Entity information:
Income Taxes
On December 22, 2017, President Trump signed the Tax Act into legislation. As a result of the Tax Act, the Company remeasured its net deferred tax liabilities and recognized a provisional net benefit of $28.1 million. In addition, based on information currently available, the Company recorded a provisional income tax expense of $2.4 million related to the deemed repatriation of foreign earnings. The Tax Act’s Internal Revenue Code 163(j) new provision, limits all companies’ interest deduction to 30% of adjusted EBITDA, i.e., taxable income less interest and depreciation, from 50% under the old rules. The Company reassessed the need for a valuation allowance on its deferred tax asset (“DTA”) and concluded that a partial valuation allowance was prudent based on the analysis and accordingly recorded a valuation allowance on the 163(j) DTA of $50.5 million through income tax expense. The Company will continue to obtain and analyze information related to the Company’s provisional calculations, which could potentially impact the measurement of its tax balances, and will finalize the provision within one year of the enactment date. Additionally, there is currently uncertainty as to what portions, if any, of the Tax Act will be adopted by the US state and local taxing authorities which the Company will monitor and record upon receipt of further guidance from state tax authorities.
The components of income tax (benefit) expense from continuing operations for the years ended December 31, 2017, 2016 and 2015 are comprised of the following:
(in thousands)
2017
 
2016
 
2015
US Federal and State
 
 
 
 
 
Current
$
(1,817
)
 
$
623

 
$
1,220

Deferred
3,450

 
(23,272
)
 
(36,633
)
Outside of US
 
 
 
 
 
Current
(1,422
)
 
(1,794
)
 
313

Deferred
(1,147
)
 
(59
)
 
1,031

Total income tax expense (benefit)
$
(936
)
 
$
(24,502
)
 
$
(34,069
)

    
/*    Income tax results from continuing operations differed from the amount computed by applying the US statutory income tax rate of 35% to the loss from continuing operations before income taxes for the following reasons for the years ended December 31, 2017, 2016 and 2015:
(in thousands)
2017
 
2016
 
2015
Loss from continuing operations before income tax
 
 
 
 
 
US
$
(97,009
)
 
$
(78,358
)
 
$
(95,887
)
Non-US
(68,389
)
 
(9,275
)
 
(7,135
)
Total loss from continuing operations before income tax
$
(165,398
)
 
$
(87,633
)
 
$
(103,022
)
 
 
 
 
 
 
US Federal statutory income tax benefit
$
(57,889
)
 
$
(30,672
)
 
$
(36,058
)
Effect of tax rates in foreign jurisdictions
5,626

 
532

 
188

State income tax benefit (expense), net of federal benefit
(5,188
)
 
282

 
(6,155
)
Unremitted foreign earnings
(2,493
)
 
(1,585
)
 
291

Valuation allowances
59,679

 
1,719

 
1,463

Non-deductible goodwill impairment
15,849

 
1,920

 
—

Non-deductible deferred financing fees
2,715

 
1,465

 
1,541

Non-deductible stewardship (a)
1,658

 
1,855

 
2,256

Non-deductible monitoring fee (b)
422

 
1,938

 
906

Tax reform (excluding valuation allowance)
(23,115
)
 
—

 
—

Other
1,800

 
(1,956
)
 
1,499

Reported income expense (benefit)
$
(936
)
 
$
(24,502
)
 
$
(34,069
)
Effective income tax rate
0.56
%
 
27.96
%
 
33.07
%
(a) Under the Internal Revenue Code Section 482, shareholder or duplicative activities are non-deductible. Prior to the Business Combination, WSII employed management and consolidation for the Algeco Group for which a portion was non-deductible.
(b) Prior to the Business Combination, TDR Capital would charge a quarterly fee to WSII that was deemed non-deductible.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and carryforwards. Significant components of the Company’s deferred tax assets and liabilities are as follows:
(in thousands)
2017
 
2016
Deferred tax assets


 


Loans and borrowings
$
114,071

 
$
138,451

Employee benefit plans
1,175

 
2,818

Other liabilities
4,834

 
3,781

Currency losses, net
95

 
12,936

Deferred revenue
11,679

 
9,819

Other – net
2,144

 
14,848

Tax loss carryforwards
69,391

 
6,883

Deferred tax assets, gross
203,389

 
189,536

Valuation allowance
(73,534
)
 
(13,354
)
Net deferred income tax asset
$
129,855

 
$
176,182

 
 
 
 
Deferred tax liabilities


 


Rental equipment and other property, plant and equipment
(214,052
)
 
(240,621
)
Intangible assets
(29,615
)
 
(36,790
)
Foreign earnings
(6,955
)
 
(16,943
)
Deferred tax liability
(250,622
)
 
(294,354
)
Net deferred income tax liability
$
(120,767
)
 
$
(118,172
)

Tax loss carryforwards totaled $279.8 million at December 31, 2017. All tax loss carryforwards expire between 2020 and 2037. The availability of these tax losses to offset future income varies by jurisdiction. Furthermore, the ability to utilize the tax losses may be subject to additional limitations upon the occurrence of certain events, such as a change in the ownership of the Company. A valuation allowance has been established against the deferred tax assets of certain of the Company’s tax loss carryforwards to the extent it is not more likely than not they will be realized.
The Company’s tax loss carryforwards are as follows at December 31, 2017 (in millions):
Jurisdiction
Loss
Carryforward
 
Expiration
 
Valuation
Allowance
United States
$
269.9

 
2028 – 2037
 
None
Mexico
9.9

 
2020 – 2027
 
None
Total
$
279.8

 
 
 
 

Undistributed earnings of certain of the Company’s foreign subsidiaries amount to approximately $47.7 million at December 31, 2017. $25.4 million of those undistributed earnings are not considered indefinitely reinvested or have already been subject to tax at the applicable Company parent, and as a result the Company has recorded $6.3 million of deferred taxes at December 31, 2017. The remaining $22.3 million of those earnings are considered indefinitely reinvested and accordingly, no income taxes have been provided thereon. Upon repatriation of those earnings the Company could be subject to potential additional income taxes. Determination of the amount of unrecognized deferred income taxes on such earnings is not practicable due to the complexities associated with its hypothetical calculation.
Unrecognized Tax Positions
The Company is subject to taxation in US, Canada, Mexico and state jurisdictions. The Company’s tax returns are subject to examination by the applicable tax authorities prior to the expiration of statute of limitations for assessing additional taxes, which generally ranges from two to five years after the end of the applicable tax year. Therefore, as of December 31, 2017, tax years for 2010 through 2017 generally remain subject to possible examination by the tax authorities. In addition, in the case of certain tax jurisdictions in which the Company has loss carryforwards, the tax authority in some of these jurisdictions may examine the amount of the tax loss carryforward based on when the loss is utilized rather than when it arises.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
2017
 
2016
 
2015
Unrecognized tax benefits – January 1,
$
64,974

 
$
68,601

 
$
65,851

Increases based on tax positions related to current period
7,895

 
831

 
1,211

Change to positions that only affect timing
(535
)
 
126

 
95

Increases based on tax positions related to prior period
355

 
32

 
1,655

Decreases based on tax positions related to prior period
(29
)
 
(4,616
)
 
(211
)
Unrecognized tax benefits – December 31,
$
72,660

 
$
64,974

 
$
68,601


At December 31, 2017, 2016 and 2015, respectively, there were $67.2 million, $59.3 million and $62.5 million of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.
The Company classifies interest on tax deficiencies and income tax penalties within income tax expense. During the years ended December 31, 2017, 2016 and 2015, respectively, the Company recognized approximately $351, $96 and $71 in interest and penalties, respectively. The Company had approximately $611 and $245 for the payment of interest and penalties accrued at December 31, 2017 and 2016, respectively.
Future tax settlements or statute of limitation expirations could result in a change to the Company’s uncertain tax positions. The Company believes, that the reasonably possible total amount of unrecognized tax benefits, as of December 31, 2017, that could increase or decrease in the next twelve months as a result of various statute expirations, audit closures and/or tax settlements would not be material.