Ameresco, Inc. 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, 2015

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The components of income before income taxes are as follows:



	Year Ended December 31,
	2015			2014			2013
Domestic	$	17,860		$	14,505		$	7,705
Foreign	(17,568		)	(8,213		)	(4,946		)
Income before provision for income taxes	$	292		$	6,292		$	2,759

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



	Year Ended December 31,
	2015			2014			2013
Current:
Federal	$	224		$	(2,659	)	$	10,114
State	603			1,826			3,499
Foreign	443			(814		)	371
	1,270			(1,647		)	13,984
Deferred:
Federal	1,728			(3,263		)	(10,315		)
State	134			574			(2,099		)
Foreign	(289		)	245			(1,225		)
	1,573			(2,444		)	(13,639		)
	$	2,843		$	(4,091	)	$	345

The Company’s deferred tax assets and liabilities result primarily from temporary differences between financial reporting and tax recognition of depreciation, reserves, and certain accrued liabilities.

Deferred tax assets and liabilities consist of the following:



	December 31,
	2015			2014
Deferred tax assets:
Compensation accruals	$	3,330		$	2,774
Reserves	3,651			3,638
Other accruals	2,252			2,893
Net operating losses	8,220			7,498
Interest rate swaps	1,804			1,715
Energy efficiency	18,110			19,116
Deferred revenue	1,479			1,769
Gross deferred income tax assets	38,846			39,403
Valuation allowance	(7,122		)	(3,995		)
Total deferred income tax assets	$	31,724		$	35,408
Deferred tax liabilities:
Depreciation	$	(32,542	)	$	(31,326	)
Contract refinancing	(304		)	(437		)
Canada	(2,234		)	(5,659		)
United Kingdom	(538		)	(396		)
Acquisition accounting	(116		)	(159		)
Total deferred income tax liabilities	(35,734		)	(37,977		)
Deferred income tax liabilities, net	$	(4,010	)	$	(2,569	)

The Company recorded a valuation allowance in the amount of $7,122 and $3,995 as of December 31, 2015 and 2014, respectively, related to the following items: 1) The Company recorded a valuation allowance on a deferred tax asset relating to interest rate swaps in the amount of $1,121 and $1,419 as of December 31, 2015 and 2014, respectively. The deferred tax asset represents a future capital loss which can only be recognized for income tax purposes to the extent of capital gain income. Although the Company anticipates sufficient future taxable income, it is more likely than not that it will not be of the appropriate character to allow for the recognition of the future capital loss. 2) As of December 31, 2015, the Company recorded a valuation allowance on a deferred tax asset relating to a foreign net operating loss in the amount of $5,778. It is more likely than not that the Company will not generate sufficient taxable income at the foreign subsidiary level to utilize the net operating loss. 3) The Company recorded a valuation allowance on a deferred tax asset relating to a state net operating loss of $223 and $239 at one of its subsidiaries as of December 31, 2015 and 2014, respectively. It is more likely than not that the Company will not generate sufficient taxable income at the subsidiary level to utilize the net operating loss.

The provision for income taxes is based on the various rates set by federal and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements.

The following is a reconciliation of the effective tax rates:



	Year Ended December 31,
	2015			2014			2013
Income before income tax	$	292		$	6,292		$	2,759
Federal statutory tax expense	$	102		$	2,202		$	966
State income taxes, net of Federal benefit	604			666			201
Net state impact of deferred rate change	55			264			(69		)
Non deductible expenses	933			764			818
Impact of reserve for uncertain tax positions	(1,772		)	(977		)	1,190
Stock-based compensation expense	402			415			373
Energy efficiency preferences	(3,280		)	(9,517		)	(3,280		)
Foreign items and rate differential	1,556			719			349
Valuation allowance	4,255			1,408			(276		)
Miscellaneous	(12		)	(35		)	73
	$	2,843		$	(4,091	)	$	345
Effective tax rate:
Federal statutory rate expense	35.0		%	35.0		%	35.0		%
State income taxes, net of Federal benefit	206.8		%	10.6		%	7.3		%
Net state impact of deferred rate change	18.8		%	4.2		%	(2.5		)%
Non deductible expenses	319.5		%	12.1		%	29.6		%
Impact of reserve for uncertain tax positions	(606.8		)%	(15.5		)%	43.1		%
Stock-based compensation expense	137.7		%	6.6		%	13.5		%
Energy efficiency preferences	(1,123.3		)%	(151.3		)%	(118.9		)%
Foreign items and rate differential	532.9		%	11.4		%	12.6		%
Valuation allowance	1,457.2		%	22.4		%	(10.0		)%
Miscellaneous	(4.1		)%	(0.6		)%	2.6		%
	973.7		%	(65.1		)%	12.3		%

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:



	Year Ended December 31,
	2015			2014
Balance, beginning of year	$	3,700		$	9,200
Additions for prior year tax positions	200			1,700
Settlements paid to tax authorities	—			—
Reductions of prior year tax positions	(1,700		)	(7,200		)
Balance, end of year	$	2,200		$	3,700

At December 31, 2015 and 2014, the Company had approximately $2,200 and $3,700, respectively, of total gross unrecognized tax benefits. The current year increase in unrecognized tax benefits relates primarily to identification of non deductible expenses. The current year decrease in unrecognized tax benefits relates primarily to items resolved as part of the IRS audit and amounts related to years already audited. The Company believes that it is reasonably possible that a decrease of up to $1,000 in unrecognized tax benefits related to federal and state exposures may be necessary within the next twelve months.

Of the total gross unrecognized tax benefits as of December 31, 2015 and 2014, $800 and $2,500, respectively, (both net of the federal benefit on state amounts) represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

At December 31, 2015 the Company had state net operating loss carryforwards of approximately $11,200, which will expire from 2015 through 2032. The tax effected portion of the state net operating loss relating to excess stock option deductions is approximately $9. Any tax benefit resulting from excess stock option deductions is recorded as an adjustment to additional paid in capital when realized. At December 31, 2015 the Company had Canadian net operating loss carryforwards of approximately $26,300, which will expire from 2015 through 2025.

The Company does not accrue U.S. tax for foreign earnings that it considers to be permanently reinvested outside the United States. Consequently, the Company has not provided any U.S. tax on the unremitted earnings of its foreign subsidiaries. As of December 31, 2015, the amount of earnings for which no repatriation tax has been provided was estimated to be $0.

At December 31, 2015 the company had a federal tax credit carryforward of approximately $13,900 which will expire at various times through 2034. The portion of the federal tax credit relating to excess stock option deductions is approximately $4,400, the tax benefit of which will be recorded as an adjustment to additional paid in capital when realized.

The tax years 2008 through 2015 remain open to examination by major taxing jurisdictions. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. The (decrease) increase included in tax expense for the years end December 31, 2015, 2014 and 2013 were $(200), $(200) and $(100), respectively.