Income Taxes

12 Months Ended

Dec. 31, 2019

(7) Income Taxes

The components of loss from continuing operations before income taxes are as follows (in thousands):



	Years ended December 31,
	2019		2018		2017
Domestic	$	(81,443)	$	(448,575)	$	(270,221)
Foreign		(936)		(21,831)		(41,656)
	$	(82,379)	$	(470,406)	$	(311,877)

The components of income tax benefit are as follows (in thousands):



	Years ended December 31,
	2019		2018		2017
Current:
Federal	$	-	$	-	$	-
State		1,573		2,118		(750)
Foreign		(3,359)		14,856		9,137
		(1,786)		16,974		8,387
Deferred:
Federal		1,792		(66,039)		(142,590)
State		1,622		(4,161)		6,109
Foreign		(6,254)		10,223		(3,468)
		(2,840)		(59,977)		(139,949)
	$	(4,626)	$	(43,003)	$	(131,562)

A reconciliation of the U.S. statutory federal tax rate to the consolidated effective tax rate is as follows (in thousands):



	Years ended December 31,
	2019		2018		2017
Computed expected tax benefit	$	(17,513)	$	(98,785)	$	(109,157)
Increase (decrease) resulting from
State and foreign income taxes		4,019		10,437		16,437
Reduction in value of assets		(233)		27,680		-
U.S. Tax Reform		-		-		(39,603)
Other		9,101		17,665		761
Income tax benefit	$	(4,626)	$	(43,003)	$	(131,562)

During 2018, the Company recorded a $668.9 million reduction in value of goodwill relating to its Onshore Completion and Workover Services and Production Services segments. For tax purposes, the goodwill impairment generated a reduction to the permanent book-tax basis difference of $548.8 million and a reduction to the book-tax temporary basis difference of $102.0 million net of current year amortization expense of $18.0 million. The 2018 effective tax rate was significantly impacted by the permanent adjustment related to the reduction in value of assets caused by the goodwill impairment.

On December 22, 2017, U.S. Tax Reform was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 and the transition of U.S. international taxation from a worldwide tax system to a modified territorial system. As a result, the Company recorded a provisional income tax benefit of $39.6 million during the fourth quarter of 2017. During 2018, the Company finalized its assessment of the impact of U.S. Tax Reform and no material adjustments were recorded.

The tax effects of temporary differences that give rise to significant components of deferred income tax assets and liabilities are as follows (in thousands):



	December 31,
	2019		2018
Deferred tax assets:
Allowance for doubtful accounts	$	1,291	$	856
Operating loss and tax credit carryforwards		136,647		146,926
Compensation and employee benefits		35,532		38,006
Decommissioning liabilities		29,405		27,979
Operating leases		1,002		-
Other		24,903		25,331
		228,780		239,098
Valuation allowance		(84,741)		(25,571)
Net deferred tax assets		144,039		213,527

Deferred tax liabilities:
Property, plant and equipment		114,024		146,971
Notes receivable		12,977		12,977
Goodwill and other intangible assets		20,285		38,955
Other		-		14,624
Deferred tax liabilities		147,286		213,527
Net deferred tax liability	$	3,247	$	-

At December 31, 2019, the Company had $210.0 million in U.S. net operating loss carryforwards, which are available to reduce future taxable income. The expiration date for utilization of the U.S. loss carryforwards is 2037 for losses generated before 2018. Losses generated in 2018 and later cannot be carried back and have an indefinite carryforward that is limited to 80% of taxable income each year. At December 31, 2019, the Company also had various state net operating loss carryforwards with expiration dates from 2020 to 2038. A net deferred tax asset of $19.6 million reflects the expected future tax benefit for the state loss carryforwards. At December 31, 2019, the Company also had a U.S. foreign tax credit carryforward of $54.5 million with expiration dates from 2025 to 2027.

Management evaluates whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. The Company has incurred a cumulative loss over the three-year period ended December 31, 2019. Such evidence limits the ability to consider other projections of future growth. After considering all available evidence at December 31, 2019, the Company determined that a portion of the deferred tax assets would not be realized. Accordingly, the Company increased deferred income tax expense by an additional $61.9 million in the valuation allowance.

The Company has not provided income tax expense on earnings of its foreign subsidiaries, since the Company has reinvested or expects to reinvest undistributed earnings outside the U.S. indefinitely. At December 31, 2019, the Company’s foreign subsidiaries had an overall accumulated deficit in earnings. The Company does not intend to repatriate the earnings of its profitable foreign subsidiaries. The Company has not provided U.S. income taxes for such earnings. These earnings could become subject to U.S. income tax if repatriated. It is not practicable to estimate the amount of taxes that might be payable on such undistributed earnings.

The Company files income tax returns in the U.S., including federal and various state filings, and certain foreign jurisdictions. The number of years that are open under the statute of limitations and subject to audit varies depending on the tax jurisdiction. The Company remains subject to U.S. federal tax examinations for years after 2017.

The Company had unrecognized tax benefits of $13.2 million, $30.6 million and $30.7 million as of December 31, 2019, 2018 and 2017, respectively, all of which would impact the Company’s effective tax rate if recognized.

The activity in unrecognized tax benefits is as follows (in thousands):



	Years ended December 31,
	2019		2018		2017
Unrecognized tax benefits at beginning of period	$	30,558	$	30,656	$	29,956
Additions based on tax positions related to prior years		2,500		1,899		5,576
Reductions based on tax positions related to prior years		-		(1,864)		(4,671)
Reductions as a result of a lapse of the applicable statute of limitations		-		(133)		(205)
Reductions relating to settlements with taxing authorities		(19,852)		-		-
Unrecognized tax benefits at end of period	$	13,206	$	30,558	$	30,656

The amounts above include accrued interest and penalties of $5.0 million, $9.7 million and $9.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. During the year ended December 31, 2019, the Company recorded a reduction in unrecognized tax benefits of $19.9 million relating to settlements of income tax audits in foreign countries. Interest and penalties associated with the unrecognized tax benefits are classified as a component of income tax expense in the consolidated statements of operations.