Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

The Company's deferred income taxes reflect the value of its net operating loss carryforwards and the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their amounts used for income tax calculations. Federal legislation known as The Tax Cuts and Jobs Acts ("Tax Act") was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from the previous rate of 35% to 21% effective January 1, 2018. The Tax Act also made broad and complex changes to the U.S. tax code, including, but not limited to a onetime tax on earnings of certain foreign subsidiaries, limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, bonus depreciation for full expensing of qualified property, and limitations on the deductibility of certain executive compensation. At December 31, 2017, the Company calculated the effects of the enactment of the Tax Act as written, and made an estimate of the effects on the existing deferred tax balances. The re-measurement of deferred tax balances in 2017 using the lower federal rates enacted by the Tax Act, resulted in a reduction in the Company's net deferred tax liability and the recognition of a deferred tax benefit as depicted by the change in the federal statutory tax rate included below. The Company continues to analyze and monitor the effects of the Tax Act on its operations.

At December 31, 2019, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for federal income tax purposes of approximately $172.5 million, which do not expire but whose use is limited to 80% of taxable income in any given year. The deferred tax asset balance includes $3.4 million net of a $0.3 million valuation allowance related to state NOL CFs, which have remaining lives ranging from one to twenty years. These NOL CFs are attributable to excess tax deductions related primarily to the accelerated tax depreciation of fixed assets and cash contributions for its defined benefit pension plans. At December 31, 2019 and 2018, the Company determined that, based upon projections of taxable income, it was more likely than not that the NOL CF’s will be, accordingly, no allowance against these deferred tax assets was recorded. The Company had alternative minimum tax credits of $3.1 million which will be recovered over the next three years.

The significant components of the deferred income tax assets and liabilities as of December 31, 2019 and 2018 are as follows (in thousands):



	December 31
	2019			2018
Deferred tax assets:
Net operating loss carryforward and federal credits	$	40,467		$	55,760
Lease Obligation	9,070			—
Warrants	17,174			7,314
Post-retirement employee benefits	6,355			13,777
Employee benefits other than post-retirement	9,435			8,751
Inventory reserve	2,055			2,374
Deferred revenue	5,132			4,389
Other	9,309			5,333
Deferred tax assets	98,997			97,698
Deferred tax liabilities:
Accelerated depreciation	(192,651		)	(189,719		)
Partnership items	(6,088		)	(5,850		)
Operating lease assets	(9,051		)	—
Goodwill	(4,916		)	(620		)
State taxes	(12,355		)	(14,474		)
Valuation allowance against deferred tax assets	(1,412		)	(278		)
Deferred tax liabilities	(226,473		)	(210,941		)
Net deferred tax (liability)	$	(127,476	)	$	(113,243	)

The following summarizes the Company’s income tax provisions (benefits) (in thousands):



	Years Ended December 31
	2019			2018			2017
Current taxes:
Federal	$	1,332		$	—		$	9
Foreign	1			—			48
State	138			1,043			590
Deferred taxes:
Federal	14,155			15,642			27,625
Foreign	—			(63		)	—
State	(3,677		)	2,973			3,396
Change in federal statutory tax rates	—			—			(59,944		)
Total deferred tax expense	10,478			18,552			(28,923		)
Total income tax expense (benefit) from continuing operations	$	11,589		$	19,595		$	(28,276	)
Income tax expense (benefit) from discontinued operations	$	360		$	434		$	(1,848	)

The reconciliation of income tax from continuing operations computed at the U.S. statutory federal income tax rates to effective income tax rates is as follows:



	Years Ended December 31
	2019		2018		2017
Statutory federal tax rate	21.0	%	21.0	%	35.0	%
Foreign income taxes	—	%	(0.1	)%	(0.5	)%
State income taxes, net of federal tax benefit	1.4	%	(0.2	)%	(39.7	)%
Tax effect of non-deductible warrant expense	(2.9	)%	(1.5	)%	(485.0	)%
Tax effect of stock compensation	—	%	(0.8	)%	21.7	%
Tax effect of other non-deductible expenses	1.7	%	0.8	%	(19.6	)%
Change in federal and state tax laws	—	%	—	%	917.2	%
Change to state statutory tax rates	(5.4	)%	3.8	%	—	%
Other	0.4	%	(0.6	)%	3.5	%
Effective income tax rate	16.2	%	22.4	%	432.6	%

The income tax deductibility of the warrant expense is less than the expense required by GAAP because for tax purposes, the warrants are valued at a different time and under a different valuation method.

The reconciliation of income tax from discontinued operations computed at the U.S. statutory federal income tax rates to effective income tax rates is as follows:



	Years Ended December 31
	2019		2018		2017
Statutory federal tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal tax benefit	1.8	%	2.6	%	1.3	%
Change in federal statutory tax rates	—	%	—	%	—	%
Effective income tax rate	22.8	%	23.6	%	36.3	%

The Company files income tax returns in the U.S. federal jurisdiction and various international, state and local jurisdictions. The returns may be subject to audit by the Internal Revenue Service (“IRS”) and other jurisdictional authorities. International returns consist primarily of disclosure returns where the Company is covered by the sourcing rules of U.S. international treaties. The Company recognizes the impact of an uncertain income tax position in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. At December 31, 2019, 2018 and 2017, the Company's unrecognized tax benefits were $0.0 million, $0.0 million and $0.0 million respectively. Accrued interest and penalties on tax positions are recorded as a component of interest expense. Interest and penalties expense was immaterial for 2019, 2018 and 2017.

The Company began to file, effective in 2008, federal tax returns under a common parent of the consolidated group that includes ABX and all the wholly-owned subsidiaries. The returns for 2018, 2017 and 2016 related to the consolidated group remain open to examination. The consolidated federal tax returns prior to 2016 remain open to federal examination only to the extent of net operating loss carryforwards carried over from or utilized in those years. Pemco and Omni filed returns on their own behalf prior to their acquisition by the Company. State and local returns filed for 2005 through 2018 are generally also open to examination by their respective jurisdictions, either in full or limited to net operating losses. The Company files tax returns with the Republic of Ireland for its leasing operations based in Ireland.