| INCOME TAXES | INCOME TAXES Income Tax (Expense) Benefit The following table presents the sources of (loss) income before taxes and income tax (expense) benefit, by tax jurisdiction for 2017 , 2016 and 2015 : Years Ended December 31, 2017 2016 2015 Sources of (Loss) Income Before Taxes U.S. $ (821,900 ) $ (54,587 ) $ (1,007,172 ) Non-U.S. 300,737 412,737 429,123 Total $ (521,163 ) $ 358,150 $ (578,049 ) Years Ended December 31, Sources of Income Tax (Expense) Benefit 2017 (2) 2016 (3) 2015 (4) Current income taxes U.S. Federal (1) $ 1,020 $ 740 $ 9,605 U.S. State (5,770 ) (5,567 ) (5,893 ) Non-U.S. (62,571 ) (78,829 ) (80,488 ) Total current income taxes $ (67,321 ) $ (83,656 ) $ (76,776 ) Deferred income taxes U.S. Federal $ (549,635 ) $ 100,686 $ 208,886 U.S. State (89,128 ) (2,707 ) 191 Non-U.S. (92,851 ) 6,603 (30,107 ) Total deferred income taxes $ (731,614 ) $ 104,582 $ 178,970 Total income tax (expense) benefit $ (798,935 ) $ 20,926 $ 102,194 (1) Tax expense of $6,409 and $4,925 associated with share-based compensation were recorded in APIC in 2016 and 2015 , respectively. (2) Income tax expense for 2017 was impacted by approximately $1,051,000 , primarily due to the revaluation of our U.S. DTAs resulting from the impact of the Tax Reform Act and the establishment of VAs against our net U.S. and non-U.S. DTAs, as further discussed below. (3) Income tax expense for 2016 benefited by approximately $15,000 from the release of VA for our Non-U.S. NOLs and by approximately $67,000 from the reversal of a deferred tax liability associated with historical earnings of a non-U.S. subsidiary for which the earnings are no longer anticipated to be subject to tax. (4) Income tax expense for 2015 was impacted by approximately $62,600 , primarily due to the establishment of VA against U.S.-State NOLs generated in 2015 as a result of the impact of the sale of our Nuclear Operations (approximately $58,000 ). Income tax expense for 2015 also reflects the non-deductibility of the goodwill impairment for the period. The following is a reconciliation of income taxes at The Netherlands’ (our country of domicile) statutory rate to income tax (expense) benefit for 2017 , 2016 and 2015 : Years Ended December 31, 2017 2016 2015 Income tax benefit (expense) at statutory rate (25.0% for 2017, 2016 and 2015) $ 130,291 $ (89,538 ) $ 144,512 U.S. State income taxes (61,684 ) (6,461 ) (3,984 ) Non-deductible meals and entertainment (15,493 ) (8,302 ) (8,951 ) U.S. Federal valuation allowance established (564,586 ) — — U.S. Federal tax rate change (306,430 ) — — Non-U.S. valuation allowance established (105,452 ) (8,020 ) (1,985 ) Non-U.S. valuation allowance utilized 1,700 23,809 4,642 Statutory tax rate differential 78,730 4,855 102,941 Unremitted earnings of subsidiaries 6,650 64,376 (10,369 ) Noncontrolling interests 9,002 20,165 19,427 Non-deductible goodwill impairment — — (158,585 ) Non-taxable interest income 28,773 18,856 — Excess stock compensation tax expense (5,417 ) — — Other, net 4,981 1,186 14,546 Income tax (expense) benefit $ (798,935 ) $ 20,926 $ 102,194 Effective tax rate (153.3 )% (5.8 )% 17.7 % Deferred Taxes Summary —The principal temporary differences included in deferred income taxes reported on the December 31, 2017 and 2016 Balance Sheets were as follows: December 31, 2017 2016 Deferred Tax Assets U.S. Federal operating losses and credits $ 443,761 $ 595,630 U.S. State operating losses and credits 229,923 203,195 Non-U.S. operating losses 67,081 50,410 Contract revenue and cost 29,530 55,748 Employee compensation and benefit plan reserves 59,548 80,733 Insurance and legal reserves 7,682 16,209 Disallowed interest 145,833 117,558 Other 74,629 70,969 Total deferred tax assets $ 1,057,987 $ 1,190,452 Valuation allowance (954,299 ) (160,568 ) Net deferred tax assets $ 103,688 $ 1,029,884 Deferred Tax Liabilities Investment in foreign subsidiaries $ (1,586 ) $ (14,644 ) Depreciation and amortization (165,873 ) (292,439 ) Net deferred tax liabilities $ (167,459 ) $ (307,083 ) Net total deferred tax assets $ (63,771 ) $ 722,801 At December 31, 2017 , we did not provide deferred income taxes on temporary differences of approximately $281,600 resulting primarily from earnings of our non-U.S. subsidiaries which are indefinitely reinvested. The reversal of these temporary differences could result in additional tax; however, it is not practicable to estimate the amount of any unrecognized deferred income tax liabilities at this time. Deferred income taxes are provided as necessary with respect to earnings that are not indefinitely reinvested. Deferred Tax Realization Assessments —At December 31, 2017 we had total DTAs of $1,057,987 (including U.S. DTAs of $878,914 after the impacts of the Tax Reform Act discussed below), and at December 31, 2016 we had total DTAs of $1,190,452 (including U.S. DTAs of $1,059,405 ). On a periodic and ongoing basis we evaluate our DTAs (including our net operating loss (“NOL”) DTAs) and assess the appropriateness of our VAs. In assessing the need for a VA, we consider both positive and negative evidence related to the likelihood of realization of the DTAs. If, based on the weight of available evidence, our assessment indicates that it is more likely than not that a DTA will not be realized, we record a VA. Our assessments include, among other things, the amount of taxable temporary differences that will result in future taxable income, the value and quality of our backlog, evaluations of existing and anticipated market conditions, analysis of recent and historical operating results (including cumulative losses over multiple periods) and projections of future results, strategic plans and alternatives for associated operations, as well as asset expiration dates, where applicable. If the factors upon which we based our assessment of realizability of our DTAs differ materially from our expectations, including future operating results being lower than our current estimates, our future assessments could be impacted and result in an increase in VA and increase in tax expense. Year End 2016 Assessment During 2015 and 2016, we incurred losses primarily resulting from goodwill impairment and other charges incurred as a result of the sale of our Nuclear Construction business on December 31, 2015 (discussed in Note 4 ) and the anticipated sale of our Capital Services Operations, which occurred on June 30, 2017 (discussed in Note 5 ). As a result of such losses, we had a cumulative U.S. loss for the three years ended December 31, 2016 (representing our recent results as of December 31, 2016). Accordingly, in assessing the positive and negative evidence related to the likelihood of utilizing our significant U.S. DTAs (including our U.S. NOL DTAs), we gave consideration to multiple factors, including the following positive evidence: • The operations that resulted in such losses were either sold as of December 31, 2016 or contemplated for sale as of the filing of our 2016 Form 10-K. Specifically, absent the charges related to the exited businesses (including non-deductible goodwill charges), our cumulative U.S. income for the three years ended December 31, 2016 was approximately $1,096,700 ; • We had a history of U.S. income prior to incurring the losses during 2015 and 2016. Specifically, our cumulative U.S. income for the ten year period ended December 31, 2014 was approximately $1,509,000 ; • In spite of such U.S. losses during 2015 and 2016, we were not in a cumulative loss position for the three years ended December 31, 2016 on a consolidated basis; and • Our projections of U.S. income, inclusive of the reversal of taxable temporary differences, indicated we would realize our U.S. NOL DTAs over ten years prior to their expiration in 2035. Our projections of U.S. income were supported by a significant U.S. backlog of approximately $9,305,000 at December 31, 2016, and a strong forecasted U.S. market for our EPC and technology products and services. Based on the aforementioned, we believed the positive evidence outweighed the negative evidence and concluded it was more likely than not that we would utilize our U.S. DTAs, as of December 31, 2016. Interim 2017 Assessment During the first half of 2017 and the third quarter 2017, we incurred additional U.S. losses due to charges on certain projects (discussed in Note 18 ). As a result of such losses, we were projecting a cumulative loss in the U.S., and on a consolidated basis, for the three years ending December 31, 2017. Accordingly, in assessing the positive and negative evidence related to the likelihood of utilizing the U.S. DTAs, we again gave consideration to multiple factors, including the following positive evidence: • The aforementioned history of U.S. income and the fact that we had exited the businesses that resulted in the losses for 2015 and 2016; • In July 2017, we initiated steps to market and sell our Technology Operations (discussed in Note 2 ) and classified the Technology Operations as a discontinued operation during the third quarter 2017. We anticipated that proceeds from the transaction would result in a significant U.S. taxable gain that would be realized during the fourth quarter 2017 or prior to filing our 2017 Form 10-K. Including the anticipated taxable gain, we projected we would not have a cumulative loss on a consolidated basis for the three years ending December 31, 2017. Further, including the anticipated taxable gain and excluding the non-deductible goodwill charges, we projected we would not have a cumulative loss in the U.S. for the three years ending December 31, 2017; and • The aforementioned taxable gain would result in the accelerated realization of a significant portion of our U.S. NOL DTAs. Further, our projections of U.S. income, inclusive of the reversal of taxable temporary differences, indicated we would continue to realize the remaining U.S. NOL DTAs over ten years prior to their expiration in 2035. Based on the aforementioned, during the first half of 2017 and the third quarter 2017, we believed the positive evidence continued to outweigh the negative evidence and concluded that it was still more likely than not that we would utilize our U.S. DTAs, as of June 30, 2017 and September 30, 2017. Year End 2017 Assessment During the fourth quarter 2017, we incurred additional U.S. losses primarily due to charges on certain projects (discussed in Note 18 ). Further, we entered into the Combination Agreement (discussed in Note 2 ) and suspended our plan to sell our Technology Operations. As a result, the gain from the Technology Sale was not realized during 2017. Because the gain from the Technology Sale was not realized, and due to the additional losses, we had a cumulative U.S. and consolidated loss for the three years ended December 31, 2017 (representing our recent results as of December 31, 2017). Accordingly, in assessing the positive and negative evidence related to the likelihood of utilizing the U.S. DTAs, we again gave consideration to multiple factors, including the following positive evidence: • The Combination, which we anticipate will close in the second quarter 2018, will result in the sale of our Technology Operations to McDermott in advance of the consummation of the transaction (“Combination Technology Sale”), which will result in a significant U.S. taxable gain similar to the gain anticipated in connection with the original Technology Sale. • Our projections of U.S. income, inclusive of the reversal of taxable temporary differences and the anticipated gain resulting from the Combination, indicate we will continue to realize the remaining U.S. NOL DTAs prior to their expiration in 2037 . Although we believe it is probable we will complete the Combination and realize the aforementioned gain, certain factors required to complete the transaction are beyond our control, and as of December 31, 2017, we are unable to consider the anticipated gain from the Combination Technology Sale as positive evidence in connection with our assessment of the realizability of our U.S. NOL DTAs, or our remaining U.S. and non-U.S. DTAs. As a result, and due to the cumulative U.S. and consolidated losses for the three years ended December 31, 2017, we believe the negative evidence now outweighs the positive evidence with respect to our ability to utilize our U.S. NOL DTAs, and our remaining net U.S. and non-U.S. DTAs. We therefore concluded that it is no longer more likely than not that we will utilize our net DTAs as of December 31, 2017, and during the fourth quarter 2017 we recorded a VA of approximately $702,000 against our U.S. NOL DTAs, and our remaining net U.S. and non-U.S. DTAs. As a result of the aforementioned and other VAs recorded during the first three quarters of 2017, we recorded total VAs during 2017 of approximately $750,800 . At December 31, 2017, excluding VAs we had Non-U.S. NOL DTAs of $67,100 , representing Non-U.S. NOLs of $298,000 (including $162,300 in the U.K. and $135,700 in other jurisdictions); U.S.-Federal NOLs DTAs of $376,300 , representing U.S.-Federal NOLs of $1,792,100 ; U.S.-State NOL DTAs of $225,200 ; and foreign and other tax credits of $72,200 . Excluding NOLs having an indefinite carryforward, principally in the U.K., the Non-U.S. NOLs will expire from 2018 to 2037 . Further, the U.S.-Federal NOLs will expire from 2033 to 2037 and the U.S.-State NOLs will expire from 2018 to 2037 . The other credits will expire from 2021 to 2037. The Tax Reform Act The Tax Reform Act was signed into law on December 22, 2017 and significantly changes U.S. tax law by, among other things: reducing the U.S. Federal corporate income tax rate from a maximum of 35% to 21% (effective January 1, 2018); imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries; implementing a territorial tax system; and eliminating U.S. federal income taxes on dividends from foreign subsidiaries. The Tax Reform Act also modifies: the limitation on the amount of deductible interest expense, the limitation on the deductibility of meals and entertainment expenses, and the limitation on the deductibility of certain executive compensation. Change in U.S. Corporate Tax Rate Impacts —As a result of the reduction in the U.S. corporate income tax rate, we revalued our U.S. deferred taxes at December 31, 2017 and recognized income tax expense of approximately $306,430 for 2017, representing our provisional estimate of the impact of the change in corporate tax rate. Repatriation Tax Impacts —The Tax Reform Act provides for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. We estimated that $47,100 of undistributed foreign E&P was subject to the deemed mandatory repatriation and recognized income tax expense of approximately $7,900 for 2017, representing our provisional estimate of the impact of the Tax Reform Act. No cash tax will be paid related to the transition tax as the repatriation income inclusion is offset by current year losses in the U.S. In addition, we had previously accrued a deferred tax liability of $14,600 for undistributed foreign E&P that was not considered permanently reinvested. As a result of these items, the net impact to income tax expense for 2017 was an income tax benefit of $6,700 , which is included in unremitted earnings of subsidiaries on our reconciliation of income taxes. Territorial Tax System Impacts —While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, (i) the global intangible low-taxed income (“GILTI”) provisions and (ii) the base-erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provisions will require us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. We are currently assessing the GILTI provisions and have not yet selected an accounting policy for its application; however, we do not anticipate that it will have a material impact on our future tax expense as our non-U.S. operations are generally not conducted by foreign subsidiaries of the U.S. consolidated group. The BEAT provisions in the Tax Reform Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. We expect to be subject to this tax in future years but have not completed our analysis of projected tax that could be owed in future periods as a result of the new provisions. Other Impacts —We are currently analyzing the anticipated effects of the other provisions of the Tax Reform Act. As discussed in Note 2, the SEC issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. We have recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and deemed repatriated earnings and have reflected those estimates in our Balance Sheet at December 31, 2017 and in our results for 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Reform Act. We anticipate completing our analysis in connection with the completion of our tax return for 2017 to be filed in 2018. Unrecognized Income Tax Benefits At December 31, 2017 and 2016 , our unrecognized income tax benefits totaled $16,251 and $14,162 , respectively, and we do not anticipate significant changes in this balance in the next year. The following is a reconciliation of our unrecognized income tax benefits for the years ended December 31, 2017 and 2016 : Years Ended December 31, 2017 2016 Unrecognized income tax benefits at the beginning of the year $ 14,162 $ 9,140 Increase as a result of: Tax positions taken during the prior period 2,319 6,038 Decreases as a result of: Lapse of applicable statute of limitations — — Settlements with taxing authorities (230 ) (1,016 ) Unrecognized income tax benefits at the end of the year (1) $ 16,251 $ 14,162 (1) If these income tax benefits were ultimately recognized, approximately $13,100 and $11,000 of the December 31, 2017 and 2016 balances, respectively, would benefit tax expense as we are contractually indemnified for the remaining balances. We have operations, and are subject to taxation, in various jurisdictions, including significant operations in the U.S., The Netherlands, Canada, the U.K., Australia, South America and the Middle East. Tax years remaining subject to examination by worldwide tax jurisdictions vary by country and legal entity, but are generally open for tax years ending after 2006 . To the extent penalties and associated interest are assessed on any underpayment of income tax, such amounts are accrued and classified as a component of income tax expense and interest expense, respectively. For 2017 , 2016 and 2015 , interest and penalties were not significant. |
