Note 8 - Income Taxes

3 Months Ended

12 Months Ended

Mar. 31, 2014

Dec. 31, 2013

14. INCOME TAXES

The tax impact of the year to date fair value adjustment to the long term contingent consideration liability was fully recorded in the interim period as a reliable estimate of the full year adjustment could not be reasonably made.

8. INCOME TAXES

(Loss) income before income taxes, non-controlling interests and accrued payment-in-kind dividends on cumulative preferred shares are as follows:

	For the period from inception (April 23, 2013) through December 31, 2013				For the ten months ended October 31, 2013			For the year ended December 31, 2012			For the year ended December 31, 2011
	(Successor)				(Predecessor)			(Predecessor)			(Predecessor)
Domestic (1) (2)		$	(7,949	)	$	(74,244	)	$	(36,846	)	$	(45,363	)
Foreign (1)			(193,495	)		100,719			107,785			56,669
Total		$	(201,444	)	$	26,475		$	70,939		$	11,306

(1) Income in the period from inception (April 23, 2013) through December 31, 2013 was impacted by costs associated with the MacDermid Acquisition.

(2) Income for the period ended October 31, 2013 was impacted by the recapitalization transaction.

Income tax (benefit) expense consisted of the following:

	For the period from inception (April 23, 2013) through December 31, 2013			For the ten months ended October 31, 2013			For the year ended December 31, 2012			For the year ended December 31, 2011
	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)
Current:
U.S.:
Federal	$	282		$	(5,267	)	$	1,839		$	(4,221	)
State and local		52			297			473			324
Foreign		1,328			22,776			30,725			29,860
Total current		1,662			17,806			33,037			25,963
Deferred:
U.S.:
Federal		(2,049	)		(3,104	)		(4,937	)		3,459
State and local		(313	)		79			100			(615	)
Foreign		(5,119	)		(1,820	)		(3,527	)		(18,854	)
Total deferred		(7,481	)		(4,845	)		(8,364	)		(16,010	)
Provision for income taxes	$	(5,819	)	$	12,961		$	24,673		$	9,953

Income tax (benefit) expense differed from the amounts computed by applying the U.S. Federal statutory tax rates to pretax income, as a result of the following:

	For the period from inception (April 23, 2013) through December 31, 2013			For the ten months ended October 31, 2013			For the year ended December 31, 2012			For the year ended December 31, 2011
	(Successor)			(Predecessor)			(Predecessor)			(Predecessor)

U.S. Federal Statutory tax rate		35.0	%		35.0	%		35.0	%		35.0	%

Taxes computed at U.S. statutory rate	$	(70,505	)	$	9,267		$	24,829		$	3,957
State income taxes, net of Federal benefit		389			(2,232	)		(459	)		(702	)
Preferred dividend valuation		60,202			-			-			-
Tax on foreign operations		396			805			(11,613	)		(1,469	)
Net change in reserve		(713	)		(76	)		5,724			(27	)
Change in valuation allowances		(880	)		3,635			6,915			6,674
Provision for tax on undistributed foreign earnings		752			(682	)		204			(260	)
Change of tax rate		-			(487	)		(1,054	)		(847	)
Foreign exchange impact on provision		-			54			100			1,193
Non-deductible Transaction Costs		4,234			1,901			-			-
Other, net		306			776			27			1,434
Income tax (benefit) expense	$	(5,819	)	$	12,961		$	24,673		$	9,953
Effective tax rate		2.89	%		48.95	%		34.78	%		88.02	%

The Company has not recognized a deferred tax liability for U.S. taxes on the undistributed earnings of certain foreign subsidiaries which have been determined to be indefinitely reinvested in those subsidiaries. A deferred tax liability will be recognized when the Company expects to recover those earnings in a taxable transaction, such as the receipt of dividends or sale of the investment in foreign subsidiary, net of foreign tax credits. A determination of the deferred tax liability related to the undistributed earnings of foreign subsidiaries that are indefinitely reinvested is not practical. The undistributed earnings of those subsidiaries were $185,067 and $127,001 at December 31, 2013 and December 31, 2012, respectively.

The components of deferred income taxes at December 31, 2013 and 2012 are as follows:

	December 31, 2013			December 31, 2012
	(Successor)			(Predecessor)

Deferred tax assets:
Accounts receivable	$	1,758		$	1,313
Inventory		3,272			2,414
Accrued liabilities		3,683			1,617
Employee benefits		12,166			18,910
Research and development costs		14,093			13,267
Tax credits		34,041			39,541
Net operating losses		26,681			12,783
Other		10,876			5,194
Total deferred tax assets		106,570			95,039
Valuation allowance		(22,349	)		(41,446	)
Total gross deferred tax assets		84,221			53,593

Deferred tax liabilities:
Plant and equipment		16,467			882
Goodwill and intangibles		178,951			73,962
Partnership basis difference		179			11,585
Undistributed foreign earnings		6,301			6,185
Other		7,627			3,409
Total gross deferred tax liabilities		209,525			96,023

Net deferred tax liability	$	125,304		$	42,430

The following schedule presents net current and net long-term deferred tax assets and liabilities as of December 31, 2013 and 2012:

	December 31, 2013		December 31, 2012
	(Successor)		(Predecessor)

Net current deferred tax asset	$	10,760	$	5,169
Net noncurrent deferred tax asset		2,209		1,812
		12,969		6,981

Net noncurrent deferred tax liability		138,273		49,411

Total net deferred tax liability	$	125,304	$	42,430

Net current deferred tax assets are included in prepaid expenses and other current assets and net noncurrent deferred tax assets are included in Other assets on the Consolidated Balance Sheets.

Valuation allowances reflect our assessment that it is more likely than not that certain deferred tax assets for state and foreign net operating losses, foreign tax credits and state tax credit carry-forwards will not be realized. The assessment of the need for a valuation allowance requires management to make estimates and assumptions about future earnings, reversal of existing temporary differences and available tax planning strategies. If actual experience differs from these estimates and assumptions, the recorded deferred tax asset may not be fully realized resulting in an increase to income tax expense in our results of operations. The valuation allowance for deferred tax assets was $22,349 and $41,446 at December 31, 2013 and December 31, 2012, respectively.

At December 31, 2013, the Company had Federal, state and foreign net operating loss carry forwards of approximately $17,019, $266,640 and $11,811 respectively. The Federal net operating loss expires in 2033. The majority of the state net operating loss carry-forwards expire between the years 2016 and 2026. The state net operating loss carry-forwards result in a deferred tax asset of $17,609. A valuation allowance of $15,182 has been provided against the deferred tax asset because it is more likely than not that the Company will not be able to utilize all of the state net operating losses before they expire based on the Company’s domestic operations and structure. The foreign tax net operating loss carry-forwards expire between the years 2016 through 2030, with some being unlimited in utilization. This results in a deferred tax asset of $3,115. A valuation allowance of $702 has been provided against the deferred tax assets associated with certain foreign net operating loss carry-forwards because the recent results of the business units associated with the loss carry-forwards indicate that it is more likely than not that the benefits from the net operating loss carry-forwards will not be realized. A valuation allowance of $1,021 has been provided against the deferred tax asset for interest benefit recorded at a foreign subsidiary where it is more likely than not that the recognition of the benefit will not be realized.

In addition, at December 31, 2013, the Company has approximately $22,822, $6,890, $2,070 and $2,259 of foreign tax credits, research and development credits, alternative minimum tax credits and state tax credits (net of federal tax), respectively, that are available for carryforward. These carry-forward periods range from ten years to an unlimited period of time. A valuation allowance of $3,185 and $2,259 is provided for foreign tax credits and state tax credits, respectively, that the Company believes the benefits from the credits will not be realized.

Tax Uncertainties – The following table summarizes the activity related to the Company’s unrecognized tax benefits for the Successor and Predecessor 2013 Periods and the years ended December 31, 2012 and December 31, 2011:

	For the period from inception (April 23, 2013) through December 31, 2013				For the ten months ended October 31, 2013			For the year ended December 31, 2012			For the year ended December 31, 2011
	(Successor)				(Predecessor)			(Predecessor)			(Predecessor)

Unrecognized tax benefits at beginning of period		$	-		$	22,759		$	18,833		$	22,502
Additions based on current year tax positions			328			837			2,308			3,716
Additions based upon prior year tax positions (including acquired uncertain tax positions)			26,349			283			1,748			(3,881	)
Reductions due to closed statutes			(1,024	)		(379	)		(130	)		-
Reductions for settlements and payments			-			-			-			(3,504	)

Total Unrecognized Tax benefits at end of period		$	25,653		$	23,500		$	22,759		$	18,833

The Company has $25,653 of total unrecognized tax benefits as of December 31, 2013, of which $25,653, if recognized, would impact the Company’s effective tax rate. The Company estimates that $618 of the total unrecognized benefits will reverse within the next twelve months.

The Company recognizes interest and/or penalties related to income tax matters as part of income tax expense. The Company has approximately $4,245 and $3,972 accrued for interest and penalties as of December 31, 2013 and December 31, 2012, respectively. Changes in these balances are recorded in income tax expense or as a reduction of the balance for payments made. The Company made no payments in 2013.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has closed all U.S. federal tax matters for years through 2005. Federal income tax returns for 2006 through December 2013 are currently open to examination although no audits are ongoing. The Company is undergoing audits in the United Kingdom for the 2009 and 2011 tax years as well as a notification requesting that the 2008 tax year remain open for one subsidiary.

As of December 31, 2013 the following tax years remained subject to examination by the major tax jurisdiction indicated:

Major Jurisdiction		Open Years
Brazil		2008 through 2013
China		2011 through 2013
France		2010 through 2013
Germany		2009 through 2013
Italy		2008 through 2013
Japan		2012 through 2013
Netherlands		2007 through 2013
Singapore		2008 through 2013
United Kingdom		2008 through 2013
United States		2006 through 2013

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References+ Details