Entity information:

Note 20. Income Taxes

The income before income taxes consists of the following (in thousands):

 

                     Years Ended December 31,                   
     2017      2016      2015  

Domestic (U.S., state and local)

    $ 9,662      $ 34,761      $ 41,178  

Foreign

      71,645        54,123        48,805  
  

 

 

     

 

 

     

 

 

  

Total income before income taxes

    $     81,307      $     88,884      $     89,983  
  

 

 

     

 

 

     

 

 

  

Significant components of the income tax provision are as follows (in thousands):

 

                     Years Ended December 31,                   
     2017      2016      2015  

Current:

         

U.S. federal

    $ 29,986      $ 9,514      $ 7,374  

State and local

      855        1,958        1,051  

Foreign

      10,342        12,683        10,446  
  

 

 

     

 

 

     

 

 

  

Total current provision for income taxes

      41,183        24,155        18,871  
  

 

 

     

 

 

     

 

 

  

Deferred:

         

U.S. federal

    $ 7,919        2,007        3,873  

State and local

      922        (526 )       (1,227 ) 

Foreign

      (933 )       858        (131 ) 
  

 

 

     

 

 

     

 

 

  

Total deferred provision (benefit) for income taxes

      7,908        2,339        2,515  
  

 

 

     

 

 

     

 

 

  

Total provision for income taxes

    $     49,091      $     26,494      $     21,386  
  

 

 

     

 

 

     

 

 

  

The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as follows (in thousands):

 

     Years Ended December 31,  
     2017      2016      2015  

Net operating loss and tax credit carryforwards

    $ 1,231      $ 285      $ 3,564  

Accrued expenses/liabilities

      16,470        1,173        2,856  

Depreciation and amortization

      (10,571 )       1,286        (2,231 ) 

Valuation allowance

      (1,441 )       901        (1,958 ) 

Deferred statutory income

      2,479        (1,394 )       266  

Other

      (260 )       88        18  
  

 

 

     

 

 

     

 

 

  

Total deferred provision (benefit) for income taxes

    $             7,908      $             2,339      $             2,515  
  

 

 

     

 

 

     

 

 

  

The reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the Company’s effective income tax provision is as follows (in thousands):

 

     Years Ended December 31,  
     2017      2016      2015  

Tax at U.S. federal statutory tax rate

    $ 28,457      $ 31,109      $ 31,494  

State income taxes, net of federal tax benefit

      594        1,432        (177 ) 

Foreign rate differential

      (14,736 )       (15,837 )       (14,030 ) 

Tax holidays

      (2,951 )       (3,314 )       (4,031 ) 

Permanent differences

      8,749        12,768        11,737  

Tax credits

      (5,102 )       (4,396 )       (4,102 ) 

Foreign withholding and other taxes

      2,661        2,667        2,321  

Changes in valuation allowance

      (1,689 )       994        (631 ) 

Changes in uncertain tax positions

      (1,812 )       398        (1,858 ) 

Statutory tax rate changes

      2,536        242        (340 ) 

2017 Tax Reform Act

      32,705        -        -  

Other

      (321 )       431        1,003  
  

 

 

     

 

 

     

 

 

  

Total provision for income taxes

    $             49,091      $             26,494      $             21,386  
  

 

 

     

 

 

     

 

 

  

Withholding taxes on offshore cash movements assessed by certain foreign governments of $1.7 million, $2.0 million and $1.7 million were included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015, respectively.

On December 22, 2017, the 2017 Tax Reform Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a participation exemption regime, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We have estimated our provision for income taxes in accordance with the 2017 Tax Reform Act and guidance available as of the date of this filing and as a result have recorded $32.7 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The $32.7 million estimate includes the provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings of $32.7 million based on cumulative foreign earnings of $531.8 million and $1.0 million of foreign withholding taxes on certain anticipated distributions. The provisional tax expense was partially offset by a provisional benefit of $1.0 million related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future.

No additional income taxes have been provided for any remaining outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining outside basis difference in these entities is not practicable due to the inherent complexity of the multi-national tax environment in which the Company operates.

On December 22, 2017, the SEC 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 2017 Tax Reform Act. In accordance with SAB 118, we have determined that the deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate at December 31, 2017. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of identification, but no later than one year from the enactment date.

The Company has been granted tax holidays in The Philippines, Colombia, Costa Rica and El Salvador. The tax holidays have various expiration dates ranging from 2019 through 2028. In some cases, the tax holidays expire without possibility of renewal. In other cases, the Company expects to renew these tax holidays, but there are no assurances from the respective foreign governments that they will renew them. This could potentially result in future adverse tax consequences in the local jurisdiction, the impact of which is not practicable to estimate due to the inherent complexity of estimating critical variables such as long-term future profitability, tax regulations and rates in the multi-national tax environment in which the Company operates. The Company’s tax holidays decreased the provision for income taxes by $3.0 million ($0.07 per diluted share), $3.3 million ($0.08 per diluted share) and $4.0 million ($0.09 per diluted share) for the years ended December 31, 2017, 2016 and 2015, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income taxes. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):

 

     December 31,  
     2017      2016  

Deferred tax assets:

      

Net operating loss and tax credit carryforwards

    $                 33,803      $                 31,297  

Valuation allowance

      (32,443 )       (30,221 ) 

Accrued expenses

      9,938        25,593  

Deferred revenue

      4,544        7,031  

Depreciation and amortization

      1,628        1,062  

Other

      229        15  
  

 

 

     

 

 

  
     17,699        34,777  
  

 

 

     

 

 

  

Deferred tax liabilities:

      

Depreciation and amortization

      (12,999 )       (23,177 ) 

Deferred statutory income

      (938 )       (986 ) 

Accrued liabilities

      (2,849 )       (1,604 ) 

Other

      (258 )       (104 ) 
  

 

 

     

 

 

  
     (17,044 )       (25,871 ) 
  

 

 

     

 

 

  

Net deferred tax assets

    $                 655      $                 8,906  
  

 

 

     

 

 

  
     December 31,  
     2017      2016  

Classified as follows:

      

Deferred charges and other assets (Note 13)

    $                 6,657      $                 12,983  

Other long-term liabilities

      (6,002 )       (4,077 ) 
  

 

 

     

 

 

  

Net deferred tax assets

    $                 655      $                 8,906  
  

 

 

     

 

 

  

There are approximately $158.8 million of income tax loss carryforwards as of December 31, 2017, with varying expiration dates, approximately $127.2 million relating to foreign operations and $31.6 million relating to U.S. state operations. With respect to foreign operations, $102.1 million of the net operating loss carryforwards have an indefinite expiration date and the remaining $25.1 million net operating loss carryforwards have varying expiration dates through December 2038. Regarding the foreign and U.S. state aforementioned tax loss carryforwards, no benefit has been recognized for $121.5 million and $23.8 million, respectively, as the Company does not anticipate that the losses will more likely than not be fully utilized.

The Company has accrued $1.3 million and $8.5 million as of December 31, 2017 and 2016, respectively, excluding penalties and interest, for the liability for unrecognized tax benefits. The decrease is primarily due to the effective settlement of the Canadian Revenue Agency audit. The $1.3 million and $8.5 million of the unrecognized tax benefits at December 31, 2017 and 2016, respectively, were recorded in “Long-term income tax liabilities” in the accompanying Consolidated Balance Sheets. Had the Company recognized these tax benefits, approximately $1.3 million and $8.5 million, and the related interest and penalties, would have favorably impacted the effective tax rate in 2017 and 2016, respectively. The Company anticipates that approximately $0.4 million of the unrecognized tax benefits will be recognized in the next twelve months due to a lapse in the applicable statute of limitations.

 

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company had $1.3 million and $10.8 million accrued for interest and penalties as of December 31, 2017 and 2016, respectively. Of the accrued interest and penalties at December 31, 2017 and 2016, $0.8 million and $3.5 million, respectively, relate to statutory penalties. The amount of interest and penalties, net, included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015 was $(9.5) million, $0.4 million and $0.3 million, respectively.

The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):

 

     Years Ended December 31,  
     2017      2016      2015  

Gross unrecognized tax benefits as of January 1,

    $                 8,531      $                 8,116      $                 13,285  

Decreases from settlements with tax authorities

      (10,865 )       -        -  

Decreases due to lapse in applicable statute of limitations

      (466 )       -        (2,206 ) 

Foreign currency translation increases (decreases)

      4,142        415        (2,963 ) 
  

 

 

     

 

 

     

 

 

  

Gross unrecognized tax benefits as of December 31,

    $                 1,342      $                 8,531      $                 8,116  
  

 

 

     

 

 

     

 

 

  

The Company received assessments for the Canadian 2003-2009 audit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service and the Company paid mandatory security deposits to Canada as part of this process. The total amount of deposits was $13.8 million as of December 31, 2016 (none at December 31, 2017) and was included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets. As of June 30, 2017, the Company determined that all material aspects of the Canadian audit were effectively settled pursuant to ASC 740. As a result, the Company recognized an income tax benefit of $1.2 million, net of the U.S. tax impact, and the deposits were applied against the anticipated liability.

With the effective settlement of the Canadian audit, the Company has no significant tax jurisdictions under audit; however, the Company is currently under audit in several tax jurisdictions. The Company believes it is adequately reserved for the remaining audits and their resolution is not expected to have a material impact on its financial conditions and results of operations.

The Company and its subsidiaries file federal, state and local income tax returns as required in the U.S. and in various foreign tax jurisdictions. The major tax jurisdictions and tax years that are open and subject to examination by the respective tax authorities as of December 31, 2017 are tax years 2014 through 2017 for the U.S. The 2003 to 2013 tax years for the U.S. are open to the extent of the tax credit carryforward amounts.