Income Taxes

The components of income (loss) before income taxes are as follows:



	Years Ended November 30,
	2018			2017			2016
	(Dollars in millions)
Income (Loss) Before Income Taxes:
U.S.	$	(2.0	)	$	(9.1	)	$	1.5
Foreign	16.5			5.0			8.4
	$	14.5		$	(4.1	)	$	9.9



	Years Ended November 30,
	2018			2017			2016
	(Dollars in millions)
Income Tax (Expense) Benefit:
Current:
U.S. Federal	$	(0.1	)	$	(0.6	)	$	(0.6	)
U.S. State and Local	(0.2		)	(0.1		)	(0.2		)
Foreign	(7.3		)	(5.9		)	(4.3		)
	(7.6		)	(6.6		)	(5.1		)
Deferred:
U.S. Federal	10.5			(72.6		)	(2.4		)
U.S. State and Local	(0.1		)	(7.8		)	(0.5		)
Foreign	3.4			3.3			(2.3		)
	13.8			(77.1		)	(5.2		)
Income Tax (Expense) Benefit	$	6.2		$	(83.7	)	$	(10.3	)



	Years Ended November 30,
	2018			2017				2016
	(Dollars in millions)
Effective Income Tax (Expense) Benefit:
Tax at federal statutory rate	$	(3.2	)	$	1.4			$	(3.5	)
Valuation allowances	5.5			(79.9		)		(1.8		)
U.S. legislative change	4.1			—				—
Foreign taxes at different rates	(0.5		)	1.3				1.0
U.S. tax on foreign dividends	—			(0.4		)		(2.2		)
Non-deductible impairment	—			(6.9		)		—
Executive stock compensation	0.2			0.3				—
Other permanent items	(0.2		)	(0.1		)		0.1
State and local taxes	(0.1		)	(0.7		)		(0.7		)
Foreign withholding tax	(0.4		)	(1.0		)	`	(0.6		)
Foreign non-deductible interest	(0.4		)	(0.7		)		(0.7		)
French business tax	(0.6		)	(0.5		)		(0.5		)
French legislation change	0.9			3.4				(1.6		)
Non-taxable research and development	0.3			0.2				0.2
Tax equity adjustment	0.4			—				—
Other, net	0.2			(0.1		)		—
Effective Income Tax (Expense) Benefit	$	6.2		$	(83.7	)		$	(10.3	)

On December 22, 2017, U.S. federal tax legislation, commonly referred to as the Tax Cuts and Job Act (the “Tax Act”) was signed into law which, among other changes: reduced the U.S. corporate income tax rate effective January 1, 2018 from 35% to 21%; repealed the Alternative Minimum Tax (“AMT”); imposed a one-time transition tax on accumulated foreign earnings not previously subject to U.S. taxation; provides a U.S. federal tax exemption on future distributions of foreign earnings; and beginning in fiscal 2019, creates a new minimum tax on certain foreign-sourced earnings. The U.S. corporate tax rate reduction resulted in a blended federal statutory tax rate of 22.2% for fiscal 2018 (based on 35% corporate rate through December 31, 2017 and 21% from that date through the end of fiscal 2018). The Securities and Exchange Commission Staff Accounting Bulletin No.118 (“SAB 118”), provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes.

In accordance with SAB 118 guidance, the Company estimated certain effects of the Tax Act and recorded a provisional net tax benefit of approximately $9.9 million in fiscal 2018. The income tax benefit was comprised of tax for (i) $4.1 million related to the re-measurement of the U.S. deferred taxes for the reduction of the U.S. federal corporate income tax rate, which included the impact of reducing the valuation allowance previously recognized by $25.9 million (ii) $0.9 million associated with the reversal of the valuation allowance against the existing AMT credit carryforward as it is refundable under the Tax Act, (iii) and $4.9 million associated with the reversal of the valuation allowance on a portion of the U.S. deferred tax assets as a result of deferred tax liabilities for indefinite lived intangible assets now considered available as a source of income as a result of the Tax Act.

The Company provisionally estimates minimal to zero income inclusion for the transition tax related to foreign earnings on which U.S. income taxes were previously deferred. The Company intends to utilize existing net operating loss carryforwards to offset any income inclusion, and therefore does not expect to pay cash taxes related to the transition tax. While the Company was able to make reasonable estimates of the items above, the ultimate impact may differ from these provisional amounts due to additional analysis, changes in interpretations and assumptions, additional regulatory guidance that may be issued and actions we may take as a result of the Tax Act. Adjustments to the provisional amounts recorded by the Company that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to income tax expense in the period the amounts are determined.

The Tax Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”) whereby minimum taxes are imposed on foreign income in excess of a deemed return on the tangible assets of foreign corporations. This income will effectively be taxed at a 10.5% tax rate. GILTI is effective for the Company starting in fiscal 2019. Because of the complexity of the new provisions, the Company is continuing to evaluate how the provisions will be accounted for under the U.S. generally accepted accounting principles wherein companies are allowed to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which the Company is subject to the rules (the “period cost method”), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the “deferred method”). Currently, the Company has not made an accounting policy election and will only do so after its completion of the analysis of the GILTI provisions.

For fiscal 2018, the Company’s income tax benefit was $6.2 million on global pretax income of $14.5 million. The Company's income tax benefit was different than the statutory income tax rate primarily due to items related to the Tax Act, as noted above. In addition, the Company recognized a $0.9 million income tax benefit related to the impact of a French tax rate change on the Company’s deferred tax liabilities. Based on recently enacted French tax legislation during the first quarter of 2018, the French tax rate will be reduced to 25.0% beginning in 2022 and the Company's deferred tax liabilities were reduced to appropriately reflect this legislation as a current period tax benefit.

Deferred Income Taxes



	November 30,
	2018					2017
	(Dollars in millions)
	Assets			Liabilities		Assets			Liabilities
Accrued estimated costs	$	5.7		$	—	$	9.7		$	—
Inventory	6.1			—		15.0			—
Goodwill and intangible assets	—			11.2		—			17.0
Depreciation	—			12.4		—			16.6
Pension	12.6			—		24.9			—
NOLC’s and other carryforwards	37.3			—		51.5			—
Post-retirement employee benefits	2.3			—		3.9			—
Other	—			0.4		—			5.9
Valuation allowance	(53.2		)	—		(88.8		)	—
Deferred Income Taxes	$	10.8		$	24.0	$	16.2		$	39.5

A reconciliation of the beginning and ending deferred tax valuation allowance is as follows:



	Years Ended November 30,
	2018			2017			2016
	(Dollars in millions)
Beginning balance December 1	$	88.8		$	14.1		$	10.2
Additions (Reductions) Charged to Expense	(32.2		)	79.9			4.0
Additions (Reductions) Charged to Other Accounts	(2.9		)	(2.6		)	—
Reduction due to Entity Disposition	—			(3.9		)	—
Foreign Currency Effects	(0.5		)	1.3			(0.1		)
Ending balance November 30	$	53.2		$	88.8		$	14.1

At November 30, 2018, the Company has $93.1 million of U.S. federal net operating loss carryforwards (NOLC's), $8.1 million of U.S. federal capital loss carryforwards, $0.1 million of foreign tax credit carryforwards, $0.3 million of AMT credit carryforwards, and $78.9 million of state net operating loss carryforwards. As a result, cash tax payments in the U.S. are expected to be minimal for the foreseeable future. The Company generated approximately $1.8 million of federal net operating loss carryforward for the year ended November 30, 2018. The Company utilized approximately $7.8 million and $15.6 million of federal net operating loss carryforward for the years ended November 30, 2017 and 2016, respectively. The majority of the federal, state, and local NOLCs will expire in tax years 2023 through 2038 while the foreign tax credit carryforwards will expire in the tax years 2020 through 2022, and the capital loss will expire beginning in tax year 2022. The Company has a valuation allowance against the U.S. federal and state NOLC's and the U.S. federal capital loss carryforward.

As of November 30, 2018, the Company had approximately $42.3 million of foreign NOLC's of which $30.5 million have an indefinite carryforward period. The Company has recognized a valuation allowance against the $30.5 million foreign NOLC's which have an indefinite carryforward period as the Company does not anticipate utilizing these carryforwards. Cash paid for income taxes in 2018, 2017, and 2016 was $6.8 million, $4.5 million, and $4.2 million, respectively, and related primarily to foreign income taxes.

Total unrecognized tax benefits are $0.6 million and $0.3 million at November 30, 2018 and 2017, respectively. The $0.3 million increase year over year relates to acquisitions made by the Company. The total amount of interest and penalties recognized in the consolidated balance sheet was $0.2 million at November 30, 2018. There were minimal interest and penalties recognized in the consolidated balance sheet as of November 30, 2017. Of the total $0.6 million of unrecognized tax benefits at November 30, 2018, $0.4 million would, if recognized, impact the Company's effective tax rate. The amount of unrecognized tax benefits which impacted the Company's effective tax rate was $0.1 million in 2016. There was no impact to the effective tax rate in 2018 or 2017.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties is as follows:



	Years Ended November 30,
	2018		2017		2016
	(Dollars in millions)
Beginning balance, December 1	$	0.3	$	0.3	$	—
Increase based on tax positions related to current year	—		—		0.3
Increase due to acquisition	0.3		—		—
Ending balance, November 30	$	0.6	$	0.3	$	0.3

Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. The Company recognized minimal income tax expense related to interest and penalties in 2018, 2017, and 2016.

With limited exceptions, the Company is no longer open to audit under the statutes of limitation by the Internal Revenue Service and various states and foreign taxing jurisdictions for years prior to 2013.

The Company has not provided for U.S. income taxes on undistributed earnings on certain of its non-U.S. subsidiaries as such amounts are considered permanently reinvested outside the U.S. As a result of the Tax Act, to the extent that foreign earnings previously treated as permanently reinvested are repatriated, the related U.S. tax liability primarily attributable to withholding taxes may be creditable. However, based on the Company's policy of permanent reinvestment, it is not practicable to determine the U.S. federal income tax liability, if any, which would be payable if such earnings were not permanently reinvested. As of November 30, 2018, the non-U.S. subsidiaries have cumulative foreign retained earnings of $60.6 million.