XML 42 R20.htm IDEA: XBRL DOCUMENT
v3.3.1.900

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2015
Income Tax Disclosure [Abstract] |
Income Taxes | 14. INCOME TAXES The components of pretax loss from continuing operations for the years ended December 31, 2015, 2014 and 2013 are as follows (dollars in thousands):
|  | For the Year Ended December 31, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
U.S |  | $ | (94,438 | ) |  | $ | (138,826 | ) |  | $ | (169,345 | )
Foreign |  |  | - |  |  |  | - |  |  |  | 522 |
Total |  | $ | (94,438 | ) |  | $ | (138,826 | ) |  | $ | (168,823 | )
The (benefit from) provision for income taxes from continuing operations for the years ended December 31, 2015, 2014 and 2013 consists of the following (dollars in thousands):
|  | For the Year Ended December 31, |
|  | 2015 |  |  | 2014 |  |  | 2013 |
Current benefit |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (364 | ) |  | $ | (10,168 | ) |  | $ | (22,904 | )
State and local |  |  | (2,279 | ) |  |  | (346 | ) |  |  | (4,140 | )
Total current benefit |  |  | (2,643 | ) |  |  | (10,514 | ) |  |  | (27,044 | )
Deferred (benefit) provision |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (126,465 | ) |  |  | 13,445 |  |  |  | 27,716 |
State and local |  |  | (18,346 | ) |  |  | 805 |  |  |  | (216 | )
Total deferred (benefit) provision |  |  | (144,811 | ) |  |  | 14,250 |  |  |  | 27,500 |
Total (benefit from) provision for income taxes |  | $ | (147,454 | ) |  | $ | 3,736 |  |  | $ | 456 |
A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate for continuing operations for the years ended December 31, 2015, 2014 and 2013 is as follows:
|  | For the Year Ended December 31, |  |
|  | 2015 |  |  | 2014 |  |  | 2013 |  |
Statutory U.S. federal income tax rate |  |  | (35.0 | ) | % |  | (35.0 | ) | % |  | (35.0 | ) | %
State and local income taxes |  |  | (2.7 | ) |  |  | (2.6 | ) |  |  | (4.0 | ) |
Nondeductible goodwill |  |  | - |  |  |  | 0.6 |  |  |  | 1.8 |  |
Valuation allowance |  |  | 0.6 |  |  |  | 37.0 |  |  |  | 44.8 |  |
Valuation allowance release |  |  | (116.3 | ) |  |  | - |  |  |  | - |  |
Federal audit settlement |  |  | - |  |  |  | 2.4 |  |  |  | - |  |
Tax credits |  |  | (0.2 | ) |  |  | - |  |  |  | (3.2 | ) |
Other |  |  | (2.5 | ) |  |  | 0.3 |  |  |  | (4.1 | ) |
Effective income tax rate |  |  | (156.1 | ) | % |  | 2.7 |  | % |  | 0.3 |  | %
The effective tax rate for the year ended December 31, 2015 benefitted by 116.3% due to a valuation allowance release of $109.8 million. The effective tax rates for the years ended December 31, 2014 and 2013 were negatively impacted by 37.0% and 44.8%, respectively, due to valuation allowances of $51.6 million and $77.0 million, respectively. The 2014 effective tax rate was negatively impacted by the settlement of a federal income tax audit covering the years ended December 31, 2008 through December 31, 2012, the impact of which was 2.4%. The 2013 effective tax rate benefited from the settlement of various state income tax audits and reversal of one of our foreign operations as a disregarded entity which increased the effective tax rate by 6.8% A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits as of December 31, 2015, 2014 and 2013 is as follows (dollars in thousands):
|  | 2015 |  |  | 2014 |  |  | 2013 |
Gross unrecognized tax benefits, beginning of the year |  | $ | 9,318 |  |  | $ | 13,900 |  |  | $ | 24,479 |
Additions for tax positions of prior years |  |  | 19 |  |  |  | 129 |  |  |  | 3,582 |
Reductions for tax positions of prior years |  |  | (20 | ) |  |  | - |  |  |  | - |
Additions for tax positions related to the current year |  |  | 864 |  |  |  | 931 |  |  |  | 813 |
Reductions due to settlements |  |  | - |  |  |  | (4,064 | ) |  |  | (13,707 | )
Reductions due to lapse of applicable statute of limitations |  |  | (2,444 | ) |  |  | (1,578 | ) |  |  | (1,267 | )
Subtotal |  |  | 7,737 |  |  |  | 9,318 |  |  |  | 13,900 |
Interest and penalties |  |  | 1,986 |  |  |  | 2,820 |  |  |  | 3,107 |
Total gross unrecognized tax benefits, end of the year |  | $ | 9,723 |  |  | $ | 12,138 |  |  | $ | 17,007 |
The total amount of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods was $6.4 million and $8.0 million for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, our short and long-term reserves, recorded within current accrued income taxes and other non-current liabilities, respectively, related to FASB’s interpretation No. 48 of ASC Topic 740-10, Accounting for Uncertainty in Income Taxes or (“FIN 48”), were $0.6 million and $7.1 million, respectively. We record interest and penalties related to unrecognized tax benefits within (benefit from) provision for income taxes on our consolidated statements of income (loss) and comprehensive income (loss). The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $2.0 million and $2.8 million as of the years ended December 31, 2015 and 2014, respectively. For the years ended December 31, 2015, 2014, and 2013, we recognized less than $0.7 million of benefit, $0.1 million of benefit and $0.7 million of benefit, respectively, related to interest and penalties from unrecognized tax benefits in our consolidated results of continuing operations. CEC and its subsidiaries file income tax returns in the U.S. and in various state and local jurisdictions. CEC and its subsidiaries are routinely examined by tax authorities in these jurisdictions. As of December 31, 2015, CEC had been examined by the Internal Revenue Service through our tax year ending December 31, 2012 and an examination of the tax years ending December 31, 2013 and December 31, 2014 is in progress. In addition, a number of state and local examinations are currently ongoing. It is possible that these examinations may be resolved within twelve months. Due to the potential for resolution of federal and state examinations, and the expiration of various statutes of limitations, it is reasonably possible that CEC’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $ 1.0 million. Deferred income tax assets and liabilities result primarily from temporary differences in the recognition of various expenses for tax and financial statement purposes, and from the recognition of the tax benefits of net operating loss carry forwards. Components of deferred income tax assets and liabilities for continuing operations as of December 31, 2015 and 2014 are as follows (dollars in thousands):
|  | December 31, |
|  | 2015 |  |  | 2014 |
Deferred income tax assets: |  |  |  |  |  |  |  |
Accrued occupancy |  | $ | 4,191 |  |  | $ | 2,024 |
Deferred rent obligations |  |  | 9,281 |  |  |  | 13,757 |
Foreign tax credits |  |  | 32,998 |  |  |  | 32,998 |
Valuation allowance foreign tax credits |  |  | (32,998 | ) |  |  | (6,264 | )
Compensation and employee benefits |  |  | 12,751 |  |  |  | 14,405 |
Tax net operating loss carry forwards |  |  | 61,982 |  |  |  | 34,067 |
Valuation allowance |  |  | (8,196 | ) |  |  | (34,067 | )
Allowance for doubtful accounts |  |  | 3,967 |  |  |  | 3,610 |
Covenant not-to-compete |  |  | 11 |  |  |  | 58 |
Accrued settlements and legal |  |  | 938 |  |  |  | 1,631 |
Deferred compensation |  |  | 520 |  |  |  | 1,777 |
Accrued restructuring and severance |  |  | 6,014 |  |  |  | 1,072 |
Equity method for investments |  |  | 256 |  |  |  | 19 |
General business tax credits |  |  | 699 |  |  |  | 450 |
Illinois edge credits |  |  | 6,351 |  |  |  | 6,351 |
Valuation allowance edge credits |  |  | (6,351 | ) |  |  | (6,351 | )
Depreciation and amortization |  |  | 47,453 |  |  |  | 32,846 |
Other |  |  | 712 |  |  |  | 1,059 |
Valuation allowance deferred tax assets |  |  | - |  |  |  | (96,061 | )
Total deferred income tax assets |  |  | 140,579 |  |  |  | 3,381 |
Deferred income tax liabilities: |  |  |  |  |  |  |  |
Other |  |  | 2,863 |  |  |  | 3,381 |
Total deferred income tax liabilities |  |  | 2,863 |  |  |  | 3,381 |
Net deferred income tax assets |  | $ | 137,716 |  |  | $ | - |
The Company is electing to early adopt Accounting Standards Update (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities be classified as noncurrent on our consolidated balance sheet. As of December 31, 2015, we have federal net operating loss carry forwards of approximately $134.8 million, available to offset future taxable income, which do not begin expiring until 2034 and 2035. During 2015, we utilized a federal net operating loss carryback from 2014 of approximately $97.5 million to recover taxes paid from the prior year of approximately $14.0 million. Additionally, we have $33.0 million of foreign tax credits which expire between 2022 and 2023, and we continue to maintain a full valuation allowance against the foreign tax credits deferred tax balance. Additionally, we have state net operating loss (“NOL”) carry forwards of approximately $319.7 million, which expire between 2016 and 2035. Of this amount, approximately $166.0 million relates to separate state NOL carryforwards. We also have Illinois edge credits of $9.8 million available to offset future Illinois state income tax, which expire between 2016 and 2019. Valuation allowances have been established against the full amounts of the separate state NOL and Illinois edge credit deferred tax balances. In assessing the continued need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. Topic 740 provides that important factors in determining whether a deferred tax asset will be realized are whether there has been a strong earnings history exclusive of the loss that created the future deductible amount coupled with evidence indicating that the loss is an aberration rather than a continuing condition and whether sufficient taxable income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets, we consider, among other things, historical levels of taxable income along with possible sources of future taxable income, which include: the expected timing of the reversals of existing temporary reporting differences, the existence of taxable income in prior carryback years, the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits and expected future taxable income. Changes in, among other things, income tax legislation, statutory income tax rates, or future taxable income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods. If, based on the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, we record a valuation allowance, or release all or a portion of the valuation allowance if it is more likely than not the deferred tax assets are expected to be realized. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. A high degree of judgment is required to determine if, and the extent to which, valuation allowances should be recorded against deferred tax assets. Based on the Company’s evaluation through September 30, 2015, the Company continued to maintain a valuation allowance against the full amount of its net deferred tax assets due to uncertainty of their realization and dependence on future taxable income. A significant piece of objective negative evidence evaluated at that time was the significant losses incurred in recent years, as well as a three-year cumulative pre-tax loss position for the consolidated entity as projected through the period ended December 31, 2015. During the fourth quarter of 2015, the Company re-evaluated the need for the valuation allowance against its net deferred tax assets as of December 31, 2015 and determined it was more likely than not that a significant portion of the deferred tax assets would be realized. Accordingly, the Company released $109.8 million of the valuation allowance in the fourth quarter of 2015, the full amount of which was recorded within income from continuing operations on our statement of income (loss) and comprehensive income (loss). The Company determined that the decision made in December 2015 to teach-out the LCB campuses was a triggering event related to the analysis of the valuation allowance recorded against the deferred tax asset balances. The LCB teach-out announcement during the fourth quarter of 2015, coupled with the previous teach-out announcements, clearly identified which businesses would remain as an ongoing operation. Ongoing operations is defined by the Company as those businesses that the Company will remain operating for the long-term. While the teach-out of a campus requires the Company to continue to operate the campus, the operations for those campuses have a finite end date with predictable close-out operations. Although the decision made in May 2015 to teach-out the remaining Career Colleges indicated that these campuses would not remain within ongoing operations, the Company did not believe this announcement on its own to be a trigger as a final decision for LCB had not been made earlier in the year. As the LCB campuses contributed a significant portion of operating losses in prior years, coupled with future impacts related to regulatory changes that could negatively impact the LCB campuses, the Company felt that a trigger would not result until an event occurred signaling the exit of the LCB campuses. The decision to teach-out these campuses was announced in December 2015. Once the Career College and LCB teach-outs are completed, the remaining businesses will only include the University Group, which exhibit a strong earnings history. As a result of the decisions taken during 2015 to exit the Career Schools, in particular the decision to teach-out the LCB campuses made in the fourth quarter of 2015, actions taken related to these announcements and revised projections of taxable income for future periods, the Company revisited its conclusion regarding the valuation allowance recorded against its deferred tax assets and considered both negative and positive evidence to determine the appropriate accounting for its deferred taxes. Although the Company remains in a cumulative loss position for the trailing three years ended December 31, 2015, there was sufficient positive evidence leading to the partial reversal of the valuation allowance which primarily consisted of the following: 1) historical positive earnings for the University Group exclusive of the losses for the Transitional Group and LCB, which businesses are being exited (See Note 18 “Segment Reporting” for specific segment details), 2) favorable projections of taxable income, particularly in periods subsequent to the completion of the Transitional Group and LCB teach-outs, which will be sufficient to absorb the reversal of existing deductible temporary differences (including NOL’s), and 3) the Company analyzed the net revenue remaining from the University Group and the cost savings which will occur by eliminating the Transitional Group and LCB campuses. The Company concluded that the net operating loss carryforward would be utilized in 2018, 2019 and 2020. As of December 31, 2015, we continue to maintain a partial valuation allowance against our deferred tax assets of $47.5 million, which relates to the foreign tax credits, separate state NOLs and Illinois edge credits discussed above. The Company concluded it was not more likely than not for the deferred tax assets related to foreign tax credits to be realized and maintained the valuation allowance with respect to these assets. The separate state NOLs can generally only be used by the originating entity and relate to entities announced for teach-out. Since the future operating income (loss) of these entities is restricted to the teach-out period, the more likely than not threshold was not reached with respect to this portion of the deferred tax assets. The Illinois edge credits expire between 2016 and 2019. Given the limited life of these credits and the need to first exhaust an available NOL carryforward, the valuation allowance pertaining to this item was also not released. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased or decreased, and additional weight may be given to subjective evidence such as our projections for growth. We will continue to evaluate our valuation allowance in future years for any change in circumstances that causes a change in judgment about the realizability of the deferred tax asset.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration