Income Taxes

As discussed in Note 2, the Company operates in compliance with REIT requirements for federal income tax purposes. As a REIT, the Company must distribute at least 90 percent of its taxable income (including dividends paid to it by its TRSs). In addition, the Company must meet a number of other organizational and operational requirements. It is management’s intention to adhere to these requirements and maintain the Company’s REIT status. Most states where we operate conform to the federal rules recognizing REITs. As of December 31, 2018, the operating partnership is a disregarded entity for federal income tax purposes. In the future, if the Company issues partnership units to unrelated third parties, the operating partnership will become a regarded partnership under federal tax law. As such, no provision for federal income taxes has been included in the operating partnership's accompanying consolidated financial statements. Certain subsidiaries have made an election with the Company to be treated as TRSs in conjunction with the Company’s REIT election; the TRS elections permit us to engage in certain business activities in which the REIT may not engage directly. A TRS is subject to federal and state income taxes on the income from these activities. A provision for taxes of the TRSs and of foreign branches of the REIT is included in our consolidated financial statements.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation in the form of the Tax Cuts and Jobs Act (TCJA) that significantly revises the U.S. tax code effective January 1, 2018 by, among other things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%, imposing a mandatory one-time deemed repatriation of unremitted foreign earnings (commonly referred to as the “transition tax”), limiting deductibility of interest expense and certain executive compensation, and implementing a territorial tax system. The full impact of this change in tax law is final and the Company has completed its accounting for the tax effects of the TCJA as of December 31, 2018. As a result of adopting the TCJA, a $3.8 million tax benefit was recognized during the year.

The Company determined that no inclusion was required for the mandatory one-time deemed repatriation of unremitted foreign earnings (commonly referred to as the “transition tax”); the reduction was due to a refinement of the calculation of its share of earnings and profits of non-consolidated foreign subsidiaries at the TRS. Most foreign subsidiaries are owned by the REIT which does not record deferred taxes.

The Company continues to assert that the undistributed earnings of its Hong Kong and Argentine subsidiaries are permanently reinvested. The Company changed its assertion for the earnings of its Canadian subsidiaries in 2018, due to the Company's plans to remit cash in the future, and recognized an amount of deferred tax liability related to the outside basis difference of $0.4 million. No additional income taxes have been provided for any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability for any additional outside basis difference in these entities is not practicable due to the complexities of the hypothetical calculation in determining outside basis. Undistributed earnings of the Argentine subsidiary amounted to approximately $13.6 million at December 31, 2018.

The global intangible low-taxed income (GILTI) provisions of the TCJA impose a tax on the income of certain foreign subsidiaries in excess of a specified return on tangible assets used by the foreign companies. FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company accounts for the GILTI as a period cost and thus has not recorded any deferred tax liability associated with GILTI. The amount of taxable deemed dividend recorded for the Company for the 2018 year is $0.2 million. Also, as a result of IRS guidance issued during the third quarter of 2018, the Company now includes any GILTI as REIT qualified income.

Following is a summary of the income/(loss) before income taxes in the U.S. and foreign operations:



	2018		2017			2016
	(In thousands)
U.S.	$	37,060	$	(11,212	)	$	(9,626	)
Foreign	7,306		19,997			20,437
Pre-tax income	$	44,366	$	8,785		$	10,811

The benefit (expense) for income taxes for the years ended December 31, 2018, 2017 and 2016 is as follows:



	2018			2017			2016
	(In thousands)
Current
U.S. federal	$	4,424		$	(4,848	)	$	430
State	(353		)	(644		)	381
Foreign	(3,604		)	(7,559		)	(7,276		)
Total current portion	467			(13,051		)	(6,465		)

Deferred
U.S. federal	2,094			2,277			(797		)
State	494			(72		)	(64		)
Foreign	564			1,453			1,447
Total deferred portion	3,152			3,658			586
Income tax benefit (expense)	$	3,619		$	(9,393	)	$	(5,879	)

Income tax benefit (expense) attributable to income (loss) before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate of 21% to income (loss) before income taxes. The reconciliation between the statutory rate and reported amount is as follows:



	2018			2017			2016
	(In thousands)
Income taxes at statutory rates	$	(9,317	)	$	(2,987	)	$	(3,676	)
Earnings from REIT - not subject to tax	9,015			(425		)	(672		)
State income taxes, net of federal income tax benefit	(187		)	(445		)	615
Provision to return	360			(205		)	(416		)
Rate and permanent differences on non-U.S. earnings	(1,228		)	668			1,739
Valuation allowance	(2,227		)	2,950			(1,542		)
Non-deductible expenses	4,021			(2,345		)	(873		)
Change in uncertain tax positions	347			94			564
Amended returns/refunds	—			—			360
Effect of Tax Cuts and Jobs Act	3,797			(3,113		)	—
Quarry tax basis in land	—			—			(3,025		)
Investment in foreign subsidiary	—			—			616
REIT excise tax	—			(4,772		)	—
Other	(962		)	1,187			431
Total	$	3,619		$	(9,393	)	$	(5,879	)

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of December 31, 2018 and 2017 are as follows:



	2018			2017
	(In thousands)
Deferred tax assets:
Net operating loss and credits carryforwards	$	14,062		$	6,592
Accrued expenses	25,889			26,263
Stock-based compensation	4,709			3,511
Other assets	241			356
Total gross deferred tax assets	44,901			36,722
Less: valuation allowance	(19,627		)	(15,910		)
Total net deferred tax assets	25,274			20,812

Deferred tax liabilities:
Intangible assets and goodwill	(5,628		)	(5,197		)
Property, plant, and equipment	(35,672		)	(34,758		)
Other liabilities	(1,144		)	(1,495		)
Total gross deferred tax liabilities	(42,444		)	(41,450		)
Net deferred tax liability	$	(17,170	)	$	(20,638	)

As of December 31, 2018, the Company has gross U.S. federal net operating loss carryforwards of approximately $41.2 million, of which $20.4 million was generated prior to 2018 and will expire between 2032 and 2036. These losses may be subject to annual limitation under IRC section 382 as a result of our IPO. The remaining $20.8 million was generated after 2017 and is subject to new laws as set forth by the TCJA and has no expiration date, but can only be utilized to offset up to 80% of future taxable income annually. The Company has state net operating loss carryforwards of approximately $18.6 million from its TRSs, which will expire at various times between 2019 and 2037. The Company has an Alternative Minimum Tax credit carryforward in the amount of $3.8 million that can be used to offset regular tax until 2021 or any unused credit will be refunded beginning in 2018 and fully refunded by 2021. The Company has recorded a refund receivable for the $3.8 million. Additionally, the Company has a federal Research and Experimentation Credit of approximately $0.7 million that will expire between 2036 and 2038.

The Company established a valuation allowance against the net deferred tax assets exclusive of a portion of indefinite-lived intangibles for one of its U.S. TRSs in 2014. In assessing the need for measuring and recording a valuation allowance existence or adjustment, the Company considers recent operating results, the expected scheduled reversal of deferred tax liabilities, projected future taxable benefits and tax planning strategies. As a result of this assessment, the Company increased the valuation allowance from $15.9 million in 2017 to $19.6 million in 2018.

The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016:



	Tax			Interest			Penalties			Total
	(In thousands)
Balance at December 31, 2015*	$	1,514		$	104		$	27		$	1,645
Increases related to current-year tax positions	—			21			—			21
Decreases due to lapse in statute of limitations	(657		)	(106		)	(19		)	(782		)
Balance at December 31, 2016*	857			19			8			884
Increases related to current-year tax positions	—			3			—			3
Decreases related to prior-year tax positions	—			(4		)	(8		)	(12		)
Decreases due to lapse in statute of limitations	(73		)	(12		)	—			(85		)
Balance at December 31, 2017*	784			6			—			790
Decreases due to lapse in statute of limitations	(353		)	(6		)	—			(359		)
Balance at December 31, 2018*	$	431		$	0		$	—		$	431

*Balance would favorably affect the Company’s effective tax rate if recognized.

The Company’s unrecognized tax benefits include exposures related to positions taken on U.S. federal, state, and foreign income tax returns as of December 31, 2018. There are no material unrecognized tax benefits related to positions taken in and after 2014. The Company believes that it is reasonably possible that approximately $0.4 million of its unrecognized tax benefits related U.S. federal and state exposures may be reduced by the end of 2019 as a result of a lapse of the statute of limitations and settlements with tax authorities.

In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities and the Company has accrued a liability when it believes it is more likely than not that the tax position claimed on tax returns will not be sustained by the taxing authorities on the technical merits of the position. Changes in the recognition of the liability are reflected in the period in which the change in judgment occurs.

The Company accrues interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial position, but could possibly be material to the Company’s consolidated results of operations or cash flow in a given quarter or annual period.

As of December 31, 2018, the Company is generally no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2015. However, for U.S. income tax purposes, the 2009 tax year was open as of December 31, 2018, to the extent that net operating losses were generated in those years that continue to be subject to adjustments from taxing authorities.

In the fourth quarter of 2016, the Company filed a ruling request with the IRS for confirmation of a tax position for which it believes qualifies (more likely than not) for the treatment historically applied by the Company. The Company settled the positions with the IRS in December 2017 and was required to make an excise tax payment in the amount of $4.3 million including interest to resolve the matter for years prior to 2017 and paid $0.6 million in 2018 to resolve the matter for 2017. The payments, excluding interest, are included in Current income tax benefit (expense) in the consolidated statement of operations for the year ended December 31, 2017.