INCOME TAXES
The components of (loss) income before income taxes are as follows (amounts in millions):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Domestic | $ | (87.1 | ) | | $ | 11.5 |
| | $ | (12.3 | ) |
Foreign | 32.9 |
| | (2.3 | ) | | (2.5 | ) |
Total | $ | (54.2 | ) | | $ | 9.2 |
| | $ | (14.8 | ) |
The components of the provision for (benefit from) income taxes are as follows (amounts in millions):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current: | |
| | |
| | |
Federal | $ | (0.5 | ) | | $ | 0.4 |
| | $ | 0.1 |
|
State | — |
| | — |
| | — |
|
Foreign | 7.3 |
| | 1.3 |
| | (3.7 | ) |
Total current | 6.8 |
| | 1.7 |
| | (3.6 | ) |
| | | | | |
|
Federal | 8.0 |
| | 2.4 |
| | (25.3 | ) |
State | 0.4 |
| | 0.7 |
| | (3.8 | ) |
Foreign | 2.1 |
| | (0.9 | ) | | (1.4 | ) |
Total deferred | 10.5 |
| | 2.2 |
| | (30.5 | ) |
Income tax expense (benefit) | $ | 17.3 |
| | $ | 3.9 |
| | $ | (34.1 | ) |
The following is a reconciliation of the U.S. federal statutory income taxes to the amounts reported in the financial statements (amounts in millions):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
U.S. federal statutory income tax | $ | (19.0 | ) | | $ | 3.2 |
| | $ | (5.2 | ) |
Permanent items | 1.2 |
| | (0.2 | ) | | 0.7 |
|
State taxes, net of federal benefit | (3.0 | ) | | 0.4 |
| | (0.5 | ) |
Foreign tax rate differential | (9.3 | ) | | — |
| | — |
|
Compensation related items | (5.1 | ) | | — |
| | — |
|
Change in valuation allowance | 29.0 |
| | — |
| | (23.4 | ) |
Unrecognized tax positions | 2.8 |
| | — |
| | (2.2 | ) |
Tax Cuts and Jobs Act | 17.3 |
| | — |
| | — |
|
Other | 3.4 |
| | 0.5 |
| | (3.5 | ) |
Total income tax expense (benefit) | $ | 17.3 |
| | $ | 3.9 |
| | $ | (34.1 | ) |
The components of the Company's deferred tax assets and liabilities are as follows (amounts in millions):
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred tax assets: | |
| | |
|
Tax loss and credit carryforwards | $ | 56.5 |
| | $ | 21.3 |
|
Reserves and allowances | 1.2 |
| | 0.7 |
|
Share-based compensation | 4.2 |
| | 3.7 |
|
Other | (0.2 | ) | | 2.2 |
|
Total deferred tax assets before valuation allowance | 61.7 |
| | 27.9 |
|
Less: Valuation allowance | (39.2 | ) | | (0.3 | ) |
Total deferred tax assets | 22.5 |
| | 27.6 |
|
Deferred tax liabilities: | | | |
Intangible assets and goodwill | (30.0 | ) | | (17.7 | ) |
Property and equipment | (12.1 | ) | | (4.2 | ) |
Other | (6.7 | ) | | (0.6 | ) |
Total deferred tax liabilities | (48.8 | ) | | (22.5 | ) |
Net deferred tax (liabilities) assets(1) | $ | (26.3 | ) | | $ | 5.1 |
|
(1) The 2016 Net deferred tax assets are included as a component of Other long-term assets on the consolidated balance sheet.
As of December 31, 2017, the Company had $163.4 million of U.S. federal net operating loss ("NOL") carryforwards net of limitations under Section 382. The Company's U.S. federal NOL carryforwards, if not utilized to reduce taxable income in future years, will expire between 2020 and 2037.
As of December 31, 2017, the Company had tax-effected state NOL carryforwards of approximately $6.7 million, which are subject to limitations and have various expirations through 2037.
As of December 31, 2017, the Company had NOL carryforwards in the U.K. of $89.5 million, the majority of which have no expiration date.
As of December 31, 2017, the Company recorded a valuation allowance of $29.0 million against its net U.S. deferred tax assets under the criteria of ASC 740. The amount of U.S. deferred tax asset considered realizable, could be adjusted if objective negative evidence in the form of cumulative losses is no longer present or additional weight given to subjective evidence of future forecasts, which are subject to variation due the effects of acquisitions. Additionally, based on its assessment as of December 31, 2017, the Company maintained a valuation allowance on $10.0 million of foreign NOLs that the Company determined would not be realized in the future, and will continue to evaluate the need for a valuation allowance in the other foreign jurisdictions.
The Tax Act was enacted in December 2017. The Tax Act significantly changes U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system, and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.
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 reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Act, we revalued our ending net deferred tax assets at December 31, 2017 and recognized provisional tax expense of $11.8 million.
The Tax Act provided for a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits ("E&P"). We have recognized a provisional $5.5 million of income tax expense related to the transition tax.
While the Tax Act provides for a modified territorial tax system, beginning in 2018, global intangible low-taxed income ("GILTI") provisions will be applied providing an incremental tax on low taxed foreign income. The GILTI provisions require us to include in our U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. Under U.S. GAAP, we are required to make an accounting policy election to either (1) treat taxes due related to GILTI as a current-period expense when incurred (the "period cost method") or (2) factor such amounts into our measurement of our deferred taxes (the "deferred method"). We are continuing to evaluate the GILTI tax rules and have not yet adopted our policy to account for the related impacts.
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 Act and allows the registrant to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. The ultimate impact may materially differ from the provisional amounts recorded as of December 31, 2017 due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act. We expect to complete our analysis within the measurement period in accordance with SAB 118.
Due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subjected to U.S. federal income tax. To the extent we repatriate earnings to the U.S., we estimate we will not incur significant additional tax expense related to such amounts; however, our estimates are provisional and subject to further analysis.
Accounting for Uncertainty in Income Taxes
The Company had unrecognized tax benefits of $1.5 million as of December 31, 2017. The unrecognized tax benefit was not material as of December 31, 2016 and 2015. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Changes in unrecognized tax benefits are set forth below (amounts in millions):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Balance, January 1 | $ | — |
| | $ | — |
| | $ | 2.1 |
|
Changes for tax positions of prior years | 2.8 |
| | — |
| | (1.8 | ) |
Increases for tax positions related to the current year | — |
| | — |
| | — |
|
Settlements and lapsing of statutes of limitations | (1.3 | ) | | — |
| | (0.3 | ) |
Balance, December 31 | $ | 1.5 |
| | $ | — |
| | $ | — |
|
The Company files income tax returns in U.S. federal, state, and foreign jurisdictions. The Company is no longer subject to U.S. federal and state income tax examinations for years prior to 2014 with the exception of the federal and state tax returns of certain acquired entities for which net operating losses are available for utilization.