%    10.69% 
Changes in valuation allowance   24.52%    -17.88%    -1284.18% 
Return-to-provision   -9.57%    -1.96%    -47.80% 
Deferred true-ups and other   16.34%    0.00%    0.00% 
Uncertain tax positions   -3.67%    -2.92%    6.45% 
Expiring net operating losses   2.61%    26.64%    0.00% 
Income tax expense (benefit)   53.85%    59.64%    -1261.76% 

 

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial and income tax reporting purposes and operating loss carryforwards.

 

Our deferred tax assets and liabilities comprise the following (in thousands):

 

   December 31, 
  2014   2013 
Deferred tax assets:          
Net operating losses  $87,709   $82,630 
Accrued expenses   3,594    3,610 
Straight-Line Rent Adjustment   8,897    8,053 
Unfavorable contract liability   2,811    3,365 
Equity compensation   253    645 
Allowance for doubtful accounts   2,124    2,494 
Other   1,891    1,400 
Valuation Allowance   (6,378)   (6,593)
Total Deferred Tax Assets  $100,901   $95,604 
           
Deferred tax liabilities:          
Property Plant & Equipment   (7,755)   (7,948)
Goodwill   (17,833)   (15,101)
Intangibles   (12,105)   (12,162)
NAEM Reserve   (6,441)   (5,555)
Other   (4,189)   (1,603)
           
Total Deferred Tax Liabilities  $(48,323)  $(42,369)
           
Net Deferred Tax Asset  $52,578   $53,235 

 

As of December 31, 2014, the Company had federal net operating loss carryforwards of approximately $245.3 million, which expire at various intervals from the years 2017 to 2034.  The Company also had state net operating loss carryforwards of approximately $187.0 million, which expire at various intervals from the years 2015 through 2034.  As of December 31, 2014, $23.5 million of our federal net operating loss carryforwards acquired in connection with the 2011 acquisition of Raven Holdings U.S., Inc. are subject to limitations related to their utilization under Section 382 of the Internal Revenue Code.  Future ownership changes as determined under Section 382 of the Internal Revenue Code could further limit the utilization of net operating loss carryforwards.  Cumulative excess tax benefits of $5.4 million, related to the exercise of stock options, will be recorded in equity when realized.

 

We considered all evidence available when determining whether deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled reversals of deferred tax liabilities and recent financial operations. The evaluation of this evidence requires significant judgment about the forecasts of future taxable income, based on the plans and estimates we are using to manage the underlying businesses.  In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income.  As of December 31, 2014, we have determined that deferred tax assets of $100.9 million are more likely-than-not to be realized.  We have also determined that deferred tax liabilities of $ 17.8 million are required related to book basis in goodwill that has an indefinite life.

 

Prior to 2012, we had recorded a valuation allowance on the majority of our deferred tax assets to reduce the deferred tax assets to the amount that was believed more likely-than-not to be realized. In assessing the need for a valuation allowance, we considered all available positive and negative evidence, including past results, the existence of cumulative losses in prior years, forecasted future taxable income, and prudent tax planning strategies. During 2012, the majority of our valuation allowance, primarily related to net operating losses (NOLs), was reversed based on historical earnings and forecasts of future taxable income, resulting in the recognition of a $56.2 million tax benefit.  The remaining valuation allowance primarily relates to state NOL’s

 

For the next five years, and thereafter, federal net operating loss carryforwards expire as follows (in thousands):

 

Year Ended Total Net
Operating Loss
Carryforwards		    Amount Subject
to 382 limitation		 
2015  –     – 
2016  –     – 
2017  15,185     1,501 
2018  12,284     – 
2019  7,178     – 
Thereafter  213,929     40,610 
  $248,576    $42,111 

 

For the next five years, and thereafter, California net operating loss carryforwards expire as follows (in thousands):

 

Year Ended Total Net
Operating Loss
Carryforwards		 
2015  13,741 
2016  5,629 
2017  9,172 
2018  – 
2019  – 
Thereafter  18,964 
  $47,506 

 

We file consolidated income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With limited exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2010. We do not anticipate the results of any open examinations would result in a material change to its financial position.

 

A reconciliation of the total gross amounts of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands):

 

   2014   2013   2012 
Balance at beginning of year  $3,970   $4,184   $3,756 
Increases (Decreases) related to prior year tax positions   –    (214)   428 
Expiration of the statute of limitations for the assessment of taxes   (209)   –    – 
Balance at end of year  $3,761   $3,970   $4,184 

 

The Company believes it is reasonably possible it will reduce its unrecognized tax benefits by $3.8 million within the next twelve months.

 

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the year ended December 31, 2014 we accrued an insignificant amount of interest expense. As of December 31, 2014, accrued interest and penalties were insignificant.