Income Taxes

12 Months Ended

Dec. 31, 2018

10. Income Taxes

Income before income taxes by geographic area was, for the years ended December 31:

(in thousands)	2018			2017			2016
Federal	$	48,393		$	33,830		$	39,419
Foreign		(5,325	)		(9,190	)		(1,074	)
	$	43,068		$	24,640		$	38,345

The income tax provision consisted of the following for the years ended December 31:

(in thousands)	2018			2017			2016
Current
Federal	$	5,155		$	7,020		$	9,838
State		3,310			1,557			2,871
		8,465			8,577			12,709
Deferred
Federal		4,936			(1,453	)		2,491
Foreign		(822	)		(875	)		481
State		(805	)		(2,763	)		1,233
		3,309			(5,091	)		4,205
Income tax expense	$	11,774		$	3,486		$	16,914

The differences between the U.S. federal statutory tax rate and the Company’s effective tax rate for operations were as follows for the years ended December 31:

	2018			2017			2016
U.S federal statutory rate		21.0	%		35.0	%		35.0	%
Deferred balance adjustments due to Tax Act, net		—			(31.6	)		—
State income taxes, net of U.S. federal income tax expense		5.2			5.3			5.2
Change in valuation allowance		1.2			6.4			1.6
Domestic production/manufacturing deduction		—			(1.6	)		(1.9	)
Tax differential on foreign earnings		(0.5	)		3.2			0.6
Deferred state tax adjustments, net		—			(2.4	)		1.6
Non-deductible meals and entertainment		0.8			1.7			1.0
Stock compensation excess tax benefits		(0.1	)		(3.1	)		—
Uncertain tax positions		0.1			2.0			—
Provision to return adjustments, net		(0.2	)		(0.3	)		0.8
Non-controlling interest		(0.5	)		—			—
Other income, net		0.3			(0.5	)		0.2
Effective rate		27.3	%		14.1	%		44.1	%

The net deferred tax assets and (liabilities) arising from temporary differences was as follows at December 31:

(in thousands)	2018			2017
Deferred income tax assets:
Self insurance reserves	$	4,299		$	4,555
Contract loss reserves		350			317
Stock-based awards		1,143			1,571
Bonus		3,271			590
Non-U.S. operating loss		2,672			2,173
Non-U.S. deferred income tax assets, net		1,526			773
Other		1,958			1,359
Total deferred income tax assets before valuation allowances		15,219			11,338
Less: valuation allowances		(2,672	)		(2,173	)
Total deferred income tax assets		12,547			9,165
Deferred income tax liabilities:
Property and equipment – tax over book depreciation		(26,030	)		(18,792	)
Intangible assets – tax over book amortization		(1,890	)		(2,186	)
Other		(2,025	)		(1,639	)
Total deferred income tax liabilities		(29,945	)		(22,617	)
Net deferred income taxes	$	(17,398	)	$	(13,452	)

The Company determined that it is more-likely-than-not that it will not realize the deferred tax assets on certain Canadian subsidiaries and recorded a valuation allowance against the entire related deferred tax assets.

As of December 31, 2018, the Company had no undistributed earnings of our Canadian subsidiaries. We expect future earnings to be reinvested. Accordingly, as of December 31, 2018 no provision for U.S. income taxes or foreign withholding taxes has been made.

The Company is subject to taxation in various jurisdictions.

The Company is currently under examination by U. S. federal authorities for its 2016

tax returns and

its 2017 tax return is

subject

to examination by U. S. federal authorities. The Company’s tax returns are subject to examination by various state authorities for the years 2014 through 2017.

The Company has recorded a liability for unrecognized tax benefits related to tax positions taken on its various income tax returns. If recognized, the entire amount of unrecognized tax benefits would favorably impact the effective tax rate that is reported in future periods. The decrease in the unrecognized tax benefits as of

December 31, 2018

was primarily due to the reclassification of reserves for state tax expenses from unrecognized tax benefits to deferred tax liability during the year ended December 31, 2018. These state tax expenses were deducted on the federal tax returns for the

2011 through 2017. The total unrecognized tax benefits is expected to be reduced by less than $

0.1

million within the next 12 months. Interest and penalties related to uncertain income tax positions are included as a component of income tax expense in the Financial Statements.

The following is a reconciliation of the beginning and ending liability for unrecognized tax benefits at December 31:

(in thousands)	2018			2017
Balance at beginning of period	$	751		$	271
Gross increases in current period tax positions		25			63
Gross increases in prior period tax positions		—			434
Reductions in tax positions due to lapse of statutory limitations		(8	)		(17	)
Reclass from unrecognized tax benefits to deferred tax liability		(441	)		—
Balance at end of period		327			751
Accrued interest and penalties at end of period		48			36
Total liability for unrecognized tax benefits	$	375		$	787

The liability for unrecognized tax benefits, including accrued interest and penalties, was included in other liabilities in the accompanying consolidated balance sheets. The amount of interest and penalties charged or credited to income tax expense as a result of the unrecognized tax benefits was not significant in the years ended December 31, 2018, 2017 and 2016.