3. Income Taxes

Income before taxes is summarized as follows:



	Year Ended December 31,
(in thousands)	2017		2016		2015
United States operations	$	135,177	$	128,072	$	69,822
Foreign operations		18,798		21,043		4,017
Total	$	153,975	$	149,115	$	73,839

The income tax (benefit) provision is as follows:



	Year Ended December 31,
(in thousands)	2017		2016		2015
Current expense:
Federal	$	12,329	$	43,850	$	5,465
State		6,763		13,039		(362)
Foreign		3,435		6,573		1,126
Total current		22,527		63,462		6,229

Deferred (benefit) expense:
Federal		(30,021)		(3,054)		19,583
State		5,560		(5,302)		2,735
Foreign		1,365		(1,813)		—
Total deferred		(23,096)		(10,169)		22,318
Total (benefit) provision	$	(569)	$	53,293	$	28,547

The following table is a reconciliation of the Company’s income tax provision at the statutory rates to the income tax (benefit) provision at the Company’s effective rate:




	Year Ended December 31,
	2017				2016				2015
(dollars in thousands)	Amount		Rate		Amount		Rate		Amount		Rate
Federal income tax expense at statutory tax rate	$	53,892	35.0	%	$	52,190	35.0	%	$	25,844	35.0	%
State income taxes, net of federal tax benefit		7,753	5.0			4,614	3.1			3,685	5.0
Impact of federal tax law change		(53,348)	(34.6)			—	—			—	—
Officers' compensation		2,622	1.7			3,807	2.6			2,900	3.9
Domestic production activities deduction		(2,668)	(1.7)			(4,018)	(2.7)			(1,499)	(2.0)
Noncontrolling interest		(2,137)	(1.4)			—	—			—	—
Reversal of taxes payable due to statute expiration		(4,337)	(2.8)			—	—			—	—
Other		(2,346)	(1.6)			(3,300)	(2.3)			(2,383)	(3.2)
Income tax (benefit) provision	$	(569)	(0.4)	%	$	53,293	35.7	%	$	28,547	38.7	%

On December 22, 2017, the U.S. government enacted significant tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “TCJA”). The TCJA makes broad and complex changes to the U.S. tax code that will impact the Company’s financial statements, including but not limited to a permanent decrease in the corporate federal statutory income tax rate from 35% to 21%, effective January 1, 2018, and a one-time transition tax from the inclusion of foreign earnings, which the Company can elect to pay over eight years. Future distributions from foreign subsidiaries, however, will no longer be subject to federal income tax.

As a result of the TCJA, the Company recognized an income tax benefit of $53.3 million in 2017, primarily due to the remeasurement of deferred tax assets and liabilities based on the reduced corporate federal statutory income tax rate of 21%.

The Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740, Income Taxes (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.

The one-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) that it previously deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition tax liability for its foreign subsidiaries, resulting in an increase in income tax expense of $0.5 million. The Company has not yet completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets.

The following is a summary of the significant components of the deferred tax assets and liabilities:



	As of December 31,
(in thousands)	2017		2016
Deferred tax assets:
Timing of expense recognition	$	22,730	$	36,055
Net operating losses		8,590		10,140
Other, net		15,618		33,507
Deferred tax assets		46,938		79,702
Valuation allowance		(381)		(460)
Net deferred tax assets		46,557		79,242
Deferred tax liabilities:
Intangible assets, due primarily to purchase accounting		(30,019)		(34,679)
Fixed assets, due primarily to purchase accounting		(73,833)		(107,081)
Construction contract accounting		(17,539)		(12,564)
Joint ventures		(11,343)		(29,609)
Other		(22,263)		(24,970)
Deferred tax liabilities		(154,997)		(208,903)

Net deferred tax liabilities	$	(108,440)	$	(129,661)

The net deferred tax liabilities are presented in the Consolidated Balance Sheets as follows:



	As of December 31,
(in thousands)	2017		2016
Deferred tax assets	$	64	$	1,346
Deferred tax liabilities		(108,504)		(131,007)
Net deferred tax liabilities	$	(108,440)	$	(129,661)

Prior to 2017, the Company did not provide for deferred income taxes or foreign withholding tax on basis differences in its non-U.S. subsidiaries that result from undistributed earnings which the Company had the intent and the ability to reinvest in its foreign operations. Due to the enactment of the TCJA, the Company no longer intends to permanently reinvest in its foreign subsidiaries. Any tax on future distributions will be limited to certain state taxes, which would be immaterial.

The Company’s policy is to record interest and penalties on unrecognized tax benefits as an element of income tax expense. The cumulative amounts related to interest and penalties are added to the total unrecognized tax liabilities on the balance sheet. The total amount of gross unrecognized tax benefits as of December 31, 2017 that, if recognized, would affect the effective tax rate is $6.5 million. During 2017, the Company recognized a net decrease of $1.1 million in liabilities. The amount of gross unrecognized tax benefits as of December 31, 2016 was $7.6 million. During 2016, the Company recognized a net increase of $4.0 million in liabilities. The amount of gross unrecognized tax benefits as of December 31, 2015 was $3.6 million. During 2015, the Company recognized a net decrease of $4.0 million in liabilities. The Company does not expect any significant release of unrecognized tax benefits within the next twelve months.

The Company accounts for its uncertain tax positions in accordance with GAAP. A reconciliation of the beginning and ending amounts of these tax benefits for the three years ended December 31, 2017 is as follows:



	As of December 31,
(in thousands)	2017		2016		2015
Beginning balance	$	7,574	$	3,612	$	7,636
Change in tax positions of prior years		(1,207)		3,543		(3,073)
Change in tax positions of current year		128		419		169
Reduction in tax positions for statute expirations		—		—		(1,120)
Ending Balance	$	6,495	$	7,574	$	3,612

The Company conducts business internationally and, as a result, one or more of its subsidiaries files income tax returns in U.S. federal, U.S. state and certain foreign jurisdictions. Accordingly, in the normal course of business, the Company is subject to examination by taxing authorities principally throughout the United States, Guam and Canada. The Company is no longer under examination by the taxing authority regarding any U.S. federal income tax returns for years before 2011 while the years open for examination under various state and local jurisdictions vary.