Annual report pursuant to Section 13 and 15(d)

Note 8 - Income Taxes

v3.19.1
Note 8 - Income Taxes
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
8.
INCOME TAXES
 
On
December 22, 2017,
the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law.  The Tax Act significantly revised the U.S. corporate income tax system.  The Tax
66Act
established the following new provisions that affected our
2018
income taxes:
 
 
reduced U.S. Federal Corporate Income Tax Rate from
35%
to
21%;
 
 
created a new provision to tax the income of foreign subsidiaries referred to as GILTI;
 
 
generally eliminated U.S. Federal tax on dividends from foreign subsidiaries;
 
 
created a limitation on deductible interest expense (Sec
163
(j));
 
 
established new limitations on the deductibility on compensation for Covered Employees (Sec
162
(m)); and
 
 
changed rules regarding utilization and the carryforward period of Net Operating Losses (“NOL’s”) generated after
December 31, 2017.
 
In arriving at the
2018
results the Company took into account the impacts of the Tax Act based on our interpretation of the provisions enacted and the proposed regulations issued as of this date. It is anticipated that the IRS and the Department of Treasury will issue additional guidance in the future that could result in changes to previous filed provisions.
 
The GILTI regime effectively imposes a minimum tax on worldwide foreign earnings and subjects U.S. shareholders of controlled foreign corporations ("CFC's) to current taxation on certain income earned through a CFC.  For the period ending
December 31, 2018,
the Company did
not
have net income for GILTI purposes. The Company has made the policy election to record any liability associated with GILTI in the period in which it is incurred. 
 
Loss before income tax benefit and equity in earnings (losses) of
50%
or less owned companies derived from U.S. and foreign companies for the years ended
December 31
were as follows (in thousands):
 
   
2018
   
2017
   
2016
 
United States
  $
(72,540
)   $
(90,696
)
  $
(169,523
)
Foreign
   
(28,226
)    
(45,112
)
   
(28,095
)
Eliminations
   
8,782
     
18,785
     
7,313
 
    $
(91,984
)   $
(117,023
)
  $
(190,305
)
 
The components of income tax expense (benefit) for the years ended
December 31
were as follows (in thousands):
 
   
201
8
   
201
7
   
201
6
 
Current:
                       
Federal
  $
5,987
    $
(16,705
)
  $
(20,718
)
State
   
3
     
(42
)
   
(139
)
Foreign
   
3,400
     
3,347
     
5,436
 
     
9,390
     
(13,400
)
   
(15,421
)
Deferred:
                       
Federal
   
(21,466
)    
(60,750
)
   
(47,692
)
State
   
(1,404
)    
(172
)
   
(446
)
Foreign
   
133
     
(84
)
   
90
 
     
(22,737
)    
(61,006
)
   
(48,048
)
    $
(13,347
)   $
(74,406
)
  $
(63,469
)
 
 
As of
December 31, 2017,
the Company’s net operating loss carryforwards excluded potential tax benefits of
$3.9
million as a result of uncertainty regarding interpretation of the Tax Act.  Subsequent guidelines have confirmed that the Company should recognize the tax benefits of
$3.9
million and therefore, for the year ending
December 31, 2018,
the Company removed the uncertain tax position previously established against the net operating loss carryforwards. 
 
During the preparation of the
2017
federal income tax return, the Company’s management realized that they had overestimated the available foreign taxes that could be credited against the
2017
transition tax.  This resulted in an additional tax liability of
$3.4
million on its
2017
federal income tax return. This additional liability was recorded as a return-to-provision adjustment to tax expense during the year ended
December 31, 2018.
 
For
2018,
the Company incurred a current tax liability of
$1.4
million related to the non-qualified withdrawal of funds from a Capital Construction Fund (“CCF”) by a partnership in which the Company held a
50%
interest.  The Company had previously recorded a deferred tax liability in connection with this CCF fund. 
 
The following table reconciles the difference between the statutory federal income tax rate for the Company and the effective income tax rate for the years ended
December 31:
 
   
2018
   
2017
   
2016
 
Statutory rate
   
(21.0
)%    
(35.0
)%
   
(35.0
)%
U.S. federal income tax law changes
   
 %    
(37.3
)%
   
 %
SEACOR Holdings share awards to Company personnel
   
0.2
 %    
2.3
 %
   
0.4
 %
Non-deductible expenses
   
 %    
1.8
 %
   
0.1
 %
Exclusion of foreign subsidiaries with accumulated losses and withholding tax
   
9.3
 %    
2.7
 %
   
1.1
 %
Noncontrolling interests
   
(1.5
)%    
1.7
 %
   
0.2
 %
State taxes
   
(1.5
)%    
(0.2
)%
   
(0.3
)%
Other
   
0.0
 %    
0.4
 %
   
0.1
 %
     
(14.5
)%    
(63.6
)%
   
(33.4
)%
 
For the year ending
December 31, 
2018,
the Company’s effective income tax rate of
14.5%
 was lower than the Company’s statutory tax rate of
21%
primarily due to foreign subsidiaries with current losses for which there is
no
current or future federal income tax benefit.
 
For the year ending
December 31, 2017,
the Company's effective income tax rate of
63.6%
was higher than the Company's statutory tax rate of
35%
primarily due to income tax benefits of
$43.7
million recognized as a result of the Tax Act. The majority of the income tax benefits recognized were due to a reduction in U.S. tax rates from
35%
to
21%
applied to the Company's domestic basis differences and the elimination of previously accrued deferred taxes on the unremitted earnings of the Company's foreign subsidiaries.
 
The components of net deferred income tax liabilities as of
December 31
were as follows (in thousands):
 
   
2018
   
2017
 
Deferred tax liabilities:
               
Property and equipment
  $
65,880
    $
55,262
 
Investments in 50% or Less Owned Companies
   
3,040
     
4,258
 
Other
   
7,789
     
5,901
 
Total deferred tax liabilities
   
76,709
     
65,421
 
Deferred tax assets:
               
Federal Net Operating Loss Carryforwards
   
20,974
     
5,111
 
Other
   
11,677
     
5,373
 
     
32,651
     
10,484
 
Valuation Allowance
   
(624
)    
(569
)
Total deferred tax assets
   
32,027
     
9,915
 
Net deferred tax liabilities
  $
44,682
    $
55,506
 
 
As discussed above, the Section
163
(j) interest deduction limitations were amended to limit the ability of the Company to deduct net interest expense to
thirty
percent of adjusted taxable income.   For the year ended
December 31, 2018,
$7.3
million of interest expense was suspended and will be available to be deducted in future years subject to the
30%
limitation. Future utilization of NOL’s arising in tax years after
December 31, 2017
are limited to
eighty
percent of taxable income and are allowed to be carried forward indefinitely. As of
December 31, 2018,
the Company has
$42.2
million of net operating losses generated prior to
December 31, 2017
and
$57.6
million of net operating losses generated in the current year. Net operating losses generated in
2017
may
carry forward
20
years (expiring in
2037
). The
2018
NOL will carry forward indefinitely with
no
expiration period but its utilization will be subject to an annual
80
percent of taxable income limitation.
 
As of
December 31, 2018
and
2017,
the Company's valuation allowance of
$0.6
million related to various state net operating loss carryforwards.