(12)Income Taxes

For the years ended December 31, 2017, 2016 and 2015, net income before income taxes and non-controlling interest consisted of the following (in thousands):

 



Income tax (benefit) expense attributable to income from operations consisted of (in thousands):



The reconciliations between the Company’s income tax expense and the amounts computed by applying the U.S. federal income tax rate of 35.0% for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):



 

As of December 31, 2017, the Company had $136.9 million,  $33.2 million and $93.2 million of net operating loss (NOL) carry forwards available to offset future federal, foreign and state taxable income, respectively. The NOL carry forwards will begin to expire in 2035,  2022 and 2018 for federal, foreign and state income tax purposes, respectively. 

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



 

The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company’s management considers the projected future taxable income for making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company’s management believes it is more likely than not the Company will realize the benefits of the deductible differences noted above.

The U.S Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law on December 22, 2017. The most significant effects of the Tax Act on the Company were the U.S. federal corporate tax rate reduction from the current rate of 35% to a new flat rate of 21%, limitations on the deductibility of interest expense and executive compensation, and the creation of the base erosion anti-abuse tax (BEAT), a new minimum tax. A change in tax laws is accounted for in the period of enactment, which requires re-measurement of all of an entity’s U.S. deferred income tax assets and liabilities during this year-end. As the Company is in an overall net deferred tax liability position, the corporate tax rate reduction resulted in a net tax benefit of approximately $16.9 million in 2017 when the deferred tax assets and liabilities are revalued downward. The Company’s 2017 effective tax rate was favorably affected by 29.6% due to this law change. The Tax Act also imposes a one-time transition tax on accumulated undistributed foreign earnings. However, the Company did not have any transition tax due to its overall net foreign earnings deficit.

In response to the Tax Act, the SEC staff issued guidance on accounting for the tax effects of the Tax Act. The guidance provides for a one-year measurement period for companies to complete the accounting. The Company reflected the income tax effects of those aspects of the Tax Act for which the accounting is complete. To the extent the accounting for certain income tax effects of the Tax Act is incomplete but the Company is able to determine a reasonable estimate, the Company recorded a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax law that were in effect immediately before the enactment of the Tax Act.

The Company has not completed its accounting for the income tax effects of certain elements of the Tax Act. The Tax Act creates a new requirement that certain income such as Global Intangible Low-Taxed Income (GILTI) earned by a controlled foreign corporation (CFC) must be included in the gross income of the CFC U.S. shareholder. Because of the complexity of the new GILTI and BEAT tax rules, the Company is continuing to evaluate these provisions of the Tax Act and whether taxes due on future U.S. inclusions related to GILTI or BEAT should be recorded as a current-period expense when incurred, or factored into the measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax expense or benefit related to these items for the period ended December 31, 2017.

In March 2016, the FASB issued ASU 2016-09, which simplifies certain aspects of the accounting for share-based payment transactions, including income taxes. The Company adopted ASU 2016-09 effective January 1, 2017 (see Note 2 (p)). As a result of the adoption of ASU 2016-09, the Company recognized $1.0 million in deferred tax assets associated with excess tax benefits not previously recognized in deferred taxes as a cumulative-effect adjustment to retained earnings as of January 1, 2017.

Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries. These earnings have been permanently reinvested and the Company does not plan to initiate any action that would precipitate the payment of income taxes thereon. While the Company has an overall foreign earnings deficit, as of December 31, 2017, the amount of positive foreign earnings totaled approximately $28.3 million related to certain subsidiaries. The amount of income taxes that would have resulted had such earnings been repatriated would be approximately $0.2 million due to withholding taxes.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):





The unrecognized tax benefits of approximately $0.3 million at December 31, 2017, if recognized, would reduce the Company’s effective tax rate. The Company accrued potential interest and penalties of less than $0.1 million related to unrecognized tax benefits for each of the years ended December 31, 2017 and 2016. 

The Company’s tax returns, including the United States, California, New Jersey and South Carolina, are subject to examination by the tax authorities. The Company accrues for unrecognized tax benefits based upon its best estimate of the additional taxes, interest and penalties expected to be paid. These estimates are updated over time as more definitive information becomes available from taxing authorities, completion of tax audits, expiration of statute of limitations, or upon occurrence of other events.

The Company does not believe the total amount of unrecognized tax benefit as of December 31, 2017 will increase or decrease significantly in the next twelve months. As of December 31, 2017, the statute of limitations for tax examinations in the United States has not expired for the years ended December 31, 2014 through 2016. California, New Jersey and South Carolina have not expired for tax returns filed for the years ended December 31, 2013 through 2016, and Barbados has not expired for tax returns filed for the years ended December 31, 2008 to 2016. The Company was notified on May 1, 2017 that its 2015 U.S. federal income tax return was selected for examination. The examination is in the information gathering stage.