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Income Taxes
6 Months Ended
Jun. 30, 2017
Income Taxes  
Income Taxes

 

10.Income Taxes

 

Our effective income tax rate (ETR) for the six months ended June 30, 2017 and June 30, 2016 was 60 percent and 32 percent, respectively. Our 2017 ETR increased compared to 2016 primarily due to the following expenses incurred during the quarter ended June 30, 2017 that do not currently meet the criteria for deductibility: (1) a $210.0 million loss contingency accrual; and (2) a $46.5 million impairment charge related to one of our investments held at cost.

 

During the quarter ended June 30, 2017, we recorded a $210 million accrual relating to an ongoing investigation by the U.S. Department of Justice. This accrual does not currently meet the more likely than not standard for tax deductibility; therefore, we have recognized no tax benefit for it in the financial statements. The impact of this accrual on our ETR as of June 30, 2017 is 23 percent and the anticipated impact on our ETR for 2017 is 10 percent. Due to the uncertainty around the ultimate outcome of the matter, it is possible that some or all of this accrual may meet the more likely than not standard in the future, at which time the benefit would be recognized. Refer to Note 12 —Litigation.

 

During the quarter ended June 30, 2017, we recorded a $46.5 million impairment charge related to one of our investments held at cost. The impairment charge is not currently deductible for tax purposes, so we have recorded a deferred tax asset of $17.4 million. We evaluated potential future sources of income of the appropriate character to determine whether the deferred tax asset was realizable and have not found sufficient sources of capital gains to offset the deferred tax asset. Therefore, the deferred tax asset must be fully reserved with a valuation allowance. The impact of this valuation allowance on our ETR as of June 30, 2017 is 5 percent and the anticipated impact on our ETR for 2017 is 2 percent.

 

We are subject to federal and state taxation in the United States as well as various foreign jurisdictions. We are no longer subject to income tax examinations by the Internal Revenue Service and substantially all other major jurisdictions for tax years prior to 2011.

 

As of both June 30, 2017 and June 30, 2016, our uncertain tax positions were $0.5 million. Unrecognized tax benefits as of both June 30, 2017 and June 30, 2016, included $0.3 million of tax benefits that, if recognized, would impact our ETR. We record interest and penalties related to uncertain tax positions as a component of income tax expense. As of June 30, 2017 and June 30, 2016, we have not accrued any interest expense related to uncertain tax positions. We are unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

 

As a result of the adoption of ASU 2016-09 in the first quarter of 2017, we established an accounting policy election to account for forfeitures of share-based awards when they occur. Upon adoption, we recognized a cumulative-effect adjustment for the removal of the forfeiture estimate with respect to awards that were continuing to vest as of January 1, 2017. The adjustment resulted in a $3.2 million tax benefit to reduce retained earnings.

 

Additionally, we now recognize excess tax benefits as income tax benefits on our consolidated statements of operations. For the six-month period ended June 30, 2017, we recognized excess tax benefits of $3.5 million, partially offsetting income tax expenses on our consolidated statements of operations. Previously, we recognized such amounts in additional paid-in capital on our consolidated balance sheets. Refer to Note 2—Basis of Presentation—Recently Issued Accounting Standards.