XML 28 R17.htm IDEA: XBRL DOCUMENT v3.4.0.3
Income taxes
3 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income taxes

12. Income taxes

At the end of each interim period, the Company applies its estimated annual effective tax rate (“ETR”) to its interim earnings before considering the tax effect of any discrete items. The Company also records the tax impact of certain unusual or infrequently occurring items, including the effects of changes in valuation allowances and tax laws or rates, in the interim period in which they occur. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred income tax assets will not be realized. Management exercises significant judgment in determining the Company’s provisions for income taxes, its deferred income tax assets and liabilities and its future taxable income for purposes of assessing its ability to utilize any future tax benefit from its deferred income tax assets. Although management believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to audit by tax authorities in the ordinary course of business. As of each reporting date management considers new evidence, both positive and negative, that could impact management’s view with regards to future realization of deferred tax assets. As of March 31, 2016 and December 31, 2015, management believed that it was more likely than not that all of the Company’s deferred income tax assets would be realized and no valuation allowance was required on its U.S. deferred tax assets. As of March 31, 2016 and December 31, 2015, $5,563,000 and $7,052,000 of tax assets, respectively, were included as “Prepaid expenses and other current assets” on the Company’s unaudited condensed consolidated balance sheet. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2016 and December 31, 2015, the amount accrued for interest and penalties was not material to the Company’s unaudited condensed consolidated financial statements.

The computation of the estimated annual ETR for each interim period requires certain estimates and significant judgments, including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in state jurisdictions, estimates of permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or the tax environment changes. In addition, changes related to unrecognized income tax benefits are also excluded from the determination of the Company’s estimated annual ETR. For the 2016 fiscal year, the Company’s estimated annual ETR is 37.0%, which excludes the impact of changes in the valuation of the Private Placement Warrants, as such amounts are excluded from the calculation of taxable income. Given the subjectivity and volatility of the valuation of the Private Placement Warrants, it is not possible to project the impact of the change in the Private Placement Warrants in the computation of the Company’s estimated annual ETR.

As a result, the Company’s reported ETR will differ from the estimated annual ETR due to the changes in the valuation of the Private Placement Warrants in the periods in which such changes occur. For the three months ended March 31, 2016, the Company recorded an income tax benefit of $3,680,000 and income tax benefit rate of 41.2%. Excluding the impact of the change in the value of the Private Placement Warrants in the three months ended March 31, 2016, the Company’s income tax benefit rate would have been 36.1%. Although the Company realized a pre-tax loss for the three months ended March 31, 2015, the Company recorded an income tax provision of $1,384,000. The pre-tax loss was attributable to the expense arising from a change in the value of the Private Placement Warrants in the three months ended March 31, 2015. Excluding the impact of the change in the value of the Private Placement Warrants during this period, the Company’s income tax rate would have been 39.1% in the three months ended March 31, 2015.

The Company is currently under audit for its income taxes at the federal level for the tax year ended December 31, 2013 and the state level for the tax years ended December 31, 2011 and 2012. The ultimate impact, if any, as a result of these audits cannot be determined at this time. However, the Company does not believe that the outcome for these audits will have a material effect on its consolidated results of operations or its financial position.