Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes  

The Company’s income tax expense (benefit) was $(0.1) million and $0.02 million for the three months ended September 30, 2018 and 2017, respectively. For the same two periods, the effective tax rates were 3.4% and 0.3%, respectively. The Company’s income tax expense (benefit) was $(0.1) million and $0.1 million for the nine months ended September 30, 2018 and 2017, respectively and the effective tax rates were 0.4% and 1.5%, respectively. The income tax benefit during the three and nine months ended September 30, 2018 includes $0.1 million of foreign benefits recognized during the period.

The Company excludes from the calculation of the effective tax rate any entities that are projected to operate at a loss, have no tax benefit that can reasonably be expected, and those entities which operate in a zero tax rate jurisdiction. Due to continuing operating losses in the United States, the tax provision is based on minimum U.S. state income taxes and the operations of certain foreign affiliates that are subject to taxes in their respective countries

The Company has assessed the impacts of the changes resulting from the United States Tax Cuts and Jobs Act (“TCJA”) and has recognized an income tax benefit and a corresponding receivable of $0.1 million related to the recoverability of Alternative Minimum Tax Credits during the 4^th quarter of 2017. Deferred tax assets, liabilities and valuation allowances were remeasured at the new rate of 21% during the 4^th quarter of 2017. There was no income impact resulting from the remeasurement since all U.S. net deferred tax assets are fully reserved by the Company.

In addition, the TCJA imposed a one-time transition tax on cumulative earnings, as defined, on foreign affiliates through December 31, 2017. This also had no impact on the earnings of the Company, since the included foreign affiliates operated at a cumulative deficit through December 31, 2017.

Beginning in 2018, the Company’s net interest expense became subject to limitations imposed by the TCJA. Based on operating expectations, the Company will be subject to an interest expense limitation. Such limitation will serve to reduce the otherwise expected net operating loss and create an additional attribute related to the disallowed net interest expense and therefore is not expected to have an effect on earnings.

The passage of TCJA also included a new tax imposed on the current earnings of foreign subsidiaries called Global Intangible Low-Taxed Income (“GILTI”). Due to the complexity of the new GLITI tax rules, the Company continues to evaluate this provision of the TCJA and the application of ASC 740, Income Taxes. The Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company's measurement of its deferred taxes (the “deferred method”). The Company's selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on not only the Company's current structure and estimated future results of global operations, but also its intent and ability to modify its structure. The Company's currently in the process of analyzing its structure, however for 2018 the Company’s foreign entities as a whole are expected to generate an operating loss. Therefore, the Company has not made any adjustments related to potential GILTI tax in its financial statements and has not made a policy decision regarding whether to record deferred tax on GILTI.

While the Company has completed its provisional analysis of the income tax effects of the TCJA, the related tax effects may need to be adjusted, possibly materially, due to further refinement of our calculations, changes in interpretations and assumptions that we have made, additional guidance that may be issued by regulatory bodies, and actions and related accounting policy decisions we may take as a result of the new legislation. We will complete our analysis over the one-year measurement period from the enactment of the law as provided for by "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" (SAB 118), and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period(s) when such adjustments are determined.

The Company evaluates the recoverability of its net deferred tax assets based on its history of operating results, its expectations for the future and expiration dates. The Company has concluded that it is more likely than not it will be unable to realize the net deferred tax assets in the immediate future and has established a valuation allowance for all U.S. and foreign net deferred tax assets.

At December 31, 2017, the Company’s U.S. federal net operating loss carryforwards totaled $41.7 million. The Company’s ability to use net operating loss carry forwards is subject to limitation in future periods under certain provisions of Section 382 of the Internal Revenue Code of 1986, as amended, which limit the utilization of net operating

losses upon a more than 50% change in ownership of the Company’s stock that is held by 5% or greater stockholders. The Company examined the application of Section 382 with respect to an ownership change that took place during 2010, as well as the limitation on the application of net operating loss carry forwards. The Company believes that operating losses subsequent to the change date in 2010 (aggregating $23.1 million) are not subject to Section 382 limitations. The Company has estimated that the annual limitation starting in 2010 aggregates from $1.0 million to $2.3 million per year including the effect of amortization of built in gains. The Company’s loss carryforwards may be further limited in the future if additional ownership changes occur.

The Company is subject to the provisions of ASC 740-10-25, “Income Taxes” (ASC 740) which prescribes a more likely-than-not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company undergoes a process to evaluate whether income tax accruals are in accordance with ASC 740 guidance on uncertain tax positions. For federal purposes, post 1998 tax years remain open to examination as a result of net operating loss carryforwards. The Company is currently open to audit by the appropriate state income taxing authorities for tax years 2013 to 2017. The Company has not recorded any liability for uncertain tax positions. Canadian taxing authorities have examined the returns of the Canadian affiliate for the years 2015 and 2016. The Company expects to receive the agency’s report and has preliminarily been informed that there will be no adjustments.