Income Taxes

12 Months Ended

Dec. 31, 2019

Note 9 — Income Taxes

On December 22, 2017, the 2017 Tax Act was enacted. The 2017 Tax Act is comprehensive tax reform legislation that contains significant changes to corporate taxation, including a permanent reduction of the corporate income tax rate from 35% to 21%, a mandatory one-time tax on un-repatriated accumulated earnings of foreign subsidiaries, a partial limitation on the deductibility of business interest expense, and a shift from U.S. taxation on worldwide income of multinational corporations to a partial territorial system (along with rules that create a new U.S. minimum tax on earnings of foreign subsidiaries).

Due to the changes to U.S. tax laws as a result of the 2017 Tax Act, we recorded a $51.6 million net income tax benefit during the fourth quarter of 2017. This amount was comprised of the following:

Reduction of the U.S. Corporate Income Tax Rate

We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to reverse. Accordingly, our deferred tax assets and liabilities were re-measured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in a $59.7 million deferred income tax benefit recorded during the fourth quarter of 2017 and a corresponding decrease in net deferred tax liabilities as of December 31, 2017.

Transition Tax on Foreign Earnings

The one-time transition tax was based on our total post-1986 foreign earnings and profits (“E&P”) deemed repatriated to the U.S. to the extent the E&P has not already been subject to U.S. taxation. We recorded a deferred income tax expense of $8.1 million during the fourth quarter of 2017 related to the one-time transition tax on certain foreign earnings. This resulted in a corresponding decrease in deferred tax assets of $8.1 million due to the utilization of U.S. net operating losses against the deemed mandatory repatriation income inclusion.

We and our subsidiaries file a consolidated U.S. federal income tax return. We believe that our recorded deferred tax assets and liabilities are reasonable. However, tax laws and regulations are subject to interpretation, and the outcomes of tax disputes are inherently uncertain; therefore, our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.

Components of income tax provision (benefit) reflected in the consolidated statements of operations consist of the following (in thousands):



	Year Ended December 31,
	2019		2018			2017

Current	$	4,374	$	4,830		$	4,161
Deferred	3,485		(2,430		)	(54,585		)
	$	7,859	$	2,400		$	(50,424	)



Domestic	$	3,715	$	(3,161	)	$	(53,044	)
Foreign	4,144		5,561			2,620
	$	7,859	$	2,400		$	(50,424	)

Components of income (loss) before income taxes are as follows (in thousands):



	Year Ended December 31,
	2019		2018			2017

Domestic	$	2,219	$	(28,838	)	$	(221	)
Foreign	63,337		59,836			(20,151		)
	$	65,556	$	30,998		$	(20,372	)

Income taxes are provided based on the U.S. statutory rate and at the local statutory rate for each foreign jurisdiction adjusted for items that are allowed as deductions for federal and foreign income tax reporting purposes, but not for book purposes. The primary differences between the U.S. statutory rate and our effective rate are as follows:



	Year Ended December 31,
	2019		2018		2017

Statutory rate	21.0	%	21.0	%	35.0	%
Foreign provision	(10.0	)	(15.9	)	(6.2	)
Change in U.S. statutory rate ⁽¹⁾	—		—		293.1
Mandatory U.S. repatriation ⁽¹⁾	—		—		(39.7	)
Change in tax position ⁽²⁾	—		—		(31.1	)
Other	1.0		2.6		(3.6	)
Effective rate	12.0	%	7.7	%	247.5	%


(1)	As a result of the U.S. tax law changes, we recorded a net deferred tax benefit of $51.6 million during the fourth quarter of 2017 (see above).


(2)	As a result of a change in tax position related to our foreign taxes, we recorded a tax charge of $6.3 million in June 2017.

Deferred income taxes result from the effect of transactions that are recognized in different periods for financial and tax reporting purposes. The nature of these differences and the income tax effect of each are as follows (in thousands):



	December 31,
	2019			2018
Deferred tax liabilities:
Depreciation	$	166,239		$	149,974
Debt discounts on 2022 Notes and 2023 Notes	4,643			5,902
Prepaid and other	—			1,309
Total deferred tax liabilities	$	170,882		$	157,185
Deferred tax assets:
Net operating losses	$	(64,178	)	$	(47,916	)
Reserves, accrued liabilities and other	(13,203		)	(21,347		)
Total deferred tax assets	(77,381		)	(69,263		)
Valuation allowance	18,631			17,940
Net deferred tax liabilities	$	112,132		$	105,862

At December 31, 2019, our U.S. net operating losses available for carryforward totaled $228.3 million. The U.S. net operating loss carryforwards prior to 2018 in the amount of $112.3 million will begin to expire in 2035 if unused. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of these tax attributes will be utilized. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income during the carryforward period are reduced.

At December 31, 2019, we had a $3.0 million valuation allowance recorded against our U.S. deferred tax assets for foreign tax credits. Management believes it is more likely than not that we will not be able to utilize the foreign tax credits prior to their expiration.

At December 31, 2019, we had a $15.6 million valuation allowance related to certain non-U.S. deferred tax assets, primarily net operating losses from our Robotics segment in the U.K., as management believes it is more likely than not that we will not be able to utilize the tax benefits. Additional valuation allowances may be made in the future if in management’s opinion it is more likely than not that future tax benefits will not be utilized.

At December 31, 2019, we had accumulated undistributed earnings generated by our non-U.S. subsidiaries without operations in the U.S. of approximately $129.2 million. Due to the enactment of the 2017 Tax Act, repatriations of foreign earnings will generally be free of U.S. federal tax but may result in other withholding taxes or state taxes. Indefinite reinvestment is determined by management’s intentions concerning our future operations. We intend to indefinitely reinvest these earnings, as well as future earnings from our non-U.S. subsidiaries without operations in the U.S., to fund our international operations. In addition, we expect future U.S. cash generation will be sufficient to meet future U.S. cash needs. We have not provided deferred income taxes on the accumulated earnings and profits from our non-U.S. subsidiaries without operations in the U.S. as we consider them permanently reinvested. Due to complexities in the tax laws and the manner of repatriation, it is not practicable to estimate the unrecognized amount of deferred income taxes and the related dividend withholding taxes associated with these undistributed earnings.

We account for tax-related interest in interest expense and tax penalties in selling, general and administrative expenses. The statute of limitations on our sole remaining uncertain tax position expired in 2019. Therefore, as of December 31, 2019 there were no unrecognized tax benefits related to uncertain tax positions. As of December 31, 2018 and 2017, we had unrecognized tax benefits of $0.3 million related to uncertain tax positions, which if recognized would have affected the annual effective tax rate in those years.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):



	2019			2018			2017

Balance at January 1,	$	306		$	318		$	343
Additions for tax positions of prior years	—			—			—
Reductions for tax positions of prior years	(306		)	(12		)	(25		)
Balance at December 31,	$	—		$	306		$	318

We file tax returns in the U.S. and in various state, local and non-U.S. jurisdictions. We anticipate that any potential adjustments to our state, local and non-U.S. jurisdiction tax returns by taxing authorities would not have a material impact on our financial position. The tax periods from 2016 through 2019 remain open to review and examination by the Internal Revenue Service. In non-U.S. jurisdictions, the open tax periods include 2013 through 2019.