Taxes

12 Months Ended

Dec. 31, 2019

The Company provides for deferred income taxes for temporary differences arising from differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates expected to be in effect when the related taxes are expected to be paid or recovered. The Company initially recognizes the effects of a tax position when it is more than 50 percent likely, based on the technical merits, that that position will be sustained upon examination, including resolution of the related appeals or litigation processes, if any. The Company’s determination of whether or not a tax position has met the recognition threshold considers the facts, circumstances, and information available at the reporting date.

The Company reassesses our ability to realize deferred tax assets annually in the fourth quarter, during the annual budget process, or when circumstances indicate that the ability to realize deferred tax assets has changed. The assessment takes into account expectations of future taxable income or loss, available tax planning strategies and the reversal of temporary differences. The development of these expectations involves the use of estimates such as production levels, operating profitability, timing of development activities and the cost and timing of reclamation work. A valuation allowance may be recorded to reflect the amount of future tax benefits that the Company believes are not likely to be realized.

A valuation allowance is difficult to avoid when a company is in a cumulative loss position. A cumulative loss position is defined as a cumulative pre-tax loss for the current and two preceding years. Because of the 2016 bankruptcy, the Company was in a cumulative loss position in 2017 and 2018. As a cumulative loss constitutes significant negative evidence with regards to future taxable income, in 2017 and 2018, the Company relied solely on the expected reversal of taxable temporary differences to support the future realization of our deferred tax assets.

As of December 31, 2019, the Company is no longer in a cumulative loss position. In 2019, the Company’s assessment took into account expectations of future taxable income, available tax planning strategies and the reversal of temporary differences. Based on significant near-term uncertainty in market pricing and uncertainty surrounding other planned changes in our operating structure, the Company will not release the valuation allowance in 2019.

As of December 31, 2019, the Company had a valuation allowance against its deferred tax assets of $506.3 million. If actual outcomes differ from our expectations, the Company may adjust its valuation allowance through income tax expense in the period such determination is made.

Due to changes in ownership that occurred in connection with the Company’s emergence from bankruptcy in 2016, there was a change in ownership for purposes of IRC Section 382. Section 382 provides a combined annual limitation with respect to the ability of a corporation to use its NOLs, AMT credits and capital loss carryforwards generated before the ownership change against future taxable income. The Company’s annual limit under IRC section 382 is estimated to be $29.8 million. The Company had a net unrealized built-in gain, based on comparing the fair value and carryover tax basis in assets, at the time of the ownership change, therefore, certain built-in gains recognized within five years after the ownership change will increase the annual IRC section 382 limit for the five year recognition period beginning October 1, 2016 through September 30, 2021. There is uncertainty surrounding which assets with built-in gain will be realized within the five year period following the Company’s emergence from bankruptcy and allow the Company to realize the incremental net operating losses and credit in excess of the base 382 limitation. The Company is reflecting a deferred tax asset for the full amount of the net operating losses and credit carryforwards. If at some point in time it becomes evident that some portion of the deferred tax assets will not be realizable, the deferred tax asset, and offsetting valuation allowance will be reduced.

During 2018, the IRS completed an audit of AMT NOL carryback claims the Company filed in prior periods. In addition, the Company filed an amended 2016 tax return which changed the amount of available tax attributes and the mix used to offset its bankruptcy CODI as of January 1, 2017. As a result, the Company increased available AMT credits and reduced other tax attributes as of that date. The AMT credits do not require a valuation allowance to be recorded against them due to the law changes enacted as part of the Tax Cut and Jobs Act of 2017 (“the Act”), while the Company’s other tax attributes are fully offset by a valuation allowance. The associated valuation allowance release related to the shift in attributes reflects what the Company believes will be realized upon audit of the amended tax return filing. The Company anticipates that all AMT credits will be converted to cash in the next three years as provided by The Act. In total, these changes resulted in a recorded benefit from income taxes of $48.8 million, which was net of a $26.6 million uncertain tax position charge.

The Company is subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The tax years 2008 through 2019 remain open to examination for U.S. federal income tax matters and 1999 through 2019 remain open to examination for various state income tax matters.

Significant components of the provision for (benefit from) income taxes are as follows:



	Year Ended December 31, 2019			Year Ended December 31, 2018			Year Ended December 31, 2017
(In thousands)
Current:
Federal	$	(36	)	$	86		$	835
State	124			136			31
Total current	$	88		$	222		$	866
Deferred:
Federal	667			(52,309		)	(36,162		)
State	(507		)	(389		)	41
Total deferred	$	160		$	(52,698	)	$	(36,121	)
	$	248		$	(52,476	)	$	(35,255	)

A reconciliation of the statutory federal income tax provision (benefit) at the statutory rate to the actual provision for (benefit from) income taxes follows:



	Year Ended December 31, 2019			Year Ended December 31, 2018			Year Ended December 31, 2017
(In thousands)
Income tax provision (benefit) at statutory rate	$	49,150		$	54,621		$	71,118
Percentage depletion allowance	(17,743		)	(17,725		)	(31,255		)
State taxes, net of effect of federal taxes	(12,769		)	4,480			7,002
Change in valuation allowance	(24,206		)	(79,961		)	(410,983		)
Impact of Tax Cuts and Jobs Act of 2017	—			(17,645		)	332,345
Other, net	5,816			3,754			(3,482		)
Provision for (benefit from) income taxes	$	248		$	(52,476	)	$	(35,255	)

Significant components of the Company’s deferred tax assets and liabilities that result from carryforwards and temporary differences between the financial statement basis and tax basis of assets and liabilities are summarized as follows:



	December 31, 2019			December 31, 2018
(In thousands)
Deferred tax assets:
Tax loss carryforwards	$	294,535		$	307,615
Tax credit carryforwards	5,297			5,394
Investment in partnerships	190,418			193,217
Other	20,387			28,747
Gross deferred tax assets	$	510,637		$	534,973
Valuation allowance	(506,316		)	(530,612		)
Total deferred tax assets	$	4,321		$	4,361
Deferred tax liabilities:
Plant and equipment	2,063			3,037
Other	2,178			1,154
Total deferred tax liabilities	$	4,241		$	4,191
Net deferred tax asset	$	80		$	170

The Company has gross federal NOL carryforwards for regular income tax purposes of $1.0 billion at December 31, 2019 that will expire between 2029 and 2037. The future annual usage of NOLs will be limited under IRC section 382.

On December 22, 2017, the Act was signed into law making significant changes to the Internal Revenue Code. The Company provided its best estimate of the impact of the Act at December 31, 2017 and during 2018 completed its analysis as provided by SAB 118. The Company has recorded the impact of the Act in its year-end income tax provision in accordance with the guidance and interpretations available. The following items have been impacted by the Act:

•

Remeasurement of deferred taxes: Deferred tax assets and liabilities attributable to the U.S. were remeasured from 35% to the reduced tax rate of 21%. The amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $330.9 million of income tax expense in 2017 and $16.7 million of income tax benefit in 2018, related to the 2016 amended return filing, with offsetting valuation allowance adjustments.

•

One-time transition tax on mandatory deemed repatriation of cumulative foreign earnings: The amount of income tax expense related to the mandatory deemed repatriation of foreign earnings was $1.5 million based on cumulative foreign earnings of $4.2 million. The deemed repatriation tax is completely offset with net operating loss carryforwards, with an offsetting valuation allowance adjustment and will not result in a cash tax liability.

•

Elimination of the corporate AMT regime: Existing AMT credits as of December 31, 2018 will be refunded during 2019 through 2022. The Company has determined that it will receive a refund of existing AMT credits of approximately $45.0 million, net of a $26.6 million uncertain tax position charge. The valuation allowance previously recorded against these credits was released in 2017. The credits were reflected as a deferred tax asset. In 2018, the credits were reclassified from a deferred tax asset to short term and long term receivables.

•

Elimination of executive compensation exemptions: The Act made changes to the $1 million limit on deductible compensation paid to certain “covered” employees. The Act eliminated exemptions for qualified performance based compensation and compensation paid after termination and expanded the number of employees to which the limit applies. The Company recorded an amount of $0.2 million of tax expense in 2017, $6.1 million of tax expense in 2018 and $3.9 million of tax expense in 2019, with an offsetting valuation allowance adjustment.


•	Other provisions in the Act such as global intangible low-taxed income “GILTI” rules covering foreign income earned in low-tax countries, base-erosion and anti-abuse tax “BEAT,” and the foreign derived intangible income “FDII” deduction will have no material impact on the company

At December 31, 2017 additional tax losses were realized primarily as a result of the reversal of deductible temporary differences and percentage depletion. A $35.7 million benefit was recorded from the release of valuation allowance offsetting alternative minimum tax credits that have become refundable by the Act, as well as carryback claims filed in the fourth quarter related to specific liability losses that resulted in claims for refund of previously paid alternative minimum taxes. At December 31, 2017 a $610.6 million valuation allowance fully offsets all net deferred tax assets, other than alternative minimum tax credits.

At December 31, 2018, the valuation allowance related to sequestration on the AMT credits has been released and the credits have been reclassified from deferred tax assets to short and long term receivables, as all AMT credits will be refunded between 2019 through 2022. The impact of the 2016 amended return and finalization of the AMT NOL 10-yr carryback claims also affects NOLs, AMT credits and the investment in partnerships. A $530.6 million valuation allowance fully offsets all net deferred tax assets.

At December 31, 2019, a $24.2 million benefit was recorded from the release of valuation allowance offsetting federal and state net operating losses used to offset current year taxable income. A $506.3 million valuation allowance fully offsets all net deferred tax assets.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:



		(In thousands)
Balance at	December 31, 2016	$	7,455
Additions based on tax positions related to the current year		—
Additions for tax positions of prior years		3,928
Reductions as a result of lapses in the statute of limitations		—
Balance at	December 31, 2017	11,383
Additions based on tax positions of prior years		28,387
Additions for tax positions related to the current year		3,228
Reductions for tax positions of prior years		(634		)
Reductions as a result of lapses in the statute of limitations		(3,271		)
Balance at	December 31, 2018	39,093
Additions for tax positions related to the current year		2,980
Reductions for tax positions of prior years		(1,970		)
Reductions as a result of lapses in the statute of limitations		$	(374	)
Balance at	December 31, 2019	$	39,729

If recognized, the entire amount of the gross unrecognized tax benefits at December 31, 2019 would affect the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued interest and penalties of $0.8 million and $0.3 million at December 31, 2019 and 2018, respectively. In the next 12 months, $0.5 million gross unrecognized tax benefits are expected to be reduced due to the expiration of the statute of limitations.