Entity information:

9. Income Taxes

The Company adopted ASU 2016-09 as of January 1, 2017, which changes how the Company accounts for share-based awards for tax purposes. Income tax effects of share-based awards are now recognized in the income statement, instead of through equity, when the awards vest.

Excess tax benefits/deficiencies are generated when the deduction for tax purposes is greater/less than the compensation cost for financial reporting purposes. Upon adoption of ASU 2016-09, the Company no longer records excess tax benefits/deficiencies in additional paid-in capital as a component of equity. Instead, excess tax benefits/deficiencies are included in the provision for income taxes on the consolidated statements of operations. These changes are recorded prospectively as of January 1, 2017, which resulted in an increase in our income tax provision of $1.7 million, or an increase in the effective tax rate of 0.7%, for the year ended December 31, 2017. Prior periods have not been adjusted. An adjustment for prior period excess tax benefits of $8.6 million is recorded as a cumulative-effect adjustment in retained earnings at December 31, 2017 as the Company adopted ASU 2016-09 using the modified retrospective transition method. Excess tax benefits were previously required to be included in financing activities on the consolidated statement of cash flows and are now required to be included in operating activities. The changes to the consolidated statement of cash flows are recorded prospectively as of January 1, 2017. Additionally, the Company has elected not to adjust its policy on accounting for forfeitures and will continue to estimate forfeiture rates.

Income tax expense (benefit) from continuing operations consists of the following for the periods presented (in thousands):

 

     Year Ended December 31,  
     2017      2016      2015  

Current:

         

Federal

    $ 3,325      $ 572      $ (218 ) 

State

      680        (863 )       4,078  

Foreign

      1,832        423        5,915  
  

 

 

     

 

 

     

 

 

  

Total current

      5,837        132        9,775  

Deferred:

         

Federal

      27,179        45,077        40,635  

State

      4,408        1,491        5,349  

Foreign

      (215 )       (17,921 )       (2,371 ) 
  

 

 

     

 

 

     

 

 

  

Total deferred provision

      31,372        28,647        43,613  
  

 

 

     

 

 

     

 

 

  

Provision for income taxes

    $ 37,209      $ 28,779      $ 53,388  
  

 

 

     

 

 

     

 

 

  

 

A reconciliation of the U.S. federal statutory rate, from continuing operations, to the effective tax rate is as follows for the periods presented:

 

     Year Ended December 31,  
     2017     2016     2015  

U.S. federal statutory rate on income before income taxes

      35.0 %      35.0 %      35.0 % 

Impact of foreign operations

      (14.1 )      (13.5 )      (10.0 ) 

Impact of foreign divestiture

      —         39.2       —    

Effects of statutory rate change

      (8.5 )      (14.5 )      —    

State income taxes, net of federal tax effect

      2.1       7.5       4.8  

Permanent differences

      1.8       8.3       4.2  

Transaction related items

      —         25.9       —    

Change in valuation allowance

      1.6       2.8       1.2  

Unrecognized tax benefit release

      (0.8 )      (7.2 )      —    

Other

      (1.4 )      3.8       (2.8 ) 
  

 

 

    

 

 

    

 

 

  

Effective income tax rate

      15.7 %      87.3 %      32.4 % 
  

 

 

    

 

 

    

 

 

  

The domestic and foreign components of income (loss) from continuing operations before income taxes are as follows (in thousands):

 

     Year Ended December 31,  
     2017      2016      2015  

Foreign

    $ 120,905      $ (144,717 )     $ 28,316  

Domestic

      115,893        177,672        136,437  
  

 

 

     

 

 

     

 

 

  

Total

    $ 236,798      $ 32,955      $ 164,753  
  

 

 

     

 

 

     

 

 

  

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities of the Company at December 31, 2017 and December 31, 2016 were as follows (in thousands):

 

     December 31,  
     2017      2016  

Deferred tax assets:

      

Net operating losses and tax credit carryforwards – federal and state

    $ 29,409      $ 37,638  

Bad debt allowance

      827        15,381  

Accrued compensation and severance

      14,179        23,379  

Pension reserves

      1,494        697  

Insurance reserves

      13,483        17,468  

Leases

      5,332        2,926  

Accrued expenses

      3,114        —    

Interest carryforwards

      5,074        —    

Other assets

      1,747        2,038  
  

 

 

     

 

 

  

Total gross deferred tax assets

      74,659        99,527  

Less: valuation allowance

      (21,155 )       (16,031 ) 
  

 

 

     

 

 

  

Deferred tax assets

      53,504        83,496  

Deferred tax liabilities:

      

Fixed asset basis difference

      (54,214 )       (45,510 ) 

Prepaid items

      (1,490 )       (1,324 ) 

Intangible assets

      (70,820 )       (77,655 ) 

Accrued expenses

      —          (4,531 ) 

Other liabilities

      (3,582 )       (29,216 ) 
  

 

 

     

 

 

  

Total deferred tax liabilities

      (130,106 )       (158,236 ) 
  

 

 

     

 

 

  

Total net deferred tax liability

    $ (76,602 )     $ (74,740 ) 
  

 

 

     

 

 

  

 

The Company records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. As of December 31, 2017 and 2016, the Company carried a valuation allowance against deferred tax assets of $21.2 million and $16.0 million, respectively.

The domestic net operating loss carryforwards are approximately $28.4 million as of December 31, 2016. There are no domestic net operating loss carryforwards at December 31, 2017. The foreign net operating loss carryforwards as of December 31, 2017 and 2016 are approximately $93.9 million and $92.2 million, respectively, and have no expiration.

The Company has state net operating loss carryforwards at December 31, 2017 and 2016 of approximately $256.9 million and $223.3 million, respectively. These net operating loss carryforwards, if not used to offset future taxable income, will expire from 2018 to 2036. In addition, the Company has certain state tax credits of $0.9 million which will begin to expire in 2026 if not utilized.

Income taxes receivable was $15.1 million and $11.7 million at December 31, 2017 and 2016, respectively, and was included in other current assets in the consolidated balance sheets. Income taxes payable of $1.0 million and $0.5 million at December 31, 2017 and 2016 was included in other accrued liabilities in the consolidated balance sheets.

The Company has recorded income taxes payable related to unrecognized tax benefits of $6.4 million and $7.8 million at December 31, 2017 and 2016, respectively, in other liabilities in the consolidated balance sheets. A reconciliation of the beginning and ending amount of unrecognized income tax benefits net of the federal benefit is as follows (in thousands):

 

     2017      2016      2015  

Balance at January 1

    $ 6,949      $ 4,511      $ 2,923  

Additions based on tax positions related to the current year

      5,488        —          1,516  

Additions for tax positions of prior years

      95        5,427        2,874  

Reductions as a result of the lapse of applicable statutes of limitations

      (6,428 )       (2,989 )       (2,802 ) 
  

 

 

     

 

 

     

 

 

  

Balance at December 31

    $ 6,104      $ 6,949      $ 4,511  
  

 

 

     

 

 

     

 

 

  

The Company recognizes interest and penalties related to unrecognized tax benefits in its consolidated balance sheets. As of December 31, 2017 and 2016, the cumulative amounts recognized were $0.1 million and $0.9 million, respectively. It is possible the amount of unrecognized tax benefit could change in the next twelve months as a result of a lapse of the statute of limitations and settlements with taxing authorities; however, management does not anticipate the change will have a material impact on the Company’s consolidated financial statements.

The Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. The Company and its subsidiaries file income tax returns in federal and in many state and local jurisdictions as well as foreign jurisdictions. The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar year 2014 through 2016. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. In foreign jurisdictions, the Company may be subject to examination for calendar years 2013 through 2016. Generally, for state tax purposes, the Company’s 2011 through 2016 tax years remain open for examination by the tax authorities. At the date of this report there were no audits or inquires that had progressed sufficiently to predict their ultimate outcome.

One of the Company’s Puerto Rico subsidiaries was granted a tax exemption for which a tax credit of up to 15% of eligible payroll expenses is available to offset up to 50% of the income taxes attributed to that entity.

It is the Company’s intention to utilize its earnings in the foreign operations for an indefinite period of time. At December 31, 2017, there were no undistributed earnings of the foreign subsidiaries as the cumulative net loss of its foreign subsidiaries exceeds the cumulative earnings from its foreign subsidiaries. The cumulative net loss of the Company’s foreign subsidiaries includes a loss on divestiture of $175.0 million related to the U.K. Divestiture on November 30, 2016. If a deferred tax liability for undistributed foreign earnings becomes required, it would be significantly impacted by the Tax Act, the source location and amount of the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes, foreign currency translation adjustment and the opportunity to use foreign tax credits.

U.S. Tax Reform

On December 22, 2017, Public Law 115-97, informally referred to as The Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. The Tax Act provides for significant changes to the U.S. tax code that impact businesses. Effective January 1, 2018, the Tax Act reduces the U.S. federal tax rate for corporations from 35% to 21%, for U.S. taxable income. The Tax Act requires a one-time remeasurement of deferred taxes to reflect their value at a lower tax rate of 21%. The Tax Act includes other changes, including, but not limited to, requiring a one-time transition tax on certain repatriated earnings of foreign subsidiaries that is payable over eight years, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, a new provision designed to tax global intangible low-taxed income, a limitation of the deduction for net operating losses, elimination of net operating loss carrybacks, immediate deductions for depreciation expense for certain qualified property, additional limitations on the deductibility of executive compensation and limitations on the deductibility of interest.

At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, the Company has made a reasonable estimate of the effects on our existing deferred tax balances. In other cases, the Company has not been able to make a reasonable estimate and continues to account for those items based on its existing accounting under ASC 740 and the provisions of the tax laws that were in effect immediately prior to enactment of the Tax Act. For the items for which the Company was able to determine a reasonable estimate, the Company recognized a provisional amount of $20.2 million, which is included as a component of income tax expense from continuing operations.

ASC 740 requires the Company to recognize the effect of tax law changes in the period of enactment. However, the SEC staff issued SAB 118 which will allow the Company to record provisional amounts during a measurement period similarly to the measurement period used when accounting for business combinations. The Company will continue to assess the impact of the recently enacted tax law on its business and consolidated financial statements.

Provisional Amounts

Deferred Tax Assets and Liabilities

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%. As a result of the reduction in the corporate income tax rate, the Company is required to revalue its net deferred tax assets and liabilities to account for the future impact of lower corporate tax rates on this deferred amount and record any change in the value of such asset or liability as a one-time non-cash charge or benefit on its income statement. However, the Company is still analyzing certain aspects of the Tax Act and refining its calculations, which 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 $20.2 million.

U.S. Tax on Foreign Earnings

The one-time transition tax is based on total post-1986 earnings and profits that the Company previously deferred from U.S. income taxes. The Company has not made sufficient progress on the earnings and profits analysis for its foreign subsidiaries to reasonably estimate the effects of the one-time transition tax and, therefore, has not recorded provisional amounts. The Company continues to apply ASC 740 based on the provisions of the tax laws in effect immediately prior to the Tax Act being enacted. Since the Company had previously determined these amounts were indefinitely reinvested, no deferred taxes have been recorded at December 31, 2017.

The Company’s accounting for Global Intangible Low-Taxed Income, Foreign-Derived Intangible Income, the Base Erosion and Anti-Abuse Tax and any remaining impacts of the foreign income provisions of the Tax Act is incomplete. The Company has not yet been able to make reasonable estimates of the effects of these items. Therefore, no provisional amounts have been recorded as of December 31, 2017.