Income Taxes

On December 22, 2017, the Act was enacted and signed into law. The Act makes broad and complex changes to the U.S. tax code. The Act, among other things, reduces the U.S. federal corporate income tax rate from 35% to 21%; limits the use of foreign tax credits to reduce U.S. income tax liability; eliminates the corporate AMT and changes how existing AMT credits can be realized; allows immediate expensing for qualified assets; creates a new limitation on deductible interest expense; repeals the domestic production activities deduction; and limits the deductibility of certain executive compensation and other deductions.

ASC 740 requires a company to record the effects of a tax law change in the period of enactment. SAB 118 has provided guidance for companies that have not completed their accounting for the income tax effect of the Act in the period of enactment, allowing for a measurement period of up to one year after the enactment date in order to finalize the recording of the related tax impacts. As of December 31, 2017, the Company made a provisional estimate of the impact of the Act and recorded a net tax benefit of $5.9 million. During the year ended December 31, 2018, we finalized our accounting for the income effects of the Tax Act and determined we had no material change to our provisional amount.

The following table presents the components of our consolidated income tax (benefit) expense for the years ended December 31, 2018, 2017 and 2016:



	Current			Deferred			Total
Year ended December 31, 2018
U.S. Federal	$	(12	)	$	(12,664	)	$	(12,676	)
State and local	183			$	(471	)	$	(288	)
Foreign	731			—			731
	$	902		$	(13,135	)	$	(12,233	)
Year ended December 31, 2017
U.S. Federal ^(a)	$	(780	)	$	(3,986	)	$	(4,766	)
State and local	550			(180		)	370
Foreign	(145		)	—			(145		)
	$	(375	)	$	(4,166	)	$	(4,541	)
Year ended December 31, 2016
U.S. Federal	$	35		$	(1,093	)	$	(1,058	)
State and local	511			1,519			2,030
Foreign	284			325			609
	$	830		$	751		$	1,581

(a) Includes a $5.9 million net benefit recorded in the fourth quarter of 2017 resulting from the enactment of the Act on December 22, 2017.

The Company’s income tax provision reconciles to the provision at the statutory U.S. federal income tax rate for each year ended December 31, as follows:



	2018			2017			2016
Statutory amount (computed at 21% in 2018 and 35% in 2017 and 2016)	$	(22,398	)	$	(1,449	)	$	(714	)
Re-measurement of deferred tax assets ^(a)	—			(7,451		)	—
Valuation allowance on foreign tax credits ^(a)	593			1,514			—
State income tax, net of federal benefit	(1,922		)	168			94
Permanent differences, other	1,550			505			99
Permanent differences, incentive stock options	(24		)	447			224
Valuation allowance, other	10,384			(77		)	1,769
Uncertain tax provision	—			1,614			—
Other	(416		)	188			109
Consolidated income tax provision	$	(12,233	)	$	(4,541	)	$	1,581
Consolidated effective tax rate	11.5		%	109.7		%	(77.5		)%

(a) ) In 2017, represents impact resulting from the enactment of the Act on December 22, 2017.

In the current year, the Company's effective tax rate differed from the statutory rate of 21% primarily due to recording an $11.0 million, or $0.39 per share, valuation allowance against the Company’s net deferred tax assets, including net operating losses and foreign tax credits. The Company also recorded tax expense of $1.2 million related to the $69.5 million goodwill impairment. Additionally, the Company recorded tax expense related to permanent differences from meals and entertainment.

In the prior year, the Company's effective tax rate differed from the statutory rate of 35% primarily due to the impact of the Act enacted on December 22, 2017. We recorded a net tax benefit of $5.9 million, or $0.21 per share, resulting from the re-measurement of the Company’s net deferred tax liabilities to reflect the new, lower U.S. corporate income tax rate of 21%, partially offset by the addition of a partial valuation allowance recorded against existing foreign tax credit carryforwards not expected to be utilized in future tax years. This net tax benefit was partially offset by the addition of an uncertain tax position reserve as well as tax expense for permanent differences associated with incentive stock options and meals and entertainment.

Deferred Taxes

The Company’s deferred tax assets and liabilities are as follows:



	Long Term
	As of December 31,
	2018			2017
Assets related to:
Accrued liabilities	$	1,105		$	1,226
Intangible assets	3,054			3,010
Net operating loss carryforward	15,970			6,912
Valuation allowance	(14,326		)	(3,942		)
Non-qualified stock options	672			762
Foreign tax credits	1,489			1,751
Valuation allowance on foreign tax credits	(1,489		)	(1,514		)
Goodwill	8,200			—
Other	2,684			215
Total assets	17,359			8,420
Liabilities related to:
Depreciation and amortization	(16,974		)	(15,788		)
Goodwill	—			(5,178		)
Deferred revenue on maintenance contracts	(434		)	(597		)
Other	—			(100		)
Total liabilities	(17,408		)	(21,663		)
Net deferred (liabilities) assets	$	(49	)	$	(13,243	)

(a) Components of our deferred tax assets and liabilities at December 31, 2017 after taking into account the estimated impact of the Act and related items.

As reported in the Consolidated Balance Sheets:



	December 31, 2018			December 31, 2017
Net current deferred tax assets	—			—
Net non-current deferred tax liabilities	(49		)	(13,243		)
Total net deferred tax liabilities:	$	(49	)	$	(13,243	)

In the quarter ended March 31, 2017, the Company adopted ASU 2016-09, Improvements to Employee-Based Payment Accounting. As part of this adoption, certain federal net operating losses ("NOLs") that were previously classified as off-balance sheet are now being recognized as deferred tax assets through an adjustment to opening retained earnings. The Company chose to prospectively adopt this guidance during the first quarter of 2017 and as such the balance sheet includes an adjustment of approximately $0.7 million as an addition to "Retained earnings" and a reduction to the "Deferred income taxes" line items on the Consolidated Balance Sheet in order to true-up the tax effected portion of the NOLs mentioned above. Due to the prospective adoption, no prior year adjustments were made.

The Company assessed the realizability of its deferred tax assets at December 31, 2018 and 2017, and considered whether it was more likely than not that some portion or all the deferred tax assets will not be realized. The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. The Company considers the scheduled reversal of deferred tax liabilities, available carryback periods, and tax-planning strategies in making this assessment.

In the quarter ended December 31, 2018, the Company recorded an impairment of goodwill in the amount of $69.5 million and a pre-tax loss of $106.7 million when the company had previously projected to have taxable income. According to ASC subtopic 740-10, the Company’s three-year cumulative loss is a significant piece of objective evidence. This objective evidence is weighed more heavily than the Company’s subjective positive evidence such as our estimated future taxable income and growth. Therefore, in 2018, the Company has recorded an additional valuation allowance of $11.0 million on the net deferred tax assets.

Uncertain Tax Benefits

The Company and its subsidiaries file consolidated federal income tax returns in the United States and also file in various states. With few exceptions, the Company remains subject to federal and state income tax examinations for the years of 2013, 2014, 2015, 2016, 2017 and 2018. As of December 31, 2018 and 2017, the Company had recorded unrecognized tax benefits of $1.6 million for any uncertain tax positions. The Company does not expect that unrecognized tax benefits as of December 31, 2018 for certain federal income tax matters will significantly change over the next 12 months. The final outcome of these uncertain tax positions is not yet determinable. Our uncertain tax benefits, if recognized, would affect the Company's effective tax rate. The change in the total gross unrecognized tax benefits and prior year audit resolutions of the Company during the years ended December 31, 2018 and 2017 are reconciled in the table below:



	2018		2017
Balances at beginning of the year	$	1,614	$	—
Additions based on tax position related to current year	—		—
Additions based on tax positions related to prior years	—		1,614
Reductions based on tax positions related to current year	—		—
Reductions based on tax positions related to prior years	—		—
Settlements with tax authorities	—		—
Lapse of statute of limitations	—		—
Balance at the end of year	$	1,614	$	1,614

The Company’s policy is to recognize interest and penalties related to any unrecognized tax liabilities as additional tax expense. No interest or penalties have been accrued at December 31, 2018, 2017and 2016. The Company believes it has appropriate and adequate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Although the Company believes its recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore the Company’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. Although the Company believes that the estimates and assumptions supporting its assessments are reasonable, the final determination of tax audit settlements and any related litigation could be materially different from that which is reflected in historical income tax provisions and recorded assets and liabilities. If the Company were to settle an audit or a matter under litigation, it could have a material effect on the income tax provision, net income, or cash flows in the period or periods for which that determination is made. Any accruals for tax contingencies are provided for in accordance with U.S. GAAP.

The Company does not believe that its tax positions will significantly change due to any settlement and/or expiration of statutes of limitations prior to December 31, 2019.