XML 40 R23.htm IDEA: XBRL DOCUMENT
v3.10.0.1

INCOME TAXES | 12 Months Ended
--- | ---
Dec. 31, 2018
INCOME TAXES |
INCOME TAXES | 12. INCOME TAXES Tax Reform The Tax Cuts and Jobs Act of 2017 (“2017 Tax Act” also commonly referred to as U.S. tax reform), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system and the U.S. Virgin Islands mirror code which replaces “United States” with “U.S. Virgin Islands” throughout the Internal Revenue Code. These changes include a U.S. federal statutory rate reduction from 35% to 21%, which results in a U.S. Virgin Islands rate change of 38.5% to 23.1% under the mirror tax code which allows for a 10% surcharge on the U.S. federal tax rate, 100% expensing of certain qualified capital investments, the elimination or reduction of the alternative minimum tax regime, certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes two base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of the Company’s foreign subsidiaries to U.S. taxation as global intangible low taxed income (“GILTI”) and eliminates the deduction of certain payments made to related foreign corporations, and imposes a minimum tax if greater than regular tax under the base-erosion and anti-abuse tax (“BEAT”). These changes became effective beginning in 2018. The Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (“the Transition Toll Tax”). Transition Toll Tax The Tax Act eliminates the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. The Transition Toll Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its consolidated financial statements as of December 31, 2017. During 2018, the Company made adjustments to the provisional amounts, including a $3.2 million provision on the deemed repatriation of undistributed foreign earnings in addition to the $7.4 million provision recorded at year-end. The Company has completed its determination of the accounting implications for charges related to the Transition Toll Tax. At December 31, 2018, the Company continues to assert its earnings are permanently reinvested outside the U.S.. Cash dividends from Guyana was made in 2018, however these distributions are not subject to Guyanese withholding tax and the U.S. state tax impact is minimal. Effect on Deferred Tax Assets and Liabilities and other Adjustments The Company’s deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled. As the Company’s deferred tax liabilities exceed the balance of its deferred tax assets at the date of enactment, the Company recorded a tax benefit of $18.0 million in 2017, reflecting the decrease in the U.S. and U.S. Virgin Islands corporate income tax rates, including the state impact, net of federal benefit. An additional adjustment of $0.4 million was recorded in the three-month period ending September 30, 2018 for temporary differences finalized with the filing of the 2017 tax return. The Company has completed its accounting for the measurement of deferred taxes. The BEAT provisions in the Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax and therefore have not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2018. Based on the Company’s calculation under the GILTI rules, it does not have an inclusion as of December 31, 2018. Status of the Company’s Assessment In accordance with SAB 118, the Company has completed its determination of the accounting implications of the Tax Act as of December 22, 2018. The components of income before income taxes for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands):
|  | 2018 |  | 2017 |  | 2016 |
Domestic |  | $ | 28,917 |  | $ | 25,232 |  | $ | 28,047 |
Foreign |  |  | 24,825 |  |  | 22,321 |  |  | 17,327 |
Total |  | $ | 53,742 |  | $ | 47,553 |  | $ | 45,374 |
The following is a reconciliation from the tax computed at statutory income tax rates to the Company’s income tax expense for the years ended December 31, 2018, 2017, and 2016 (in thousands):
|  | 2018 |  | 2017 |  | 2016 |
Tax computed at statutory U.S. federal income tax rates |  | $ | 11,286 |  | $ | 16,644 |  | $ | 15,782 |
Non-controlling interest |  |  | (1,114) |  |  | (2,887) |  |  | (2,893) |
Foreign tax rate differential |  |  | (2,716) |  |  | (6,621) |  |  | (3,074) |
Over (under) provided in prior periods |  |  | (4,683) |  |  | (18) |  |  | 1,069 |
Nondeductible expenses |  |  | 1,610 |  |  | 929 |  |  | 1,134 |
Goodwill Impairment |  |  | — |  |  | — |  |  | 2,622 |
Capitalized transactions costs |  |  | 62 |  |  | 53 |  |  | 3,138 |
Change in tax reserves |  |  | 10,657 |  |  | 4,433 |  |  | 2,561 |
State Taxes, net of federal benefit |  |  | 1,674 |  |  | 1,075 |  |  | 1,853 |
Change in valuation allowance |  |  | 1,539 |  |  | 6,137 |  |  | (7,292) |
Foreign tax credit expiration |  |  | — |  |  | — |  |  | 4,179 |
Refund Claim for Domestic Production Deduction |  |  | 235 |  |  | (3,382) |  |  | — |
Tax Cuts and Jobs Act of 2017 |  |  | (148) |  |  | (10,639) |  |  | — |
Capital loss |  |  | 15 |  |  | (6,990) |  |  | — |
Other, net |  |  | 453 |  |  | (75) |  |  | 2,081 |
Total Income Tax Expense |  | $ | 18,870 |  | $ | (1,341) |  | $ | 21,160 |
The components of income tax expense (benefit) for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands):
\ |  |  |  |  |  |  |  |  |  |
|  | 2018 |  | 2017 |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |
United States—Federal |  | $ | 24,546 |  | $ | 375 |  | $ | 15,763 |
United States—State |  |  | 4,506 |  |  | 500 |  |  | 505 |
Foreign |  |  | 13,060 |  |  | 11,289 |  |  | 10,528 |
Total current income tax expense |  | $ | 42,112 |  | $ | 12,164 |  | $ | 26,796 |
Deferred: |  |  |  |  |  |  |  |  |  |
United States—Federal |  | $ | (17,947) |  | $ | (10,892) |  | $ | (1,880) |
United States—State |  |  | (2,832) |  |  | 950 |  |  | (291) |
Foreign |  |  | (2,463) |  |  | (3,563) |  |  | (3,465) |
Total deferred income tax expense (benefit) |  | $ | (23,242) |  | $ | (13,505) |  | $ | (5,636) |
Consolidated: |  |  |  |  |  |  |  |  |  |
United States—Federal |  | $ | 6,599 |  | $ | (10,517) |  | $ | 13,883 |
United States—State |  |  | 1,674 |  |  | 1,450 |  |  | 214 |
Foreign |  |  | 10,597 |  |  | 7,726 |  |  | 7,063 |
Total income tax expense (benefit) |  | $ | 18,870 |  | $ | (1,341) |  | $ | 21,160 |
The significant components of deferred tax assets and liabilities are as follows as of December 31, 2018 and 2017 (in thousands):
|  | 2018 |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |
Receivables reserve |  | $ | 3,087 |  | $ | 1,524 |
Temporary differences not currently deductible for tax |  |  | 9,035 |  |  | 7,869 |
Deferred compensation |  |  | 784 |  |  | 1,446 |
Pension |  |  | 635 |  |  | 245 |
Net operating losses |  |  | 29,496 |  |  | 26,685 |
Tax Credits |  |  | 645 |  |  | 8,969 |
Total deferred tax asset |  |  | 43,682 |  |  | 46,738 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property, plant and equipment, net |  |  | 14,608 |  |  | 35,630 |
Intangible assets, net |  |  | 5,959 |  |  | 5,817 |
Total deferred tax liabilities |  |  | 20,567 |  |  | 41,447 |
Valuation allowance |  |  | (31,442) |  |  | (35,829) |
Net deferred tax liabilities |  | $ | (8,327) |  | $ | (30,538) |
Deferred tax assets and liabilities are reflected in the accompanying consolidated balance sheets as follows (in thousands):
|  | 2018 |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |
Current |  | $ | — |  | $ | — |
Long term |  |  | 1,949 |  |  | 1,194 |
Total deferred tax asset |  | $ | 1,949 |  | $ | 1,194 |
Deferred tax liabilities: |  |  |  |  |  |  |
Current |  | $ | — |  | $ | — |
Long term |  |  | (10,276) |  |  | (31,732) |
Total deferred tax liabilities |  | $ | (10,276) |  | $ | (31,732) |
Net deferred tax liabilities |  | $ | (8,327) |  | $ | (30,538) |
The Company's effective tax rate for the year ended December 31, 2018 and 2017 was 35.1% and (2.8)%, respectively. The effective tax rate for the year ended December 31, 2018 was primarily impacted by the following items: (i) a $10.6 million net increase of unrecognized tax positions, (ii) a $4.7 million net benefit to record a return to accrual adjustment, (iii) a $1.2 million benefit to recognize a capital loss carryover due to capital gains on sales of wireless licenses, (iv) a $1.4 million net benefit to record a valuation allowance release on an indefinite lived intangible asset, (v) a $1.7 million provision associated with the intercompany sale of assets from the U.S. to the U.S. Virgin Islands, and (vi) the mix of income generated among the jurisdictions in which the Company operates along with the exclusion of losses in jurisdictions where the Company cannot benefit from those losses as required by ASC 740-270-30-36(a), primarily in the U.S. Virgin Islands and India. The effective tax rate for the year ended December 31, 2017 was primarily impacted by the following items: (i) a $10.6 million benefit for the net impact of the 2017 Tax Act which includes lowering the U.S. corporate income tax rate to 21% effective in 2018 resulting in an $18.0 million benefit from the remeasurement of the deferred tax assets and liabilities, which was partially offset by a provision of $7.4 million on the deemed repatriation of undistributed foreign earnings (ii) a $3.9 million benefit for the net capital transactions related to the Company’s businesses in New England, New York, the British Virgin Islands, and St. Maarten, (iii) a $3.4 million benefit for an amended return refund claim filed for tax year 2013, (iv) a $4.4 million increase (net) in unrecognized tax benefits related to current year and prior year positions, (v) a $6.1 million provision (net) to record the change in valuation allowance and, (vi) the mix of income generated among the jurisdictions in which the Company operates. As of December 31, 2018, the Company estimated that it had gross federal and foreign net operating loss (“NOL”) carryforwards of $1.2 million and $115.8 million respectively. Of these, $64.0 million will expire between 2024 and 2037 and $53.1 million may be carried forward indefinitely. The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to realize the existing deferred tax assets. A significant piece of negative evidence evaluated is cumulative losses incurred in certain reporting jurisdictions over the three-year period ended December 31, 2018. Other negative evidence examined includes, but is not limited to, losses expected in early future years, a history of tax benefits expiring unused, uncertainties whose unfavorable resolution would adversely affect future results, and brief carryback, carry forward periods. On the basis of this evaluation, the Company believed it was more likely than not that the benefit from some of these federal, state, and foreign deferred taxes would not be realized. In recognition of this risk at December 31, 2018 the Company has provided a valuation allowance against certain foreign deferred tax assets of $31.4 million. The foreign valuation allowance primarily relates to foreign net operating losses of $29.1 million, while the remaining $2.3 million is on other net foreign deferred tax assets which the Company does not expect to be able to realize. At December 31, 2017, the Company’s federal and foreign NOL carryforward valuation allowances were $1.9 million and $24.3 million, respectively. The federal foreign tax credit valuation allowance was $8.2 million and the remaining valuation allowance of $1.4 million was applied to the other foreign deferred taxes for entities with a full valuation allowance at December 31, 2017. As of December 31, 2018, the Company has approximately $119.7 million of undistributed earnings of its foreign subsidiaries, which are considered to be indefinitely reinvested. As such, the Company has not provided deferred tax on those earnings. The Company received $51.6 million of cash distributions from GTT in 2018 but does not anticipate dividends in the future. The Company had unrecognized tax benefits (including interest and penalty) of $34.7 million as of December 31, 2018, $24.1 million as of December 31, 2017 and, $20.0 million as of December 31, 2016. The net increase of the reserve during the year ended December 31, 2018 was attributable to an increase in tax positions for prior periods of $8.8 million, a net increase in tax positions for the current period of $3.4 million and partially offset by a lapse in statute of a prior year position of $1.6 million. The following shows the activity related to unrecognized tax benefits (not including interest and penalty) during the three years ended December 31, 2018 (in thousands):
Gross unrecognized tax benefits at December 31, 2015 |  | $ | 17,216 |
Increase in unrecognized tax benefits taken during a prior period |  |  | 561 |
Increase in unrecognized tax benefits taken during the current period |  |  | 2,321 |
Lapse in statute of limitations |  |  | (1,673) |
Settlements |  |  | (521) |
Gross unrecognized uncertain tax benefits at December 31, 2016 |  |  | 17,904 |
Increase in unrecognized tax benefits taken during a prior period |  |  | — |
Increase in unrecognized tax benefits taken during the current period |  |  | 3,394 |
Lapse in statute of limitations |  |  | (2) |
Settlements |  |  | (335) |
Gross unrecognized uncertain tax benefits at December 31, 2017 |  |  | 20,961 |
Increase in unrecognized tax benefits taken during a prior period |  |  | 7,293 |
Increase in unrecognized tax benefits taken during the current period |  |  | 3,408 |
Lapse in statute of limitations |  |  | (1,430) |
Settlements |  |  | — |
Gross unrecognized uncertain tax benefits at December 31, 2018 |  | $ | 30,232 |
The Company’s accounting policy is to classify interest and penalties related to income tax matters as part of income tax expense. The accrued amounts for interest and penalties are $4.5 million as of December 31, 2018, and $3.1 million as of December 31, 2017, and $2.1 million as of December 31, 2016. All $34.7 million of gross unrecognized uncertain tax benefits (including interest and penalty) would impact the effective tax rate if recognized. The Company and its subsidiaries file income tax returns in the U.S. and in various, state and local and foreign jurisdictions. The statute of limitations related to the consolidated U.S. federal income tax return is closed for all tax years up to and including 2012. The federal tax audits are closed through 2014. There are no tax audits currently in progress. The expiration of the statute of limitations related to the various state and foreign income tax returns that the Company and subsidiaries file varies by jurisdiction.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration