|12 Months Ended|
Dec. 31, 2014
|Income Tax Disclosure [Abstract]|
Note 12 – Income Taxes
The sources of Earnings before income taxes were as follows:
The Income tax provision (benefit) consisted of the following:
Temporary differences and carryforwards giving rise to deferred tax assets and liabilities at December 31, 2014 and 2013, were as follows:
Beginning in the third quarter of 2008, the Company maintained a full valuation allowance against certain deferred tax assets for federal and the majority of its state and foreign jurisdictions, having determined it was more likely than not that the deferred tax assets would not be realized. The determination of recording and releasing valuation allowances against deferred tax assets is made, in part, pursuant to the Company's assessment as to whether it is more likely than not that the Company will generate sufficient future taxable income against which benefits of the deferred tax assets may or may not be realized. Significant judgment is required in making estimates regarding the Company’s ability to generate income in future periods. The Company continued to maintain valuation allowances through the third quarter of 2013 as there was insufficient positive evidence to overcome the substantial negative evidence of cumulative losses in periods preceding 2013.
In the fourth quarter of 2013, the Company reached the conclusion that it was appropriate to release valuation allowance reserves against a significant portion of its federal deferred tax assets and against certain state deferred tax assets due to the sustained positive operating performance of its U.S. operations and the expectation of future taxable income. Additionally, the Company achieved a cumulative three year income position domestically, reached four consecutive quarters of positive pre-tax operating earnings, and completed its near- and mid-term business plans, all of which were significant positive factors that overcame substantive prior negative evidence. The Company also considered forecasts of future operating results and utilization of net operating losses and tax credits prior to their expiration. Reversal of deferred tax asset valuation allowances also were recorded in the fourth quarter of 2013 for business units located in Norway and Sweden. As a result, the Company recorded a $599.5 million reversal of its deferred tax asset valuation allowance reserves in the fourth quarter of 2013 after determining it was more likely than not that certain deferred tax assets would be realized. The Company's remaining valuation allowance reserves at December 31, 2013 in the U.S. primarily related to capital loss carryforwards, non-amortizable intangibles, and various state operating loss carryforwards and state tax credits that are subject to rules which may limit future utilization, as well as for certain foreign jurisdictions, including Brazil, Portugal and Spain.
During the third quarter of 2014, the Company completed the sale of its retail bowling business. This transaction is expected to generate capital gains for tax purposes allowing the Company to utilize all of its capital loss carryforwards. Therefore, during the third quarter of 2014, the Company recorded a $9.5 million reversal of its deferred tax asset valuation allowance reserves related to capital loss carryforwards, which has been reflected as a tax benefit reported in Note 2 – Discontinued Operations.
At December 31, 2014, the Company had a total valuation allowance against its deferred tax assets of $69.0 million, of which $10.6 million was classified as current and $58.4 million as non-current. The remaining realizable value of deferred tax assets at December 31, 2014 was determined by evaluating the potential to recover the value of these assets through the utilization of tax loss and credit carrybacks, the reversal of existing taxable temporary differences, certain tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards. At December 31, 2014, the Company retained valuation allowance reserves of $59.5 million against deferred tax assets in the U.S. primarily related to non-amortizable intangibles and various state operating loss carryforwards and state tax credits that are subject to restrictive rules for future utilization, and valuation allowances of about $9.5 million for deferred tax assets related to foreign jurisdictions, primarily for Brazil and Portugal.
At December 31, 2014, the tax benefit of loss carryovers totaling $72.1 million were available to reduce future tax liabilities. This deferred tax asset was comprised of $59.9 million for the tax benefit of state net operating loss (NOL) carryforwards and, $12.2 million for the tax benefit of foreign NOL carryforwards. NOL carryforwards of $63.4 million expire at various intervals between the years 2015 and 2033, while $8.7 million have an unlimited life.
At December 31, 2014, tax credit carryforwards totaling $95.7 million were available to reduce future tax liabilities. This deferred tax asset was comprised of $63.6 million related to general business credits and other miscellaneous federal credits, and $32.1 million of various state tax credits related to research and development, capital investment and job incentives. The above credits expire at various intervals between the years 2015 and 2034.
The Company has historically provided deferred taxes for the presumed ultimate repatriation to the U.S. of earnings from most of its non-U.S. subsidiaries and unconsolidated affiliates. As of December 31, 2013, the indefinite reversal criterion had been applied to certain entities and allowed the Company to overcome that presumption to the extent the earnings were to be indefinitely reinvested outside the United States. As of January 1, 2014, the Company determined that the indefinite reinvestment assertion should be applied to certain additional non-U.S. subsidiaries' earnings for only 2014 and future years which will be considered indefinitely reinvested. Accordingly, no deferred income taxes have been provided as of December 31, 2014 on the applicable undistributed earnings of the non-U.S. subsidiaries where the indefinite reinvestment assertion has been applied. The Company had undistributed earnings of foreign subsidiaries of $65.0 million and $26.1 million at December 31, 2014 and 2013, respectively, for which deferred taxes have not been provided as such earnings are presumed to be indefinitely reinvested in the foreign subsidiaries. If at some future date these earnings cease to be indefinitely reinvested and are repatriated, the Company may be subject to additional U.S. income taxes and foreign withholding and other taxes on such amounts. The Company continues to provide deferred taxes, as required, on the undistributed net earnings of foreign subsidiaries and unconsolidated affiliates that are not deemed to be indefinitely reinvested in operations outside the United States.
As of December 31, 2014, 2013 and 2012 the Company had $5.1 million, $6.3 million and $27.8 million of gross unrecognized tax benefits, including interest, respectively. Of these amounts, $5.0 million, $5.9 million, and $26.8 million, respectively, represent the portion that, if recognized, would impact the Company's tax provision and the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2014, 2013 and 2012 the Company had $0.3 million, $0.3 million and $3.1 million accrued for the payments of interest, respectively, and no amounts accrued for penalties.
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties for the 2014 and 2013 annual reporting periods:
The Company believes it is reasonably possible that the total amount of gross unrecognized tax benefits as of December 31, 2014 could decrease by approximately $0.3 million in 2015 due to settlements with taxing authorities or lapses in the statue of limitations. Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of the settlement of tax audits, it is possible that there could be other significant changes in the amount of unrecognized tax benefits in 2015, but the amount cannot be estimated.
The Company is regularly audited by federal, state and foreign tax authorities. The Internal Revenue Service (IRS) has completed its field examination and has issued its Revenue Agents Report for 2010 and all open issues have been resolved. The IRS is currently examining the Company's taxable years 2011 and 2012. Primarily as a result of filing amended returns, which were generated by the closing of federal income tax audits, the Company is still open to state and local tax audits in major tax jurisdictions dating back to the 2004 taxable year. Following the completion in 2013 of the 2002 through 2007 Germany tax audit, the Company is no longer subject to income tax examinations by any major foreign tax jurisdiction for years prior to 2008.
The difference between the actual income tax provision (benefit) and the tax provision computed by applying the statutory Federal income tax rate to Earnings before income taxes is attributable to the following:
NM = Not meaningful
Income tax provision (benefit) allocated to continuing operations and discontinued operations for the years ended December 31 was as follows:
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef