Income Taxes

Income before income taxes consisted of the following:



Year Ended December 31,	2019			2018		2017
	(In thousands)
U.S.	$	(1,472	)	$	4,634	$	12,303
Foreign	25,109			39,497		29,959
Income before income taxes	$	23,637		$	44,131	$	42,262

The provision for income taxes consisted of the following:



Year Ended December 31,	2019		2018		2017
	(In thousands)
Current:
U.S. federal and state	$	1,546	$	1,065	$	9,077
Foreign	9,525		9,530		8,320
Deferred:
U.S. federal and state	1,643		4,051		389
Foreign	1,397		3,896		(2,747		)
Provision for income taxes	$	14,111	$	18,542	$	15,039

Net cash payments for income taxes were $16,996,000, $8,168,000, and $15,574,000 in 2019, 2018, and 2017, respectively.

The provision for income taxes is reconciled to the federal statutory income tax rate of 21% in 2019, 21% in 2018, and 35% in 2017, as follows:



Year Ended December 31,	2019			2018			2017
	(In thousands)
Federal income taxes at statutory rate	$	4,964		$	9,267		$	14,792
State income taxes, net of federal benefit	505			2,685			1,349
Goodwill impairment	1,883			—			428
Foreign taxes	2,276			2,150			(3,226		)
Change in valuation allowance	3,919			9,540			2,913
Research and development credits	(626		)	(273		)	(448		)
Foreign tax credits	(283		)	(429		)	(2,002		)
Nondeductible meals and entertainment	724			782			1,222
US tax reform - revaluation of deferred taxes	—			102			(3,756		)
US tax reform - transition tax, net of credits	—			(3,496		)	7,550
Income tax planning	—			(1,792		)	—
Benefit of international restructuring	—			—			(2,989		)
Global intangible low-tax income, net of credits	892			454			—
Foreign-derived intangible income deduction	(315		)	(323		)	—
Tax rate changes	486			(392		)	(212		)
Other	(314		)	267			(582		)
Provision for income taxes	$	14,111		$	18,542		$	15,039

The Company's consolidated effective income tax rate may change periodically due to changes in enacted statutory tax rates, changes in tax law or policy, changes in the composition of taxable income from the countries in which it operates, the Company's ability to utilize net operating loss and tax credit carryforwards, and changes in unrecognized tax benefits.

The Company's effective income tax rate in 2019 was impacted by goodwill impairment charges, arbitration and claim settlements, and valuation allowance establishment on certain state net operating losses. The Company's effective income tax rate in 2018 was impacted by a valuation allowance on certain Foreign Tax Credits, the Tax Cuts and Jobs Act in the U.S. (the "Tax Act"), and one-time income tax planning activities.

The Company's effective income tax rate in 2017 was impacted by the Tax Act and international restructuring activities. On December 22, 2017, the Tax Act was enacted. The changes include, but were not limited to: a federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, creation of a new minimum tax on global intangible low taxed income (“GILTI”), and a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”) as a result of the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system. In connection with our initial analysis of the impact of the Tax Act, we recorded a provisional estimate in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”) of net tax expense of $3.8 million, in the period ended December 31, 2017. This expense consisted of provisional estimates of $7.6 million net expense for the Transition Tax, which we estimated would be fully offset by foreign tax credit carryforwards, and $3.8 million net benefit for remeasurement of our domestic deferred tax balances for the corporate rate reduction. At December 31, 2017, the Company had not fully completed its accounting for the tax effects of enactment of the Tax Act in accordance with SAB 118.

During 2018, the Company completed its accounting for the Tax Act in accordance with SAB 118. As a result, the Company recorded additional income tax expense of $3.6 million. This expense consisted of substantially all of the $7.0 million valuation allowance established against foreign tax credits and $0.1 million for the revaluation of deferred taxes, net of $3.5 million of Transition Tax release of uncertain tax positions and adjustments.

No additional income or withholding taxes have been provided for any undistributed foreign earnings, other than those subject to the Transition Tax nor have any taxes been provided for outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. We have estimated that we have book over tax basis differences of approximately $61.0 million. Due to withholding tax, basis computations, and other related tax considerations, it is not practicable to estimate any taxes to be provided on outside basis differences at this time.

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 to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. At December 31, 2018, the Company elected to account for GILTI in the year the tax is incurred.

Deferred income taxes consisted of the following at December 31, 2019 and 2018:



	2019			2018
	(In thousands)
Accounts receivable allowance	$	1,163		$	1,534
Accrued compensation	9,553			10,184
Accrued pension liabilities	9,116			13,496
Self-insured risks	4,301			4,933
Deferred revenues	4,249			5,868
Accrued rent	—			3,115
Interest	5,399			5,665
Tax credit carryforwards	11,634			14,404
Loss carryforwards	25,523			25,745
Lease liability	29,785			—
Other	3,436			1,152
Gross deferred income tax assets	104,159			86,096
Unbilled revenues	6,522			7,725
Depreciation and amortization	28,025			32,510
Lease right-of-use asset	25,865			—
Gross deferred income tax liabilities	60,412			40,235
Net deferred income tax assets before valuation allowance	43,747			45,861
Valuation allowance	(28,128		)	(25,864		)
Net deferred income tax assets	$	15,619		$	19,997
Amounts recognized in the Consolidated Balance Sheets consist of:
Long-term deferred income tax assets included in "Deferred income tax assets"	17,971			22,146
Long-term deferred income tax liabilities included in "Other noncurrent liabilities"	(2,352		)	(2,149		)
Net deferred income tax assets	$	15,619		$	19,997

At December 31, 2019, the Company had deferred tax assets related to loss carryforwards of $26,034,000, before netting of unrecognized tax benefits of $511,000. An estimated $16,342,000 of the deferred tax assets will not expire, and $9,692,000 will expire over the next 20 years if not utilized by the Company.

Changes in the Company's deferred tax valuation allowance are recorded as adjustments to the provision for income taxes. An analysis of the Company's deferred tax asset valuation allowances is as follows for the years ended December 31, 2019, 2018, and 2017.



	2019		2018		2017
	(In thousands)
Balance, beginning of year	$	25,864	$	18,829	$	14,498
Other changes	2,264		7,035		4,331
Balance, end of year	$	28,128	$	25,864	$	18,829

Changes to the valuation allowance for the year ended December 31, 2019 were primarily due to anticipated expiration of certain state NOLs after consideration of the four sources of taxable income and losses in certain of the Company’s international operations. Changes to the valuation allowance for the year ended December 31, 2018 were primarily due to anticipated expiration of foreign tax credits after consideration of the Tax Act and the four sources of taxable income and losses in certain of the Company’s international and domestic operations. For the year ended December 31, 2017 the change was primarily due to losses in certain of the Company’s international operations and domestic operations impacting state NOLs.

A reconciliation of the beginning and ending balance of unrecognized income tax benefits follows:



	(In thousands)
Balance at December 31, 2016	$	5,469
Additions for tax provisions related to the current year	6,318
Reductions for tax positions related to the current year	(41		)
Additions for tax positions related to prior years	823
Lapses of applicable statutes of limitation	(1,232		)
Currency translation adjustment	(40		)
Balance at December 31, 2017	$	11,297
Additions for tax provisions related to the current year	54
Reductions for tax positions related to prior years	(3,941		)
Currency translation adjustment	(9		)
Balance at December 31, 2018	$	7,401
Additions for tax provisions related to the current year	515
Additions for tax positions related to prior years	646
Reductions for tax positions related to prior years	(113		)
Reductions for settlements	(2,642		)
Lapses of applicable statutes of limitation	(520		)
Balance at December 31, 2019	$	5,287

The Company accrues interest and, if applicable, penalties related to unrecognized tax benefits in income taxes. Total accrued interest expense at December 31, 2019, 2018, and 2017, was $256,000, $256,000, and $275,000, respectively.

Included in the total unrecognized tax benefits at December 31, 2019, 2018, and 2017 were $1,940,000, $5,493,000, and $9,389,000, respectively, of tax benefits that, if recognized, would affect the effective income tax rate.

The Company conducts business in a number of countries and, as a result, files U.S. federal and various state and foreign jurisdiction income tax returns. In the normal course of business, the Company is subject to examination by various taxing jurisdictions throughout the world, including Canada, the U.K., and the U.S. With few exceptions, the Company is no longer subject to income tax examinations for years before 2009.

Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, including interest and penalties, have been provided for any adjustments that are expected to result from those years.

The Company expects $1,240,000 in reductions to unrecognized income tax benefits within the next 12 months as a result of projected resolutions of income tax uncertainties.