The United States Tax Cuts and Jobs Act (the “Tax Act”) which was signed into law December 22, 2017, made significant changes to the Internal Revenue Code. The changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company calculated our best estimate of the impact of the Tax Act in our year end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the date of this filing and, as a result, have recorded a net benefit of $7.8 million within income tax expense. This benefit was primarily due to revaluing the Company’s net deferred tax liabilities to reflect the recently enacted 21% federal corporate tax rate effective January 1, 2018.

 

In addition, on December 22, 2017, the SEC staff issued SEC Staff Accounting Bulletin 118 (“SAB 118”) to address the accounting implications of the Tax Act. SAB 118 permits a company to recognize provisional amounts for the one-time tax effects of the Tax Act upon enactment when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. The measurement period to finalize these calculations cannot extend beyond one year of the enactment date. Key provisions that have a significant impact on the Financial Statements and where the Company has recognized estimated amounts include the remeasurement of certain net deferred tax assets and liabilities and recognition of liabilities for taxes on mandatory one-time deemed repatriation of accumulated earnings of foreign subsidiaries. These estimates are based on the Company’s initial analysis of the Tax Act and likely will be adjusted in future periods as required. The completion of the Company’s 2017 tax return filings could all impact these estimates. The Company will utilize implementation guidance from the Internal Revenue Service and clarifications of state tax law, as well as information from other authoritative sources, to understand the significant complexity of the Tax Act. The Company does not believe any potential adjustments in future periods would materially impact the Company’s financial condition or results of operations. The Tax Act provisions related to global intangible low taxed income (“GILTI”) could impact the Company’s taxes associated with foreign earnings in the future, however GILTI did not have an impact to the Company’s as of December 31, 2017.

Income before income taxes by geographic area was, for the years ended December 31:

 

 

 

(in thousands)		2017				2016				2015
Federal		$	33,830			$	39,419			$	45,456
Foreign			(9,190	)			(1,074	)			(1,157	)
		$	24,640			$	38,345			$	44,299

The income tax provision consisted of the following for the years ended December 31:  

 

 

(in thousands)		2017				2016				2015
Current
Federal		$	7,020			$	9,838			$	12,433
State			1,557				2,871				3,006
			8,577				12,709				15,439
Deferred
Federal			(1,453	)			2,491				1,553
Foreign			(875	)			481				(272	)
State			(2,763	)			1,233				277
			(5,091	)			4,205				1,558
Income tax expense		$	3,486			$	16,914			$	16,997

 

The differences between the U.S. federal statutory tax rate and the Company’s effective tax rate for continuing operations were as follows for the years ended December 31:  

 

 

		2017				2016				2015
U.S federal statutory rate			35.0	%			35.0	%			35.0	%
Deferred balance adjustments due to Tax Act, net			(31.6	)			—				—
State income taxes, net of U.S. federal income tax expense			5.3				5.2				4.6
Change in valuation allowance			6.4				1.6				—
Domestic production/manufacturing deduction			(1.6	)			(1.9	)			(2.4	)
Tax differential on foreign earnings			3.2				0.6				0.3
Deferred state tax adjustments, net			(2.4	)			1.6				—
Non-deductible meals and entertainment			1.7				1.0				0.6
Stock compensation excess tax benefits			(3.1	)			—				—
Uncertain tax positions			2.0				—				(0.4	)
Provision to return adjustments, net			(0.3	)			0.8				0.5
Other income, net			(0.5	)			0.2				0.2
Effective rate			14.1	%			44.1	%			38.4	%

The net deferred tax assets and (liabilities) arising from temporary differences was as follows at December 31:

 

 

(in thousands)		2017				2016
Deferred income tax assets:
Self insurance reserves		$	4,555			$	6,670
Contract loss reserves			317				257
Stock-based awards			1,571				2,554
Bonus			590				2,908
Non-U.S. operating loss			2,173				595
Non-U.S. deferred income tax assets, net			773				—
Other			1,359				1,652
Total deferred income tax assets before valuation allowances			11,338				14,636
Less: valuation allowances			(2,173	)			(595	)
Total deferred income tax assets			9,165				14,041
Deferred income tax liabilities:
Property and equipment – tax over book depreciation			(18,792	)			(26,664	)
Intangible assets – tax over book amortization			(2,186	)			(3,592	)
Non-U.S. deferred income tax liabilities, net			—				(91	)
Other			(1,639	)			(2,259	)
Total deferred income tax liabilities			(22,617	)			(32,606	)
Net deferred income taxes		$	(13,452	)		$	(18,565	)

The Company determined that it is more-likely-than-not that it will not realize the deferred tax assets on certain Canadian subsidiaries and recorded a valuation allowance against the entire related deferred tax assets.

As of December 31, 2017, the Company had no undistributed earnings of our Canadian subsidiaries. We expect future earnings to be reinvested. Accordingly, as of December 31, 2017 no provision for U.S. income taxes or foreign withholding taxes has been made.

The Company is subject to taxation in various jurisdictions. The Company’s tax returns for 2015 and 2016 are subject to examination by U.S. federal authorities. The Company’s tax returns are subject to examination by various state authorities for the years 2013 through 2016.

The Company has recorded a liability for unrecognized tax benefits related to tax positions taken on its various income tax returns. If recognized, the entire amount of unrecognized tax benefits would favorably impact the effective tax rate that is reported in future periods. The increase in the unrecognized tax benefits as of December 31, 2017 was primarily due to the reserve for state tax expense deducted on the federal tax returns for the 2011 through 2016 tax years. The total unrecognized tax benefits is expected to be reduced by less than $0.1 million within the next 12 months due to the lapses in the applicable statutes of limitations. Interest and penalties related to uncertain income tax positions are included as a component of income tax expense in the Financial Statements.

The following is a reconciliation of the beginning and ending liability for unrecognized tax benefits at December 31:

 

 

(in thousands)		2017				2016
Balance at beginning of period		$	301			$	425
Gross increases in current period tax positions			67				100
Gross increases in prior period tax positions			441				—
Reductions in tax positions due to lapse of statutory limitations			(22	)			(12	)
Settlements with taxing authorities			—				(243	)
Balance at end of period			787				270
Accrued interest and penalties at end of period			—				31
Total liability for unrecognized tax benefits		$	787			$	301

The liability for unrecognized tax benefits, including accrued interest and penalties, was included in other liabilities in the accompanying consolidated balance sheets. The amount of interest and penalties charged or credited to income tax expense as a result of the unrecognized tax benefits was not significant in the years ended December 31, 2017, 2016 and 2015.

The Company adopted ASU No. 2016-09, Compensation — Stock Compensation (Topic 718) on January 1, 2017. See Note 1 — Organization, Business and Significant Accounting Policies to the Financial Statements for further information regarding ASU No. 2016-09, Compensation — Stock Compensation (Topic 718).