9. Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code including but not limited to a reduction in U.S. federal corporate tax rate from 35% to 21%, effective for tax years beginning after December 31, 2017 and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. To the extent that a company’s accounting for certain income tax effects of those aspects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included 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 Tax Act.

As a result of the initial analysis of the impact of the Tax Act, the Company recorded a net expense of $26,674 related to the re-measurement of deferred tax assets and liabilities resulting in a change in the corporate tax rate from 35% to 21%. This amount was offset in part by the release of a valuation allowance of $60,772 related to the re-measurement required by the rate change. It was also offset by $66,373 due to changes under the Tax Act, which resulted in significant additional positive evidence, in the form of future taxable income, that impacted management's assessment of the amount of the Company's deferred tax assets that would be realized going forward. Additionally, the Company recorded no tax expense as a result of the transition tax. The combined effect of the changes from the Tax Act resulted in a tax benefit of $100,472. While the Company has made a reasonable estimate of the impact of the reduction in the corporate rate and transition tax, it continues to gather additional information and awaits further interpretive guidance from the tax authorities to more precisely calculate amounts.

The Act created a new requirement that Global Intangible Low-Taxed Income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return (the “routine return”), which is defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment (QBAI) of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. A deduction is permitted to a domestic corporation in an amount up to 50% of the sum of the GILTI inclusion and the amount treated as a dividend because the corporation has claimed a foreign tax credit (FTC) as a result of the inclusion of the GILTI amount in income.

The Company continues to assess the impact of GILTI provisions on its financial statements and whether it will be subject to U.S. GILTI inclusion in future years. As such, the Company has not made a policy election on whether to record tax effects of GILTI when paid as a period expense or to record deferred tax assets and liabilities on basis differences that are expected to affect the amount of GILTI inclusion.

The components of the Company’s income (loss) from continuing operations before income taxes and equity in earnings of non-consolidated affiliates by taxing jurisdiction for the years ended December 31, were:



	2017		2016			2015
Income (Loss):
U.S.	$	48,053	$	(16,661	)	$	23,180
Non-U.S.	39,025		(33,055		)	(40,596		)
	$	87,078	$	(49,716	)	$	(17,416	)

The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were:



	2017			2016			2015
Current tax provision
U.S. federal	$	(1,657	)	$	—		$	—
U.S. state and local	98			(1,520		)	1,375
Non-U.S.	6,514			2,154			2,465
	4,955			634			3,840
Deferred tax provision (benefit):
U.S. federal	(172,873		)	5,785			5,359
U.S. state and local	(7,775		)	(3,550		)	2,877
Non-U.S.	7,629			(12,273		)	(8,315		)
	(173,019		)	(10,038		)	(79		)
Income tax provision (benefit)	$	(168,064	)	$	(9,404	)	$	3,761

A reconciliation of income tax expense (benefit) using the statutory Canadian federal and provincial income tax rate compared with actual income tax expense for the years ended December 31, is as follows:



	2017			2016			2015
Income (loss) from continuing operations before income taxes, equity in non-consolidated affiliates and noncontrolling interest	$	87,078		$	(49,716	)	$	(17,416	)
Statutory income tax rate	26.5		%	26.5		%	26.5		%
Tax expense (benefit) using statutory income tax rate	23,076			(13,175		)	(4,615		)
State and foreign taxes	8,863			(94		)	3,524
Non-deductible stock-based compensation	1,441			1,123			665
Other non-deductible expense	(220		)	1,848			163
Change to valuation allowance	(103,212		)	6,605			3,565
Effect of the difference in Canadian and local statutory rates	4,463			(4,579		)	1,906
Impact of tax reform	(100,472		)	—			—
Noncontrolling interests	(4,413		)	(1,287		)	(2,399		)
Impact of foreign operations	(2,453		)	—			—
Other, net	4,863			155			952
Income tax expense (benefit)	$	(168,064	)	$	(9,404	)	$	3,761
Effective income tax rate	(193.0		)%	18.9		%	(21.6		)%

Income taxes receivable were $4,582 and $1,506 at December 31, 2017 and 2016, respectively, and were included in other current assets on the balance sheet. Income taxes payable were $3,810 and $4,547 at December 31, 2017 and 2016, respectively, and were included in accrued and other liabilities on the balance sheet. It is the Company’s policy to classify interest and penalties arising in connection with the under payment of income taxes as a component of income tax expense.

The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, were as follows:



	2017			2016
Deferred tax assets:
Capital assets and other	$	5,059		$	6,758
Net operating loss carry forwards	49,318			44,305
Interest deductions	2,026			12,146
Refinancing charge	5,578			7,413
Goodwill and intangibles	129,455			179,029
Stock compensation	1,208			2,581
Pension plan	4,165			5,095
Unrealized foreign exchange	8,653			15,237
Capital loss carry forwards	11,450			10,957
Accounting reserves	412			7,138
Gross deferred tax asset	217,324			290,659
Less: valuation allowance	(19,032		)	(248,866		)
Net deferred tax assets	198,292			41,793
Deferred tax liabilities:
Deferred finance charges	—			(333		)
Capital assets and other	—			(388		)
Goodwill amortization	(89,727		)	(109,638		)
Total deferred tax liabilities	(89,727		)	(110,359		)
Net deferred tax asset (liability)	$	108,565		$	(68,566	)
Disclosed as:
Deferred tax assets	$	115,325		$	41,793
Deferred tax liabilities	(6,760		)	(110,359		)
	$	108,565		$	(68,566	)

The Company has U.S. federal net operating loss carry forwards of $29,723 and non-U.S. net operating loss carry forwards of $116,536. These carry forwards expire in years 2017 through 2032. The Company also has total indefinite loss carry forwards of $96,063. These indefinite loss carry forwards consist of $9,646 relating to the U.S. and $86,417 which are related to capital losses from the Canadian operations. In addition, the Company has net operating loss carry forwards for various state taxing jurisdictions of approximately $119,188.

The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates all positive and negative evidence and considers factors such as the reversal of taxable temporary differences, future taxable income, and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense.

As of December 31, 2016, the Company maintained valuation allowance against its world-wide net deferred tax asset of $248,866 as it believed it was more likely than not that some or all of the deferred tax assets would not be realized. This assessment was based on the Company’s historical losses and uncertainties as to the amount of future taxable income.

As of December 31, 2017, the Company evaluated positive and negative evidence in determining the likelihood that it will be able to realize all or some portion of its deferred tax assets prior to their expiration. As of September 30, 2017, the Company’s three-year cumulative pre-tax income had declined compared to the period ended December 31, 2016. As of December 31, 2017 the three-year cumulative pre-tax income had increased substantially, consistent with the Company’s history of strong fourth quarter performance, which provided significant positive evidence. Upon completion of this evaluation, the Company concluded that in part, as a result of cumulative pretax income, there is sufficient positive evidence that the Company will more likely than not realize its U.S. deferred tax assets. Therefore, the Company reduced its valuation allowance by $105,486. In addition, because of the Tax Act, the Company remeasured its existing deferred tax assets and reduced its valuation allowance by $127,146, as described above. The related effect on the accompanying consolidated statements of operations and comprehensive income or loss resulted in the Company recording a U.S. income tax benefit of $232,632 for the year ended December 31, 2017.

Deferred taxes are not provided for temporary differences representing earnings change of subsidiaries that are intended to be permanently reinvested. The potential deferred tax liability associated with these undistributed earnings is not material.

As of December 31, 2017 and 2016, the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $1,556 and $1,543, respectively. As of December 31, 2017 and 2016, accrued penalties and interest included in unrecognized tax benefits were approximately $123 and $78, respectively. The Company identified an uncertainty relating to the future tax deductibility of certain intercompany fees. To the extent that such future benefit will be established, the resolution of this position will have no effect with respect to the financial statements. If these unrecognized tax benefits were to be recognized, it would affect the Company’s effective tax rate.



Changes in the Company’s reserve is as follows:
Balance at December 31, 2014	$	3,073
Charges to income tax expense	960
Settlement of uncertainty	(428		)
Balance at December 31, 2015	3,605
Charges to income tax expense	(1,261		)
Settlement of uncertainty	(879		)
Balance at December 31, 2016	1,465
Charges to income tax expense	(32		)
Balance at December 31, 2017	$	1,433

The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

The Company has completed U.S. federal tax audits through 2013 and has completed a non-U.S. tax audit through 2009.