| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Basis of Presentation – The accompanying financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
The accompanying financial statements are presented for both QTS Realty Trust, Inc. and QualityTech, LP. References to “QTS” mean QTS Realty Trust, Inc. and its controlled subsidiaries; and references to the “Operating Partnership” mean QualityTech, LP and its controlled subsidiaries.
In 2016, the Company adopted ASU 2015-02, Amendments to the Consolidation Analysis. This standard amends certain guidance applicable to the consolidation of various legal entities, including variable interest entities (“VIE”). The Company evaluated the application of the ASU and concluded that no change was required to its accounting for its interest in the Operating Partnership. However, under the new guidance, the Operating Partnership now meets the definition and criteria of a VIE and the Company is the primary beneficiary of the VIE. As discussed below, the Company’s only material asset is its ownership interest in the Operating Partnership, and consequently, all of its assets and liabilities represent those assets and liabilities of the Operating Partnership. The Company’s debt is an obligation of the Operating Partnership where the creditors may have recourse, under certain circumstances, against the credit of the Company.
QTS is the sole general partner of the Operating Partnership, and its only material asset consists of its ownership interest in the Operating Partnership. Management operates QTS and the Operating Partnership as one business. The management of QTS consists of the same employees as the management of the Operating Partnership. QTS does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. QTS has not issued or guaranteed any indebtedness. Except for net proceeds from public equity issuances by QTS, which are contributed to the Operating Partnership in exchange for units of limited partnership interest of the Operating Partnership, the Operating Partnership generates all remaining capital required by the business through its operations, the direct or indirect incurrence of indebtedness, and the issuance of partnership units. Therefore, as general partner with control of the Operating Partnership, QTS consolidates the Operating Partnership for financial reporting purposes.
The Company believes, therefore, that providing one set of notes for the financial statements of QTS and the Operating Partnership provides the following benefits:
·
enhances investors’ understanding of QTS and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
·
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both QTS and the Operating Partnership; and
·
creates time and cost efficiencies through the preparation of one set of notes instead of two separate sets of notes.
In addition, in light of these combined notes, the Company believes it is important for investors to understand the few differences between QTS and the Operating Partnership in the context of how QTS and the Operating Partnership operate as a consolidated company. With respect to balance sheets, the presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated balance sheets of QTS and those of the Operating Partnership. On the Operating Partnership’s consolidated balance sheets, partners’ capital includes partnership units that are owned by QTS and other partners. On QTS’ consolidated balance sheets, stockholders’ equity includes common stock, additional paid in capital, accumulated other comprehensive income (loss) and accumulated dividends in excess of earnings. The remaining equity reflected on QTS’s consolidated balance sheet is the portion of net assets that are retained by partners other than QTS, referred to as noncontrolling interests. With respect to statements of operations, the primary difference in QTS' Statements of Operations and Statements of Comprehensive Income is that for net income (loss), QTS retains its proportionate share of the net income (loss) based on its ownership of the Operating Partnership, with the remaining balance being retained by the Operating Partnership. These combined notes refer to actions or holdings as being actions or holdings of “the Company.” Although the Operating Partnership is generally the entity that enters into contracts, holds assets and issues debt, management believes that these general references to “the Company” in this context is appropriate because the business is one enterprise operated through the Operating Partnership.
As discussed above, QTS owns no operating assets and has no operations independent of the Operating Partnership and its subsidiaries. Also, the Operating Partnership owns no operating assets and has no operations independent of its subsidiaries. Obligations under the 4.75% Notes due 2025 and the unsecured credit facility, both discussed in Note 5, are fully, unconditionally, and jointly and severally guaranteed by the Operating Partnership’s existing subsidiaries, other than: QTS Finance Corporation, the co-issuer of the 4.75% Notes due 2025. The indenture governing the 4.75% Notes due 2025 restricts the ability of the Operating Partnership to make distributions to QTS, subject to certain exceptions, including distributions required in order for QTS to maintain its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”).
The consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its majority owned subsidiaries. This includes the operating results of the Operating Partnership for all periods presented.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets, allowances for doubtful accounts and deferred tax assets and the valuation of derivatives, real estate assets, acquired intangible assets and certain accruals.
Principles of Consolidation – The consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its majority-owned subsidiaries. The consolidated financial statements of QualityTech, LP include the accounts of QualityTech, LP and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in the financial statements.
Reclassifications – The consolidated statement of cash flows for the year ended December 31, 2016 reflects a cash inflow reclassification of $0.9 million from “Payment of tax withholdings related to equity based awards” to “Proceeds from exercise of stock options.” The consolidated statement of cash flows for the year ended December 31, 2015 reflects a cash inflow reclassification of $0.6 million from “Accounts payable and accrued liabilities” to “Proceeds from exercise of stock options” as well as a cash outflow reclassification of $1.1 million from “Accounts payable and accrued liabilities” to “Payment of tax withholdings related to equity based awards.” Both 2016 and 2015 reclassifications were made in accordance with the Company’s adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting as of January 1, 2017 with retrospective application of this provision.
Real Estate Assets – Real estate assets are reported at cost. All capital improvements for the income-producing properties that extend their useful lives are capitalized to individual property improvements and depreciated over their estimated useful lives. Depreciation for real estate assets is generally provided on a straight-line basis over 40 years from the date the property was placed in service. Property improvements are depreciated on a straight-line basis over the life of the respective improvement ranging from 20 to 40 years from the date the components were placed in service. Leasehold improvements are depreciated over the lesser of 20 years or through the end of the respective life of the lease. Repairs and maintenance costs are expensed as incurred. For the year ended December 31, 2017, depreciation expense related to real estate assets and non-real estate assets was $90.1 million and $14.2 million, respectively, for a total of $104.3 million. For the year ended December 31, 2016, depreciation expense related to real estate assets and non-real estate assets was $77.5 million and $13.1 million, respectively, for a total of $90.6 million. For the year ended December 31, 2015, depreciation expense related to real estate assets and non-real estate assets was $55.2 million and $9.8 million, respectively, for a total of $65.0 million. The Company capitalizes certain development costs, including internal costs incurred in connection with development. The capitalization of costs during the construction period (including interest and related loan fees, property taxes and other direct and indirect costs) begins when development efforts commence and ends when the asset is ready for its intended use. Capitalization of such costs, excluding interest, aggregated to $12.7 million, $11.0 million and $10.8 million for the years ended December 31, 2017, 2016 and 2015 respectively. Interest is capitalized during the period of development by first applying the Company’s actual borrowing rate on the related asset and second, to the extent necessary, by applying the Company’s weighted average effective borrowing rate to the actual development and other costs expended during the construction period. Interest is capitalized until the property is ready for its intended use. Interest costs capitalized totaled $14.3 million, $11.4 million and $9.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Acquisitions – Acquisitions of real estate and other entities are either accounted for as asset acquisitions or business combinations depending on facts and circumstances. Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired in accordance with the accounting requirements of ASC 805, Business Combinations , which requires the recording of net assets of acquired businesses at fair value. The fair value of the consideration transferred is allocated to the acquired tangible assets, consisting primarily of land, construction in progress, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases, value of customer relationships, trade names, software intangibles and capital leases. The excess of the fair value of liabilities assumed, common stock issued and cash paid over the fair value of identifiable assets acquired is allocated to goodwill, which is not amortized by the Company.
In developing estimates of fair value of acquired assets and assumed liabilities, management analyzed a variety of factors including market data, estimated future cash flows of the acquired operations, industry growth rates, current replacement cost for fixed assets and market rate assumptions for contractual obligations. Such a valuation requires management to make significant estimates and assumptions, particularly with respect to the intangible assets.
Acquired in-place leases are amortized as amortization expense on a straight-line basis over the remaining life of the underlying leases. This amortization expense is accounted for as real estate amortization expense.
Acquired customer relationships are amortized as amortization expense on a straight-line basis over the expected life of the customer relationship. This amortization expense is accounted for as real estate amortization expense.
Other acquired intangible assets, which includes platform, above or below market leases, and trade name intangibles, are amortized on a straight-line basis over their respective expected lives. Above or below market leases are amortized as a reduction to or increase in rental revenue when the Company is a lessor as well as a reduction or increase to rent expense over the remaining lease terms in the case of the Company as lessee. The expense associated with above and below market leases and trade name intangibles is accounted for as real estate expense, whereas the expense associated with the amortization of platform intangibles is accounted for as non-real estate expense.
See Note 3 for discussion of the final purchase price allocation for the Piscataway, New Jersey facility (the “Piscataway facility”) that the Company acquired on June 6, 2016, as well as the final purchase price allocation for the Fort Worth, Texas facility (the “Fort Worth facility”) that the Company acquired on December 16, 2016.
Impairment of Long-Lived Assets, Intangible Assets and Goodwill – The Company reviews its long-lived assets and intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset group. If the net carrying value of the asset exceeds the value of the undiscounted cash flows, the fair value of the asset is assessed and may be considered impaired. An impairment loss is recognized based on the excess of the carrying amount of the impaired asset over its fair value. For the year ended December 31, 2017, the Company recognized a $1.6 million impairment related to equipment used to support its cloud and managed service platform. The impairment charge is included in the “Transaction, integration and impairment costs” line item of the consolidated statement of operations. No impairment losses were recorded for the years ended December 31, 2016 and 2015 .
The fair value of goodwill is the consideration transferred which is not allocable to identifiable intangible and tangible assets. Goodwill is subject to at least an annual assessment for impairment. In connection with the goodwill impairment evaluation that the Company performed on October 1, 2017, the Company determined qualitatively that it is not more likely than not that the fair value of the Company’s one reporting unit was less than the carrying amount, thus it did not perform a quantitative analysis.
Cash and Cash Equivalents – The Company considers all demand deposits and money market accounts purchased with a maturity date of three months or less at the date of purchase to be cash equivalents. The Company’s account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is concentration of credit risk related to amounts on deposit in excess of FDIC coverage. The Company mitigates this risk by depositing a majority of its funds with several major financial institutions. The Company also has not experienced any losses and, therefore, does not believe that the risk is significant.
Deferred Costs – Deferred costs, net, on the Company’s balance sheets include both financing costs and leasing costs.
Deferred financing costs represent fees and other costs incurred in connection with obtaining debt and are amortized over the term of the loan and are included in interest expense. Debt issuance costs related to revolving debt arrangements are deferred and presented as assets on the balance sheet; however, all other debt issuance costs are recorded as a direct offset to the associated liability. Amortization of debt issuance costs, including those costs presented as offsets to the associated liability in the consolidated balance sheet, were $3.6 million, $3.3 million and $3.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. During the year ended December 31, 2017, the Company wrote off unamortized financing costs of $5.2 million to the income statement primarily in connection with the replacement of its $300 million 5.875% senior notes with the $400 million of 4.75% notes. During the year ended December 31, 2016, the Company wrote off unamortized financing costs of $0.2 million to the income statement in connection with the modification of its unsecured credit facility in December 2016 whereby the company increased the total capacity and extended the term for an additional year. During the year ended December 31, 2015, the Company wrote off unamortized financing costs of $0.5 million to the income statement in connection with the repayment of the Atlanta Metro equipment loan in June 2015 as well as the amendment of its unsecured credit facility in October 2015 whereby the Company increased the unsecured credit facility capacity, and, at the same time, terminated its Richmond credit facility.
Deferred financing costs presented as assets on the balance sheet related to revolving debt arrangements, net of accumulated amortization are as follows:
December 31,
December 31,
(dollars in thousands)
2017
2016
Deferred financing costs
$
9,775
$
7,128
Accumulated amortization
(1,908)
(145)
Deferred financing costs, net
$
7,867
$
6,983
Deferred financing costs presented as offsets to the associated liabilities on the balance sheet related to fixed debt arrangements, net of accumulated amortization, are as follows:
December 31,
December 31,
(dollars in thousands)
2017
2016
Deferred financing costs
$
12,675
$
12,779
Accumulated amortization
(1,039)
(2,660)
Deferred financing costs, net
$
11,636
$
10,119
Deferred leasing costs consist of external fees and internal costs incurred in the successful negotiations of leases and are deferred and amortized over the terms of the related leases on a straight-line basis. If an applicable lease terminates prior to the expiration of its initial term, the carrying amount of the costs are written off to amortization expense. Amortization of deferred leasing costs totaled $18.5 million, $15.2 million and $11.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. Deferred leasing costs, net of accumulated amortization are as follows:
December 31,
December 31,
(dollars in thousands)
2017
2016
Deferred leasing costs
$
54,868
$
50,026
Accumulated amortization
(20,956)
(18,502)
Deferred leasing costs, net
$
33,912
$
31,524
Advance Rents and Security Deposits – Advance rents, typically prepayment of the following month’s rent, consist of payments received from customers prior to the time they are earned and are recognized as revenue in subsequent periods when earned. Security deposits are collected from customers at the lease origination and are generally refunded to customers upon lease expiration.
Deferred Income – Deferred income generally results from non-refundable charges paid by the customer at lease inception to prepare their space for occupancy. The Company records this initial payment, commonly referred to as set-up fees, as a deferred income liability which amortizes into rental revenue over the term of the related lease on a straight-line basis. Deferred income was $25.3 million, $22.0 million and $17.0 million as of December 31, 2017, 2016 and 2015, respectively. Additionally, $10.7 million, $9.4 million and $6.0 million of deferred income was amortized into revenue for the years ended December 31, 2017, 2016 and 2015, respectively.
Equity-based Compensation – All equity-based compensation is measured at fair value on the grant date, and recognized in earnings over the requisite service period. Equity-based compensation costs are measured based upon their estimated fair value on the date of grant or modification and amortized ratably over their respective vesting periods. We have elected to account for forfeitures as they occur. Equity-based compensation expense net of forfeited and repurchased awards was $13.9 million, $10.6 million and $7.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Rental Revenue – The Company, as a lessor, has retained substantially all of the risks and benefits of ownership and accounts for its leases as operating leases. For lease agreements that provide for scheduled rent increases, rental income is recognized on a straight-line basis over the non-cancellable term of the leases, which commences when control of the space has been provided to the customer. The amount of the straight-line rent receivable on the balance sheets included in rents and other receivables, net was $23.4 million and $17.3 million as of December 31, 2017 and December 31, 2016, respectively. Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease as discussed above.
Cloud and Managed Services Revenue – The Company may provide both its cloud product and use of its managed services to its customers on an individual or combined basis. Service fee revenue is recognized as the revenue is earned, which generally coincides with the services being provided.
Allowance for Uncollectible Accounts Receivable – Rents receivable are recognized when due and are carried at cost, less an allowance for doubtful accounts. The Company records a provision for losses on rents receivable equal to the estimated uncollectible accounts, which is based on management’s historical experience and a review of the current status of the Company’s receivables. As necessary, the Company also establishes an appropriate allowance for doubtful accounts for receivables arising from the straight-lining of rents. The aggregate allowance for doubtful accounts was $11.5 million and $4.2 million as of December 31, 2017 and December 31, 2016, respectively.
Capital Leases and Lease Financing Obligations – The Company evaluates leased real estate to determine whether the lease should be classified as a capital or operating lease in accordance with U.S. GAAP.
The Company periodically enters into capital leases for certain equipment. In addition, through its acquisition of Carpathia on June 16, 2015, the Company is party to capital leases for property and equipment, as well as certain financing obligations. The outstanding liabilities for the capital leases were $7.8 million and $18.1 million as of December 31, 2017 and 2016, respectively. During the quarter ended December 31, 2017, the Company completed the buyout of the Vault facility in Dulles, VA that was previously subject to a lease financing obligation, therefore the outstanding liabilities for the lease financing obligations were $0.9 million and $20.6 million as of December 31, 2017 and 2016, respectively. The net book value of the assets associated with these leases was approximately $14.7 million and $41.5 million as of December 31, 2017 and 2016, respectively. Depreciation related to the associated assets is included in depreciation and amortization expense in the Statements of Operations.
See Note 6 for further discussion of capital leases and lease financing obligations.
Recoveries from Customers – Certain customer leases contain provisions under which the customers reimburse the Company for a portion of the property’s real estate taxes, insurance and other operating expenses, which include certain power and cooling-related charges. The reimbursements are included in revenue as recoveries from customers in the Statements of Operations in the period the applicable expenditures are incurred. Certain customer leases are structured to provide a fixed monthly billing amount that includes an estimate of various operating expenses, with all revenue from such leases included in rental revenues.
Segment Information – The Company manages its business as one operating segment and thus one reportable segment consisting of a portfolio of investments in data centers located primarily in the United States.
Customer Concentrations – As of December 31, 2017, one of the Company’s customers represented 11.8% of its total monthly rental revenue. No other customers exceeded 4.5% of total monthly rental revenue.
As of December 31, 2017, five of the Company’s customers exceeded 5% of total accounts receivable. In aggregate, these five customers accounted for 33% of total accounts receivable. None these five customers individually exceeded 10% of total accounts receivable.
Income Taxes – The Company has elected for two of its existing subsidiaries to be taxed as taxable REIT subsidiaries pursuant to the REIT rules of the U.S. Internal Revenue Code.
For the taxable REIT subsidiaries, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The components of income tax provision from continuing operations are:
For the Year Ended December 31,
2017
2016
2015
Current:
U.S. federal
$
42
$
(356)
$
462
U.S. State
297
20
11
Outside United States
44
33
—
Total Current
383
(303)
473
Deferred:
U.S. federal
(9,734)
(8,796)
(8,952)
U.S. State
(427)
(877)
(1,586)
Outside United States
—
—
—
Total Deferred
(10,161)
(9,673)
(10,538)
Total
$
(9,778)
$
(9,976)
$
(10,065)
As of December 31, 2014, one of the Company’s taxable REIT subsidiaries’ deferred tax assets were primarily the result of U.S. net operating loss carryforwards. A valuation allowance was recorded against its gross deferred tax asset balance as of December 31, 2014. As a result of the acquisition of Carpathia, the Company determined that it is more likely than not that pre-existing deferred tax assets would be realized by the Company, and the valuation allowance was eliminated. The change in the valuation allowance resulting from the change in circumstances was included in income, and recognized as a deferred income tax benefit in the year ended December 31, 2015.
In addition to the deferred income tax benefit recognized in the year ended December 31, 2015 in connection with the elimination of the valuation allowance, a deferred tax benefit was recognized in the years ended December 31, 2017 and 2016 in connection with recorded operating losses. As of December 31, 2015, 2016 and 2017, this taxable REIT subsidiary has a net deferred tax liability position primarily due to customer-based intangibles acquired as part of the Carpathia acquisition.
Temporary differences and carry forwards which give rise to the deferred tax assets and liabilities are as follows:
For the Year Ended December 31,
2017
2016
2015
Deferred tax liabilities
Property and equipment
$
(4,940)
$
(15,031)
$
(16,032)
Goodwill
(1,396)
(1,290)
(407)
Intangibles
(13,606)
(24,244)
(23,896)
Other
(1,132)
(1,386)
(2,350)
Gross deferred tax liabilities
(21,074)
(41,951)
(42,685)
Deferred tax assets
Net operating loss carryforwards
8,888
18,035
14,500
Deferred revenue and setup charges
3,435
4,323
3,747
Leases
453
2,154
3,097
Credits
543
492
630
Bad debt reserve
2,250
41
539
Other
1,607
2,114
1,752
Gross deferred tax assets
17,176
27,159
24,265
Net deferred tax liability
(3,898)
(14,792)
(18,420)
Valuation allowance
(713)
(393)
(393)
Net deferred tax liability
$
(4,611)
$
(15,185)
$
(18,813)
The taxable REIT subsidiaries currently have $33.9 million of net operating loss carryforwards related to federal income taxes that expire in 12-20 years. The taxable REIT subsidiaries also have $35.8 million of net operating loss carryforwards relating to state income taxes that expire in 2-20 years.
The effective tax rate is subject to change in the future due to various factors such as the operating performance of the taxable REIT subsidiaries, tax law changes and future business acquisitions. The Company’s effective tax rates were 65.1%, 46.5% and 34.8% for the years ended December 31, 2017, 2016 and 2015, respectively. The effective tax rate increase from 2016 to 2017 is primarily due to the federal rate change resulting from the enactment of the Tax Cuts and Jobs Act and state tax rate changes, offset by a comparative decrease in permanent differences and by the accounting for a valuation allowance.
The differences between total income tax expense or benefit and the amount computed by applying the statutory income tax rate to income before provision for income taxes with respect to the TRS activity were as follows:
For the Year Ended December 31,
2017
2016
2015
TRS
Statutory rate of 34% applied to pre-tax loss
$
(5,109)
$
(7,299)
$
(6,683)
Permanent differences, net
(284)
(2,021)
281
State income tax, net of federal benefit
(388)
(689)
(268)
Foreign income tax
44
33
—
Federal and State rate change
(3,251)
—
—
Contribution of Assets to TRS
(866)
—
—
Other
(244)
—
—
Valuation allowance (decrease) increase
320
—
(3,395)
Total tax benefit
$
(9,778)
$
(9,976)
$
(10,065)
Effective tax rate
On December 22, 2017, the Tax Cuts and Jobs Act ("The Act"), was signed into law by President Trump. The tax legislation contains several provisions, including the lowering of the U.S. corporate tax rate from 35 percent to 21 percent, effective January 1, 2018.
The Company has significant deferred tax liabilities, primarily related to fixed assets and intangibles, on its balance sheet as of December 31, 2017. The value of the net deferred tax liabilities has decreased significantly as a result of the reduction in the U.S. corporate income tax rate. Consequently, operating results reflect a one-time non-cash income tax benefit of $3.3 million to reflect the re-measurement of deferred tax assets (liabilities).
The Act also repealed corporate alternative minimum tax (“AMT”) for tax years beginning January 1, 2018, and provides that existing AMT credit carryforwards are refundable beginning in 2018. The Company has approximately $0.3 million of AMT credit carryovers that are expected to be fully refunded by 2022. The repeal of AMT does not result in any one-time income tax expense (benefit) to operating results.
The Company is following the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provides additional clarification regarding the application of ASC Topic 740 in situations where the Company may not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act’s enactment date and ending when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstances should the measurement period extend beyond one year from the enactment date.
Upon completion of the Company’s 2017 U.S. income tax return in 2018, additional re-measurement adjustments may be identified with respect to the recorded deferred tax assets (liabilities). The Company will continue to assess the provision for income taxes as future guidance is issued, but does not currently anticipate that significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in SAB 118.
As of December 31, 2017, 2016 and 2015, the Company had no uncertain tax positions. If the Company accrues any interest or penalties on tax liabilities from significant uncertain tax positions, those items will be classified as interest expense and g |
