7.    INCOME TAXES

 

The provision for income taxes is based on income before income taxes as follows (in thousands):

 

 

Components of the total provision for income taxes are as follows (in thousands):

 

 

The provision for income taxes differs from the amount determined by applying the federal statutory rate as follows:

 

 

 

 

The Tax Cuts and Jobs Act was enacted on December 22, 2017. The provisions of the Act significantly revise the U.S. corporate income tax rules and, among other things, requires companies to record a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and reduces the US federal corporate tax rate from 35% to 21%, resulting in a remeasurement of deferred tax assets and liabilities.

 

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has not fully completed the accounting for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects of the one-time transition tax and of the rate reduction on our existing deferred tax balances and has included these provisional amounts in its consolidated financial statements for the year ended December 31, 2017. For these items, we recognized a provisional amount of $3,133, which is included as a component of income tax expense from continuing operations.

 

The one-time transition tax is based on total post-1986 earnings and profits (E&P) which have been previously deferred from US income taxes. The Company recorded a provisional amount for the one-time transition tax liability resulting in an increase in income tax expense of $3,140. The Company has not yet completed our calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the calculation of post-1986 foreign E&P previously deferred from US federal taxation and the amounts held in cash or other specified assets are finalized.

 

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, certain aspects of the Act and related calculations are still being analyzed.  Further analysis could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our deferred tax balance was $(7).

 

In general, it is the practice and intention of the Company to reinvest the earnings of its non-domestic subsidiaries in activities outside the United States. Historically, such amounts would become subject to domestic taxation upon the remittance of dividends to the United States and under certain other circumstances. Exceptions may be made on a year-by-year basis to repatriate current year earnings of certain foreign subsidiaries based on cash needs in the United States, however, the Company does not intend to transfer amounts or pay dividends.  No additional income taxes have been provided for any outside basis difference inherent in the Company’s foreign subsidiaries or any withholding taxes related to repatriation, as foreign earnings continue to be indefinitely reinvested outside of the United States.

 

The tax effects of significant temporary differences and credit and operating loss carryforwards that give rise to the net deferred tax assets and tax liabilities are as follows:

 

 

The Company has foreign operating losses that relate to a foreign subsidiary acquired in 2010. At the time of the acquisition, the Company could not conclude, on a more likely than not basis, that it would ultimately realize tax benefits from these losses and credits, and therefore valued the deferred benefit at zero. The Company will continue to assess its ability to utilize any portion of the tax carryforward balance and whether it should adjust the amount of deferred tax asset related to this carryforward.

 

Realization of the Company’s recorded deferred tax assets is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdictions in future years to obtain benefit from the reversal of net deductible temporary differences and from utilization of net operating losses and tax credit carryforwards. During 2017, the Company utilized a portion of its net operating loss carryforwards. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. Management believes that it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances as of December 31, 2017.

 

The Company files income tax returns in various U.S. and foreign taxing jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state tax examinations in its major tax jurisdictions for periods before 2014. The Company is no longer subject to tax examinations in The Netherlands or Sweden for periods before 2012, in Germany for periods before 2013 and in Portugal for periods before 2014.

 

The Company adopted ASU 2016-09 prospectively and ASU 2015-17 retrospectively as of January 1, 2016. These pronouncements impact the accounting and disclosure for income taxes (refer to Note 1, Recently Adopted Accounting Pronouncements section for more information.