|12 Months Ended|
Dec. 31, 2018
|Income Tax Disclosure [Abstract]|
For financial reporting purposes, income (loss) before income taxes and equity earnings for the years ended December 31, 2018, 2017 and 2016 were as follows (in thousands):
The components of income tax expense (benefit) for the years ended December 31, 2018, 2017 and 2016 were as follows (in thousands):
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, 2018, 2017 and 2016:
The components of net deferred income tax liabilities as of December 31, 2018 and 2017 were as follows (in thousands):
As of December 31, 2018, the Company had no federal net operating loss (“NOL”) carryforwards. The Company had $38.3 million federal net operating loss (“NOL”) carryforwards for 2017, state income tax NOL carryforwards of $377.7 million and $411.3 million in 2018 and 2017, respectively, in various states and foreign NOL carryforwards of $56.9 million and $58.5 million in 2018 and 2017, respectively, in various foreign jurisdictions. As of December 31, 2017, the Company had foreign tax credit carryforwards of $1.5 million which were fully utilized during the period ended December 31, 2018. The Company’s state NOL carryforwards expire from 2024 to 2038, and the foreign NOL carryforwards have unlimited carryforward periods.
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 certain foreign and some state deferred tax assets will not be realized. As of December 31, 2018, 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 $19.8 million with respect to the foreign deferred tax assets included in the table above, made up of $18.6 million related to Aeróleo and $1.2 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.
Pursuant to ASC 740-35-25, the Company asserts permanent reinvestment on its controlled foreign corporations within Brazil, Colombia, and the British Virgin Islands. The Company does not assert reinvestment on its joint venture located in Canada, for which it has recorded a deferred tax liability of $0.2 million and has a tax basis of $23.6 million.
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 2015 and in Brazil for 2014 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 (2014 to 2018).
A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):
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, 2018, 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.
A reconciliation of the beginning and ending amount of the valuation allowance is as follows (in thousands):
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 its 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. As of December 31, 2018, the Company has completed its accounting for the tax effects of enactment of the Tax Act. The Company has made an adjustment to its deferred tax balances due to the revaluation from 35% to 21% of approximately $70.0 million and had no amount due for the transitional tax. However, due to the revised earnings and profits computations that were completed during the measurement period, the Company had an adjustment to deferred tax in the amount of $0.2 million. The Company considers the accounting for the transition tax, deferred tax revaluations, and other items to be complete. The Company has evaluated the newly enacted global intangible low-taxed income (GILTI) provisions, which could subject its foreign earnings to a minimum level of tax and has decided to make an election to treat these costs as period costs.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef