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Income Taxes

12 Months Ended

Dec. 31, 2019

Note 7: Income Taxes

The Tax Cuts and Jobs Act (“the Act”) effective January 1, 2018, included a reduction to the US federal tax rate from 35 percent to 21 percent, a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, adjustment of deferred tax assets and liabilities for the new corporate tax rate, and adjustments to deductible compensation of our executive officers. The Act also imposes a new tax on foreign earnings and profits in excess of a deemed return on tangible assets of foreign subsidiaries referred to as Global Low Taxed Intangible Income (“GILTI”), a new tax on certain payments between a U.S. corporation and its foreign subsidiaries referred to as Base Erosion and Anti-Abuse Minimum Tax (“BEAT”), and a tax deduction on certain qualifying income related to export sales of property or services referred to as Foreign Derived Intangible Income (“FDII”).

The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the Act in 2017 and throughout 2018. In 2017, the Company recorded a discrete tax benefit of $19.3 million related to the enactment-date effects of the Act that included adjustments to the Company’s net deferred tax liabilities. In 2018, the Company adjusted the enactment-date provisional amounts by decreasing tax expense by an additional $5.1 million, recorded as a discrete tax benefit. These adjustments were recorded as components of income tax expense from continuing operations. As of December 31, 2018, the Company has completed its accounting for all of the enactment-date income tax effects of the Act. Discussion of specific provisions of the Act follows:

One-time transition tax

The one-time transition tax is based on the Company’s total post-1986 foreign earnings and profits (E&P), a tax that was previously deferred until repatriation of those earnings and profits. At December 31, 2017, the Company estimated the one-time transitional tax to be not material and no provision was included as a component of tax expense in 2017.

Based on further analysis of the Act, and notices and regulations issued by the US Department of the Treasury and the Internal Revenue Service, the Company concluded that the tax impact of the Act from un-repatriated earnings and profits of our foreign subsidiaries was not material.

Executive compensation arrangements

As of December 31, 2017, we evaluated the deductibility of our executive compensation arrangements and the related impacts on both current and deferred taxes based on the guidance that was available at that time. At December 31, 2017, we recorded tax expense related to executive compensation of approximately $1.3 million. During 2018, with additional guidance from the US Department of Treasury and the Internal Revenue Service, we refined our calculations, and reduced our 2017 provisional expense by approximately $0.5 million.

GILTI

Our analysis at December 31, 2017, related to GILTI was incomplete, and therefore did not record a GILTI-related adjustment. Under FASB guidance, the Company elected to treat tax related to GILTI as a period expense rather than create a deferred tax for the temporary differences that are expected to reverse in future years. As of December 31, 2018, the impact of the Act on the Company related to GILTI was not material.

BEAT

The Company has analyzed the Act’s provisions related to Base Erosion and Profit Shifting, and has determined the impact to our financial statements to be not material. No provision was included as a component of tax expense in either 2017, 2018 or 2019.

In summary, the Company completed its evaluation of the impact of FDII, GILTI, and BEAT provisions of the Act in 2018. The Company has incorporated each of these provisions within the annual effective tax rate for 2019.

The following table lists the components of the provision (benefit) for income taxes:


Years ended December 31,	2019		2018		2017
(in thousands)
Current provision (benefit):
Federal	$	(3,548)	$	13,708	$	95,995
State		(3,185)		3,932		13,966
Foreign		2,968		6,843		2,953
Deferred provision (benefit):
Federal		(26,493)		23,203		(39,710)
State		4,268		(1,808)		(2,899)
Total income tax (benefit) provision	$	(25,990)	$	45,878	$	70,305

Reconciliation between the federal statutory rate and RPC’s effective tax rate is as follows:


Years ended December 31,	2019		2018		2017
Federal statutory rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal benefit	(0.3)		2.6		1.9
Tax credits	0.3		(0.1)		(0.7)
Non-deductible expenses	(1.9)		1.8		2.0
Adjustments related to the Act	—		(2.3)		(8.3)
Adjustments related to vesting of restricted stock	(0.4)		(0.8)		(1.2)
Other	4.3		(1.5)		1.5
Effective tax rate	23.0	%	20.7	%	30.2	%

Significant components of the Company’s deferred tax assets and liabilities are as follows:


December 31,	2019		2018
(in thousands)
Deferred tax assets:
Self-insurance	$	5,729	$	5,055
Pension		9,617		7,261
State net operating loss carryforwards		1,445		1,663
Bad debt		1,392		1,291
Stock-based compensation		3,358		3,501
Inventory reserve		2,478		2,447
Impairment reserve		2,802		—
Foreign tax credit carryforwards		3,086		—
Federal net operating loss carryforwards		19,664		—
Basis differences in consolidated limited liability company		5,778		—
All others		2,191		1,690
Gross deferred tax assets		57,540		22,908
Deferred tax liabilities:
Depreciation		(87,647)		(71,647)
Goodwill amortization		(6,763)		(6,587)
Basis differences in consolidated limited liability company		—		(4,636)
Basis differences in joint ventures		(444)		(408)
All others		(5)		(5)
Gross deferred tax liabilities		(94,859)		(83,283)
Net deferred tax liabilities	$	(37,319)	$	(60,375)

The Company’s current intention is to permanently reinvest funds held in our foreign subsidiaries outside of the U.S., with the possible exception of repatriation of funds that have been previously subject to U.S. federal and state taxation or when it would be tax effective through the utilization of foreign tax credits, or would otherwise create no additional U.S. tax cost.

As of December 31, 2019, the Company has net operating loss carryforwards related to federal income taxes of $93.6 million with an indefinite carryforward. As of December 31, 2019, the Company has no valuation allowance against the corresponding deferred tax asset. As of December 31, 2019, the Company has net operating loss carryforwards related to state income taxes of $23.9 million (gross) that will expire between 2020 and 2035. As of December 31, 2019, the Company has a valuation allowance of $415 thousand, representing the tax-affected amount of loss carryforwards related to state income taxes that the Company does not expect to utilize, against the corresponding deferred tax asset.

As of December 31, 2019, the Company has foreign tax credit carryforwards of $3.1 million that will expire in 2029. As of December 31, 2019, the Company has no valuation allowance against the corresponding deferred tax asset.

Total net income tax payments (refunds) were $(11.8) million in 2019, $18.0 million in 2018, and $98.0 million in 2017.

The Company and its subsidiaries are subject to U.S. federal and state income taxes in multiple jurisdictions. In many cases, our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. In general, the Company’s 2016 through 2019 tax years remain open to examination. Additional years may be open to the extent attributes are being carried forward to an open year.

As of December 31, 2019 and 2018, our liability for unrecognized tax benefits related primarily to state income taxes did not change and remained at $2,215,000, and is recognized as a component of other long-term liabilities in the accompanying consolidated balance sheet. The liability, if recognized, would affect our effective rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	2019		2018
Balance at January 1	$	2,215,000	$	2,215,000
Additions based on tax positions related to the current year		—		—
Additions for tax positions of prior years		—		—
Reductions for tax positions of prior years		—		—
Balance at December 31	$	2,215,000	$	2,215,000

The Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties as of December 31, 2019 and 2018 were $203 thousand and $263 thousand, respectively.

It is reasonably possible that the amount of the unrecognized tax benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may result from, among other things, state tax settlements under voluntary disclosure agreements, or conclusions of ongoing examinations or reviews. However, quantification of an estimated range cannot be made at this time.