Brinks Home Security Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2016

Components of pretax income (loss) from continuing operations are as follows(amounts in thousands):



	Year Ended December 31,
	2016		2015	2014
Current:
Federal	$	—	—	—
State	3,008		2,304	3,526
	3,008		2,304	3,526
Deferred:
Federal	4,000		3,895	3,292
State	140		91	(3,218	)
	4,140		3,986	74
Total income tax expense	$	7,148	6,290	3,600

Income tax expense differs from the amounts computed by applying the United States federal income tax rate of 35% as a result of the following (amounts in thousands):



	Year Ended December 31,
	2016			2015		2014
Computed expected tax benefit	$	(24,206	)	(23,155	)	(9,141	)
State and local income taxes, net of federal income taxes	2,047			1,556		200
Change in valuation allowance affecting tax expense	26,892			24,149		9,322
Expense (income) not resulting in tax impact	(1,585		)	(155	)	(73	)
Amortization of indefinite-lived assets	4,000			3,890		3,292
Other, net	—			5		—
Income tax expense	$	7,148		6,290		3,600

Components of deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows (amounts in thousands):



	As of December 31,
	2016			2015
Accrued receivable reserves	$	1,142		$	1,717
Accrued liabilities	9,197			8,626
Net operating loss carryforwards	204,478			166,183
Derivative financial instruments	3,283			4,994
Business credits	1,409			1,438
Other deferred tax assets	3,746			4,508
Valuation allowance	(96,003		)	(65,429		)
Total deferred tax assets	127,252			122,037
Intangible assets	(141,100		)	(133,248		)
Property, plant and equipment	(3,482		)	(1,980		)
Total deferred tax liabilities	(144,582		)	(135,228		)
Net deferred tax liabilities	$	(17,330	)	$	(13,191	)

For the year ended December 31, 2016, the valuation allowance increased by $30,574,000. The change in the valuation allowance is attributable to an increase of $26,892,000 related to federal income tax expense, a decrease of $1,711,000 related to changes in the derivative fair values recorded in other comprehensive income and $5,393,000 of other adjustments to deferred taxes.

As of December 31, 2016, the Company had $560,585,000 of federal net operating loss carryforwards, which begin to expire, if unused, in 2024. Approximately $129,521,000 of the Company’s federal net operating losses are subject to IRC Section 382 limitations. In addition, the Company had available for federal income tax purposes an alternative minimum tax credit carryforward of $426,000, which is available for an indefinite period. As of December 31, 2016, the Company had available for state income tax purposes net operating loss carryforwards of $175,611,355 and state tax credits of $983,000, the latter of which will expire in 2026.

As of December 31, 2016, the Company’s federal income tax returns for the 2013 through 2016 tax years remain subject to examination by the IRS. The Company’s state income tax returns subsequent to 2011 are subject to examination by state tax authorities.

A reconciliation of the beginning and ending amount of uncertain tax positions, which is recorded in other long term liabilities, is as follows (amounts in thousands):



	Year Ended December 31,
	2016		2015	2014
As of the beginning of the year	$	193	191	247
Increases for tax positions of current years	15		2	4
Reductions for tax positions of prior years	—		—	(60	)
As of the end of the year	$	208	193	191

When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest expense from the first period the interest would begin accruing according to the relevant tax law. Any accrual of interest and penalties related to underpayment of income taxes on uncertain tax positions is included in Income tax expense in the accompanying consolidated statements of operations. As of December 31, 2016 accrued interest and penalties related to uncertain tax positions were approximately $74,000. The Company does not expect a significant change in uncertain tax positions in the next twelve months.