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INCOME TAXES

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

14. INCOME TAXES

The components of income before income taxes are summarized below:

		Year Ended Decmber 31,
		2017				2016
Income (loss) before income taxes
U.S. operations		$	(677	)		$	(20	)
Foreign operations			1,534				2,399
Income before income taxes		$	857			$	2,379

The components of the income tax provision (benefit) were as follows:

		Year Ended Decmber 31,
		2017				2016
Current
Federal		$	—			$	—
State			472				152
Foreign			643				1,184
Deferred			2,439				(411	)
Total income tax expense		$	3,554			$	925

A reconciliation from the statutory U.S. income tax rate and the Company’s effective income tax rate, as computed on income before taxes, is as follows:

		Year Ended Decmber 31,
		2017				2016
Federal income tax at statutory rate		$	301			$	833
State and local income tax, net			227				12
Foreign rate differential			(143	)			199
Other permanent items			86				(319	)
Foreign tax credit			—				38
Impact of Tax Cuts and Jobs Act Enactment			653				—
Impact of repatriation of foreign subsidiary income			312				—
Valuation allowance			2,280				—
True-up and other			(162	)			162
Total		$	3,554			$	925

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“U.S. tax reform”) that lowers the statutory tax rate on U.S. earnings, taxes historic foreign earnings at a reduced rate of tax, establishes a territorial tax system and enacts new taxes associated with global operations.

The impact of U.S. tax reform has been recorded on a provisional basis as the legislation provides for additional guidance to be issued by the U.S. Department of the Treasury on several provisions, including the computation of the transition tax. Guidance during 2018 could impact the information required for, and the calculation of, the transition tax charge and could affect decisions that affect the tax on various U.S. and foreign items which would further impact the final amounts included in the transition charge and impact the revaluation of deferred taxes. In addition, analysis performed and conclusions reached as part of the tax return filing process and additional guidance on accounting for U.S. tax reform could affect the provisional amount.

As part of tax reform, the U.S. has enacted a minimum tax on foreign earnings (“global intangible low-taxed income”). Because aspects of the new law and effect on our operations is uncertain and aspects of the accounting rules associated with this provision have not been resolved, we have not made a provisional accrual for the deferred tax aspects of this provision and consequently have not made an accounting policy election with respect to tax treatment of this tax provision.

As a result of enactment of U.S. tax reform, we have recorded tax expense of $653 in 2017 to reflect our provisional estimate of both the transition tax on historic foreign earnings of $59 and the revaluation of deferred taxes of $712.

The Company’s provision for income taxes reflects an effective tax rate on income from continuing operations before income taxes of 415% in 2017, as compared to 39% in 2016. The increase in the Company’s effective tax rate during 2017 primarily reflects the recognition of a valuation allowance, the impact of the Tax Cuts and Jobs Act Enactment and the anticipated partial repatriation of foreign subsidiary income in the first quarter of 2018.

The Company intends to reimburse funds borrowed from its subsidiary in the first quarter of 2018. To finance the reimbursement the Canadian subsidiary will issue a limited dividend of $9,724. The Company has provided for $486 of Canadian withholding taxes as well as a loss $446 for foreign exchange upon realization of the dividend. Beyond the limited dividend, the Company has not established deferred income taxes on accumulated undistributed earnings of its foreign subsidiary, which are expected to be reinvested indefinitely. Repatriation of all accumulated earnings of its foreign subsidiary would be impracticable to the extent such earnings represent capital to support normal business operations. Although no U.S. federal taxes will be imposed on future distribution of foreign earnings, the distributions could be subject to Canadian withholding tax. U.S. federal taxes could be imposed if foreign income were loaned to us or a U.S. affiliate, or if our operations result in U.S. tax through the application of the other U.S. tax laws.

The net deferred income tax asset (liability) was comprised of the following:

		December 31,
		2017				2016
Noncurrent deferred income taxes
Total assets		$	2,729			$	5,659
Total liabilities			(1,665	)			(2,400	)
Net noncurrent deferred income tax asset			1,064				3,259
Net deferred income tax asset		$	1,064			$	3,259

The tax effect of temporary differences between GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities were as follows:

		December 31,
		2017				2016
Deferred tax assets
Canada net operating loss carryforward		$	148			$	—
Non-deductible reserves			1,180				1,122
Pension plan			75				47
Tax credits			4,631				3,463
Fixed assets			104				116
Intangibles			1,203				920
Other			116				(9	)
Valuation allowance			(4,728	)			—
Net deferred tax assets			2,729				5,659
Deferred Liability
Fixed assets			(415	)			(1,065	)
Intangibles			(764	)			(1,335	)
Other			(486	)			—
Net deferred tax liabilities			(1,665	)			(2,400	)
Deferred asset, net		$	1,064			$	3,259

The assessment of the amount of value assigned to the Company’s deferred tax assets under the applicable accounting rules is judgmental. The Company is required to consider all available positive and negative evidence in evaluating the likelihood that the Company will be able to realize the benefit of its deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent operations. Since this evaluation requires consideration of events that may occur some years into the future, there is an element of judgment involved. Realization of our deferred tax assets is dependent on generating sufficient taxable income in future periods. The Company does not believe that it is more likely than not that future taxable income will be sufficient to allow the Company to recover substantially all of the value assigned to its deferred tax assets. Accordingly, the Company has provided for a valuation allowance of the Company’s foreign tax credits as the Company does not anticipate generating foreign source income.

As of December 31, 2017, the Company does not have net operating loss carryforwards. The company has Canadian net operating losses of $148. The Company has approximately $4.6 million of foreign tax credits which expire beginning on January 1, 2021 for which it has provided a full valuation allowance and $39 of research and development credits which expire in 2032.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, exclusive of interest and penalties, is as follows:

		Uncertain Tax Position
Balance as of January 1, 2016		$	317
Decreases related to tax return becoming statuted barred during the year			(113	)
Balance as of December 31, 2016		$	204
Foreign currency translation			14
Balance as of December 31, 2017		$	218

The Company’s policy is to recognize interest and penalties related to income tax matters as interest expense. Interest and penalties as they relate to the payroll tax issue are recorded as Other Expense.

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although timing of the resolution and/or closure of audits is highly uncertain, the Company does not believe it is reasonably possible that its unrecognized tax benefits would materially change in the next twelve months.

The tax years subject to examination by major tax jurisdiction include the years 2011 and forward by the U.S. Internal Revenue Service and most state jurisdictions, and the years 2012 and forward for the Canadian jurisdiction.