Annual report pursuant to Section 13 and 15(d)

11. INCOME TAXES

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11. INCOME TAXES
12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
INCOME TAXES

The Company recorded a provision (benefit) for income taxes as follows (in thousands):

 

    Years Ended December 31,  
    2015     2014     2013  
Current provision (benefit)   $ (8,011 )   $ 11,040     $  
Deferred provision (benefit)     (2,023 )     4,097        
Total   $ (10,034 )   $ 15,137     $  

 

A reconciliation of the differences between the United States statutory federal income tax rate and the effective tax rate as provided in the consolidated statements of operations is as follows:

 

    Years Ended December 31,  
    2015     2014     2013  
Statutory rate     35.0%       35.0%       35.0%  
State income taxes, net of federal benefit     9.2       10.0       (8.2 )
Change in valuation allowance     (4.2 )     (11.5 )     458.0  
Fair value adjustments and warrant inducements     2.0       31.8        
Domestic production gross receipts deduction     (2.9 )     (2.0 )      
Section 382 reduction to loss carryover     0.1       (24.2 )     (141.1 )
Stock compensation     (0.8 )           (20.9 )
Non-deductible items     (0.5 )     0.6       (27.7 )
Change in tax status of PE Op Co.           (1.6 )      
Convertible debt instruments                 (297.7 )
Other     (3.2 )     (1.3 )     2.6  
Effective rate     34.7%       36.8%       0.0%  

 

Deferred income taxes are provided using the asset and liability method to reflect temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using presently enacted tax rates and laws. The components of deferred income taxes included in the consolidated balance sheets were as follows (in thousands):

 

    December 31,  
    2015     2014  
Deferred tax assets:                
Net operating loss carryforwards   $ 53,867     $ 12,385  
Railcar contracts     5,143        
Pension liability     2,647        
R&D and AMT credits     2,303        
Litigation accrual     1,290        
Capital leases     1,021        
Stock-based compensation     724       781  
Other     5,367       1,944  
Total deferred tax assets     72,362       15,110  
                 
Deferred tax liabilities:                
Fixed assets     (30,272 )     (24,813 )
Intangibles     (1,091 )     (1,134 )
Debt basis     (912 )      
Other     (1,423 )     (450 )
Total deferred tax liabilities     (33,698 )     (26,397 )
                 
Valuation allowance     (39,838 )     (4,147 )
Net deferred tax liabilities   $ (1,174 )   $ (15,434 )
                 
Classified in balance sheet as:                
Deferred tax liabilities   $ (1,174 )   $ (15,434 )

 

A portion of the Company’s net operating loss carryforwards will be subject to provisions of the tax law that limit the use of losses incurred by a company prior to the date certain ownership changes occur.

 

Due to the limitation, a significant portion of these net operating loss carryforwards will expire regardless of whether the Company generates future taxable income. After reducing these net operating loss carryforwards for the amount which will expire, the Company had federal net operating loss carryforwards of approximately $137,611,000 and state net operating loss carryforwards of approximately $123,462,000 at December 31, 2015. These net operating loss carryforwards expire as follows (in thousands):

 

Tax Years   Federal     State  
2016–2020   $     $ 21,344  
2021–2025     7,258       1,412  
2026–2030     13,624       33,635  
2031–2035     116,729       67,071  
    $ 137,611     $ 123,462  

 

Certain of these net operating losses are not immediately available, but become available to be utilized in each of the years ended December 31, as follows (in thousands):

 

Year     Federal     State  
  2016     $ 26,820     $ 32,504  
  2017       10,862       6,748  
  2018       10,862       6,748  
  2019       6,383       6,277  
  2020       5,282       6,169  
  Thereafter       77,402       65,016  
        $ 137,611     $ 123,462  

 

To the extent amounts are not utilized in any year, they may be carried forward to the next year until expiration. These amounts may change if there are future additional limitations on their utilization.

 

In assessing whether the deferred tax assets are realizable, a more likely than not standard is applied. If it is determined that it is more likely than not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

 

A valuation allowance has been established in the amount of $39,838,000, $4,147,000 and $8,422,000 at December 31, 2015, 2014 and 2013, respectively, based on the Company’s assessment of the future realizability of certain deferred tax assets. For the years ended December 31, 2015 and 2014, the Company recorded an increase of $1,221,000 and a decrease of $4,275,000 in the valuation allowance, respectively. During the year ended December 31, 2015, the Company recognized $1,500,000 in tax benefit related to adjustments to its tax asset valuation allowance from a prior year. In addition, a valuation allowance of $34,469,000 was recorded against the Aventine deferred tax assets with respect to purchase accounting, attributable almost exclusively to the expected expiration of net operating loss carryforwards due to limitations caused by ownership changes as previously discussed. The valuation allowance on deferred tax assets is related to future deductible temporary differences and net operating loss carryforwards (exclusive of net operating losses associated with items recorded directly to equity) for which the Company has concluded it is more likely than not that these items will not be realized in the ordinary course of operations.

 

At December 31, 2015, the Company had no increase or decrease in unrecognized income tax benefits for the year as a result of uncertain tax positions taken in a prior or current period. There was no accrued interest or penalties relating to tax uncertainties at December 31, 2015. Unrecognized tax benefits are not expected to increase or decrease within the next twelve months.

 

The Company is subject to income tax in the United States federal jurisdiction and various state jurisdictions and has identified its federal tax return and tax returns in state jurisdictions below as “major” tax filings. These jurisdictions, along with the years still open to audit under the applicable statutes of limitation, are as follows:

 

Jurisdiction Tax Years
Federal 2012 – 2014
Arizona 2012 – 2014
California 2011 – 2014
Colorado 2011 – 2014
Idaho 2012 – 2014
Illinois 2012 – 2014
Indiana 2012 – 2014
Iowa 2014
Kansas 2014
Minnesota 2014
Missouri 2014
Nebraska 2012 – 2014
Oklahoma 2014
Oregon 2012 – 2014

 

However, because the Company had net operating losses and credits carried forward in several of the jurisdictions, including the United States federal and California jurisdictions, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax attributes carried forward to open years.