Income Taxes

12 Months Ended

Dec. 31, 2017

Income Taxes

Income Taxes

Note 5: Income Taxes

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (“the Act”), which took effect on January 1, 2018. Some notable provisions of the Act include a reduction of the corporate Federal income tax rate from 35 percent to 21 percent, a one-time transition tax on un-repatriated foreign earnings and profits, adjustments to deductible compensation paid to our executive officers, and 100 percent bonus depreciation on capital expenditures. Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. As a result, for the year ended December 31, 2017, the Company recorded a discrete tax benefit adjustment of $19.3 million from revaluing the Company’s net deferred tax liabilities. The Company also evaluated the impact of the Act on un-repatriated earnings and profits of our foreign subsidiaries and determined the tax to be negligible. We believe the adjustments resulting from these components of the Act to be complete as of December 31, 2017.

However, the Company has not completed its accounting for the income tax effects of the Act as it pertains to the deduction for executive compensation, including the impact for compensation that is paid pursuant to a binding contract that would have been deductible under the prior rules. Due to the complexity of this provision, additional time is needed to further analyze our executive compensation program, exceptions under the binding contract rule, the impact of vesting of restricted stock grants, dividends, and bonuses. Additionally, due to the volume of property, plant and equipment that may be impacted by the Act, we have included a provisional adjustment in our accounting for tax reform, until additional testing and review of assets that qualify for immediate expensing under the new rules can be performed.

The ultimate impact of the Act may differ from the recorded amounts due to changes in our interpretations and assumptions, as well as additional regulatory guidance that may be issued. We expect to complete the accounting for tax reform with the completion of our 2017 Federal income tax return, expected to be complete by the third quarter of 2018.

Also in 2017, the Company adopted the amendments of ASU 2016-09 that required excess tax benefits and deficiencies related to the vesting of restricted stock to be recognized as a component of income tax expense rather than in equity. This resulted in a beneficial discrete adjustment of approximately $2.8 million to the provision for income taxes in 2017.

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

Years ended December 31,	2017			2016			2015
(in thousands)
Current provision (benefit):
Federal	$	95,995		$	(43,993	)	$	(24,727	)
State		13,966			(24,479	)		(3,638	)
Foreign		2,953			4,567			7,898
Deferred provision (benefit):
Federal		(39,710	)		(31,505	)		(31,178	)
State		(2,899	)		(2,704	)		(1,835	)
Total income tax provision (benefit)	$	70,305		$	(98,114	)	$	(53,480	)

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

Years ended December 31,	2017			2016			2015
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		1.9			1.3			-
Tax credits		(0.7	)		0.1			0.3
Non-deductible expenses		2.0			(0.7	)		(1.3	)
Change in contingencies		-			6.6			—
Adjustments related to the Act		(8.3	)
Other		0.3			(1.3	)		0.9
Effective tax rate		30.2	%		41.0	%		34.9	%

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

December 31,	2017			2016
(in thousands)
Deferred tax assets:
Self-insurance	$	4,660		$	5,907
Pension		8,730			11,995
State net operating loss carryforwards		4,048			1,455
Bad debt		1,149			991
Accrued payroll		1,117			857
Stock-based compensation		3,612			5,847
Foreign tax credits		3,592			-
All others		1,681			2,483
Valuation allowance		(3,994	)		(356	)
Gross deferred tax assets		24,595			29,179
Deferred tax liabilities:
Depreciation		(53,119	)		(95,606	)
Goodwill amortization		(6,450	)		(9,340	)
Basis differences in consolidated limited liability company		(4,102	)		(5,281	)
Basis differences in joint ventures		(355	)		(396	)
All others		(6	)		(22	)
Gross deferred tax liabilities		(64,032	)		(110,645	)
Net deferred tax liabilities		(39,437	)	$	(81,466	)

As of December 31, 2017, undistributed earnings of the Company's foreign subsidiaries totaled $8.4 million. In accordance with the Act, the Company has calculated the impact of a deemed repatriation of these earnings, and has concluded that additional U.S. income taxes upon full repatriation would be negligible. Accordingly, no U.S. federal and state income taxes have been provided thereon. Under the Act, distribution of these earnings in the form of dividends or otherwise would be subject to withholding taxes payable to the foreign countries. 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, 2017, the Company has net operating loss carryforwards related to state income taxes of $79.1 million (gross) that will expire between 2018 and 2035. As of December 31, 2017, the Company has a valuation allowance of $347 thousand, representing the tax-affected amount of loss carryforwards that the Company does not expect to utilize, against the corresponding deferred tax asset.

Additionally, as of December 31, 2017, the Company has foreign tax credits totaling $3,591 thousand and capital loss carryforwards of $56 thousand that are not expected to be utilized, and has a full valuation allowance against the corresponding deferred tax assets.

Total net income tax (refunds) payments were $98.0 million in 2017, $(42.4) million in 2016, and $(7.9) million in 2015.

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 2014 through 2017 tax years remain open to examination. Additional years may be open to the extent attributes are being carried forward to an open year.

In March 2017, the Internal Revenue Service (IRS) initiated an examination of the Company’s Federal Income Tax Returns for the years 2013 through 2015. As of December 31, 2017, the IRS has not proposed any adjustments with respect to the examination.

The Company’s subsidiaries are also subject to foreign income taxes in certain jurisdictions. In November 2016, the Canadian Revenue Agency (“CRA”) initiated an examination of the Company’s Canadian subsidiary for the periods 2013 through 2015. As of December 12, 2017, the CRA concluded its examination with minimal adjustments.

As of December 31, 2017 and 2016, 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:

	2017		2016
Balance at January 1	$	2,215,000	$	26,152,000
Additions based on tax positions related to the current year		-		-
Additions for tax positions of prior years		-		-
Reductions for tax positions of prior years		-		(23,937,000	)
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, 2017 and 2016 were $193 thousand and $76 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.