Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.8.0.1
INCOME TAXES
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
For financial reporting purposes, income (loss) before income taxes and equity earnings for the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):
 
 
2017
 
2016
 
2015
U.S.
 
$
(148,248
)
 
$
(12,913
)
 
$
27,699

Foreign
 
(4,457
)
 
(6,446
)
 
(3,740
)
Total
 
$
(152,705
)
 
$
(19,359
)
 
$
23,959


The components of income tax expense (benefit) for the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):
 
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
 
Federal
 
$

 
$
17

 
$
(70
)
State
 
7

 
5

 
63

Foreign
 
(3,530
)
 
1,213

 
(76
)
Total current
 
(3,523
)
 
1,235

 
(83
)
Deferred:
 
 
 
 
 
 
Federal
 
(121,359
)
 
(5,060
)
 
13,977

State
 
1,923

 
479

 
364

Foreign
 
294

 
(11
)
 
(141
)
Total deferred
 
(119,142
)
 
(4,592
)
 
14,200

Income tax expense
 
$
(122,665
)
 
$
(3,357
)
 
$
14,117


The following table reconciles the difference between the statutory federal income tax rate for the Company and the effective income tax rate for the years ended December 31, 2017, 2016 and 2015:
Provision (benefit):
 
2017
 
2016
 
2015
Statutory rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes, net of federal tax benefit
 
5.3
 %
 
18.5
 %
 
(0.1
)%
State valuation allowance
 
(6.6
)%
 
(21.0
)%
 
1.8
 %
Transfer of asset to Hauser
 
 %
 
 %
 
4.0
 %
Write-off of deferred tax asset upon consolidation of Aeróleo
 
 %
 
 %
 
16.0
 %
Foreign valuation allowance
 
(1.0
)%
 
(14.1
)%
 
 %
Brazilian PERT Program
 
2.2
 %
 
 %
 
 %
Other
 
(0.6
)%
 
(1.1
)%
 
2.2
 %
Tax Act
 
46.0
 %
 
 %
 
 %
 
 
80.3
 %
 
17.3
 %
 
58.9
 %

The components of net deferred income tax liabilities as of December 31, 2017 and 2016 were as follows (in thousands):
 
 
2017
 
2016
Deferred tax liabilities:
 
 
 
 
Property and equipment
 
$
126,595

 
$
242,977

Buy-in on maintenance contracts
 
655

 
1,443

Total deferred tax liabilities
 
127,250

 
244,420

Deferred tax assets:
 
 
 
 
Equipment leases
 
47

 
224

Tax loss carryforwards
 
52,293

 
34,674

Stock compensation
 
843

 
2,131

Reserves
 
897

 
1,452

Other
 
1,539

 
2,042

Valuation allowance
 
(34,967
)
 
(21,575
)
Total deferred tax assets
 
20,652

 
18,948

Net deferred tax liabilities
 
$
106,598

 
$
225,472


As of December 31, 2017 and 2016, the Company had federal net operating loss (“NOL”) carryforwards of $38.3 million and $4.8 million, respectively, state income tax NOL carryforwards of $411.3 million and $355.2 million, respectively, in various states and foreign NOL carryforwards of $58.5 million and $40.9 million, respectively, in various foreign jurisdictions. As of December 31, 2017 and 2016 the Company also had foreign tax credits in the amounts of $1.5 million and $0.6 million, respectively. The Company’s federal NOL carryforwards expire from 2036 to 2037. The Company’s state NOL carryforwards expire from 2024 to 2037, and the foreign NOL carryforwards have unlimited carryforward periods. The Company’s foreign tax credits expire from 2026 to 2027.
After considering all available evidence in assessing the need for the valuation allowance, the Company believes that it is more likely than not the benefit from foreign and some state deferred tax assets will not be realized. As of December 31, 2017, the Company has provided a valuation allowance of $18.1 million on the state deferred tax assets. The Company has provided a valuation allowance of $17.0 million with respect to the foreign deferred tax assets included in the table above, made up of $16.0 million related to Aeróleo and $1.0 million related to Sicher. If the assumptions change and the Company determines it will be able to realize those deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets would be recorded in the income tax provision in the period in which such adjustments are identified.
The Company’s operations are subject to the jurisdiction of multiple tax authorities, which impose various types of taxes on it including income taxes. Determining taxes owed in any jurisdiction requires the interpretation of relevant tax laws, regulations, judicial decisions and administrative interpretation of the local tax authority. As a result, the Company is subject to tax assessments in such jurisdictions including the re-determination of taxable amounts by tax authorities that may not agree with the Company’s interpretations and positions taken. The Company’s 2015 federal income tax return is currently under examination by the Internal Revenue Service.
The effects of a tax position are recognized in the period in which it is determined that it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. We remain subject to examination for U.S. federal and multiple state tax jurisdictions for tax years after 2013 and in Brazil for 2013 and subsequent years.
Pursuant to a shareholders’ agreement entered into on October 1, 2015 with the Company’s partner in Aeróleo (see Note 4), the Company is the primary beneficiary, and Aeróleo became a consolidated entity. The Company has analyzed filing positions of Aeróleo in Brazil where it is required to file income tax returns for all open tax years (2013 to 2017).
A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):
 
2017
 
2016
2015
Unrecognized tax benefits at the beginning of the year
$
261

 
$
648

$

Reductions due to settlements with taxing authorities
(250
)
 
(570
)

Increases due to tax positions taken during the current year

 
183


Increases due to the consolidation of Aeróleo

 

648

Unrecognized tax benefits at the end of the year
$
11

 
$
261

$
648



A reconciliation of the beginning and ending amount of the valuation allowance is as follows (in thousands):
 
2017
 
2016
2015
Valuation allowance at the beginning of the year
$
21,575

 
$
12,650

$
806

Increases to state valuation allowance
10,010

 
6,768

434

Increases due to consolidation of Aeróleo

 

11,285

Increases due to foreign valuation allowances
7,578

 
2,157

125

Decrease due to Brazilian PERT Program
(4,196
)
 


Valuation allowance at the end of the period
$
34,967

 
$
21,575

$
12,650


Amounts accrued for interest and penalties associated with unrecognized income tax benefits are included in other expense on the Consolidated Statements of Operations. As of December 31, 2017, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $0.1 million. While amounts could change in the next twelve months, the Company does not anticipate such changes having a material impact on its financial statements.
During the fourth quarter of 2017, Aeroleo elected to enter certain settled and open tax claims in the Tax Special Regularization Program (the “PERT Program”) pursuant to Brazil Provisional Measure No. 783 issued on May 31, 2017. The PERT Program allows for the partial settling of debts, both income tax debts and non-income-based tax debts, due by April 30, 2017 to Brazil’s Federal Revenue Service with the use of tax credits, including income tax loss carryforwards. A utilization of $3.5 million income tax benefit was recorded during the fourth quarter attributable to income tax loss carryforwards under the PERT Program partially offset by the accrual of operating expense associated with certain indirect tax claims enrolled into the PERT program.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law and the new legislation contains several key tax provisions that affect the Company, including a one-time mandatory transition tax on accumulated foreign earnings and profits and a reduction of the U.S federal corporate income tax rate from 35% to 21% effective January 1, 2018, among others. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax and revaluing our U.S. deferred tax assets and liabilities to the new effective rate. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows a company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Tax Act; however, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transitional tax and recorded a provisional benefit of approximately $70.0 million and no amount due for the transitional tax. The Company considers the accounting for the transition tax, deferred tax revaluations, and other items to be incomplete due to the forthcoming guidance and its ongoing analysis of final year-end data and tax positions. The Company continues to evaluate the newly enacted global intangible low-taxed income (GILTI) provisions which could subject its foreign earnings to a minimum level of tax. Because of the complexities of the new legislation, the Company has not elected an accounting policy for GILTI at this time. Recent FASB guidance indicates that accounting for GILTI either as part of deferred taxes or as a period cost are both applicable methods. Once further information is gathered and interpretation and analysis of the tax legislation evolves, the Company will make an appropriate accounting election. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.