Income Taxes

12 Months Ended

Dec. 31, 2019

5. Income Taxes

Income (loss) before taxes is summarized as follows:



	Year Ended December 31,
(in thousands)	2019		2018		2017
United States operations	$	(456,403)	$	106,222	$	135,177
Foreign and U.S. territory operations		30,569		26,391		18,798
Total	$	(425,834)	$	132,613	$	153,975

The income tax (benefit) expense is as follows:



	Year Ended December 31,
(in thousands)	2019		2018		2017
Current expense:
Federal	$	(2,884)	$	21,055	$	12,329
State		3,585		8,676		6,763
Foreign and U.S. territories		5,299		5,550		3,435
Total current expense		6,000		35,281		22,527

Deferred (benefit) expense:
Federal		(43,579)		(1,773)		(30,021)
State		(27,566)		1,278		5,560
Foreign and U.S. territories		(464)		46		1,365
Total deferred (benefit) expense		(71,609)		(449)		(23,096)
Total (benefit) expense	$	(65,609)	$	34,832	$	(569)

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




	Year Ended December 31,
	2019				2018				2017
(dollars in thousands)	Amount		Rate		Amount		Rate		Amount		Rate
Federal income tax (benefit) expense at statutory tax rate	$	(89,425)	21.0	%	$	27,849	21.0	%	$	53,892	35.0	%
State income taxes, net of federal tax benefit		(18,442)	4.3			9,011	6.8			7,753	5.0
Stock based compensation		1,706	(0.4)			—	—			—	—
Impact of federal tax law change		—	—			211	0.2			(53,348)	(34.6)
Officers' compensation		2,938	(0.7)			3,078	2.3			2,622	1.7
Goodwill impairment		43,990	(10.3)			—	—			—	—
Domestic production activities deduction		—	—			—	—			(2,668)	(1.7)
Noncontrolling interests		(6,064)	1.4			(3,232)	(2.4)			(2,137)	(1.4)
Federal R&D credits		(3,998)	0.9			(2,658)	(2.0)			(470)	(0.4)
Reversal of reserve for uncertain tax positions and taxes payable due to statute expirations		(773)	0.2			(1,958)	(1.5)			(4,337)	(2.8)
Foreign tax differences		4,940	(1.2)			(19)	—			(389)	(0.3)
Other		(481)	0.2			2,550	1.9			(1,487)	(0.9)
Income tax (benefit) expense	$	(65,609)	15.4	%	$	34,832	26.3	%	$	(569)	(0.4)	%

The Company’s provision for income taxes and effective tax rate for the year ended December 31, 2019 was significantly impacted by the goodwill impairment charge discussed in Note 6. Of the total goodwill impairment charge of $379.9 million, approximately $209.5 million pertained to goodwill that is not tax deductible and yielded permanent differences between book income and taxable income. For the year ended December 31, 2019, the Company recognized U.S. federal and state tax benefits totaling $49.4 million as a result of the impairment charge.

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act of 2017 (“TCJA”) which made broad and complex changes to the U.S. tax code that 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. Future distributions from foreign subsidiaries, however, are no longer 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 following is a summary of the significant components of the deferred tax assets and liabilities:



	As of December 31,
(in thousands)	2019		2018
Deferred tax assets:
Timing of expense recognition	$	44,761	$	20,832
Net operating losses		23,711		8,611
Goodwill		26,658		—
Other, net		17,098		18,828
Deferred tax assets		112,228		48,271
Valuation allowance		(2,212)		(1,150)
Net deferred tax assets		110,016		47,121
Deferred tax liabilities:
Intangible assets, due primarily to purchase accounting		(15,309)		(36,862)
Fixed assets, due primarily to purchase accounting		(75,461)		(75,998)
Construction contract accounting		(13,464)		(9,435)
Joint ventures		(24,331)		(9,853)
Other		(16,567)		(20,411)
Deferred tax liabilities		(145,132)		(152,559)

Net deferred tax liabilities	$	(35,116)	$	(105,438)

As of December 31, 2019, the Company had federal and various state net operating loss carryforwards for income tax purposes of $29.3 million and $184.8 million, respectively. Federal net operating loss carryforwards do not have expiration dates, whereas the state net operating loss carryforwards have expiration dates ranging from 2022 to 2038. As of December 31, 2019, the Company has federal and state credit carryforwards for income tax purposes of approximately $6.0 million and $1.2 million, respectively.

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



	As of December 31,
(in thousands)	2019		2018
Deferred tax assets	$	570	$	83
Deferred tax liabilities		(35,686)		(105,521)
Net deferred tax liabilities	$	(35,116)	$	(105,438)

Since the enactment of the TCJA, the Company no longer intends to permanently reinvest in its foreign subsidiaries. Consequently, the Company now provides deferred income taxes and foreign withholding taxes related to its foreign subsidiaries.

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, 2019 that, if recognized, would affect the effective tax rate is $5.7 million. 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. The following is a reconciliation of the beginning and ending amounts of these unrecognized tax benefits for the three years ended December 31, 2019:



	As of December 31,
(in thousands)	2019		2018		2017
Beginning balance	$	4,998	$	6,495	$	7,574
Change in tax positions of prior years		351		(302)		(1,207)
Change in tax positions of current year		1,106		763		128
Reduction in tax positions for statute expirations		(773)		(1,958)		—
Ending Balance	$	5,682	$	4,998	$	6,495

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 subject to a U.S. federal income tax

audit for fiscal years 2016 and later, although there is currently no audit being conducted by the Internal Revenue Service. The Company has various years open to audit in a number of state and local jurisdictions and is currently under audit by certain state taxing authorities.