INCOME TAXES

Tax Reform

On December 22, 2017, the TCJA was enacted into law in the United States. The legislation contains several key tax provisions including the reduction of the corporate income tax rate to 21% effective January 1, 2018, and a one-time transition tax on foreign earnings which have not previously been subject to tax in the United States, as well as a variety of other changes, including limitation of the tax deductibility of interest expense, limitations for the deduction for net operating losses, new taxes on certain foreign-sourced earnings, and modification or repeal of many business deductions and credits.

The SEC staff issued SAB 118 which allows companies to record provisional amounts during a one-year measurement period. At December 31, 2017, the Company has not completed its accounting for the tax effects of the enactment of the TCJA; however, the Company estimated what it believes to be the effects of the TCJA on its existing deferred tax balances, unrecognized tax benefits and the one-time transition tax, and recorded a provisional estimate for these tax effects.

The Company recognized a provisional $46.3 million income tax benefit in 2017 as a result of remeasuring U.S. federal deferred taxes for the change in the statutory tax rate and a partial release of the U.S. federal valuation allowance due to changes in the carryforward period and limitation on the utilization of future net operating losses. The valuation allowance analysis is subject to significant judgment and may change as the Company completes its analysis of the impacts of the enactment of the TCJA. The Company also made a reasonable estimate of the impact of the one-time transition tax on foreign earnings which have not previously been subject to tax in the United States. The Company believes foreign tax credits will be utilized to offset the one-time transition tax. Significant technical analysis is required to further substantiate the foreign earnings subject to the one-time transition tax as well as the utilization of foreign tax credits. The Company will continue to review the technical tax interpretations associated with the underlying law, monitor state legislative changes, and review U.S. federal and state guidance as it is issued. These items could significantly impact the Company’s provisional estimate of the one-time transition tax.

The TCJA subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries for which an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined its accounting policy. At December 31, 2017, because the Company is still evaluating the GILTI provisions and its analysis of future taxable income that is subject to GILTI, the Company is unable to make a reasonable estimate and has therefore not reflected any adjustments related to GILTI in its Consolidated Financial Statements.

The Company will continue to assess the impact of the TCJA on its business and its Consolidated Financial Statements and provide updates in subsequent filings.

Income Taxes

(Loss) income before income taxes and non-controlling interests was as follows:



	Year Ended December 31,
($ amounts in millions)	2017			2016			2015
Domestic	$	(331.0	)	$	(229.1	)	$	(290.8	)
Foreign	42.0			181.0			61.5
Total	$	(289.0	)	$	(48.1	)	$	(229.3	)

Income tax expense (benefit) consisted of the following:



	Year Ended December 31,
($ amounts in millions)	2017			2016			2015
Current:
U.S.:
Federal	$	(1.2	)	$	0.1		$	0.7
State and local	1.0			0.4			(0.2		)
Foreign	133.4			85.5			120.1
Total current	133.2			86.0			120.6
Deferred:
U.S.:
Federal	(48.7		)	1.9			6.4
State and local	0.4			(0.2		)	(5.2		)
Foreign	(78.3		)	(59.1		)	(46.7		)
Total deferred	(126.6		)	(57.4		)	(45.5		)
Income tax expense	$	6.6		$	28.6		$	75.1

Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal statutory tax rate to pre-tax loss, as a result of the following:



	Year Ended December 31,
($ amounts in millions)	2017			2016			2015
U.S. federal statutory tax rate	35.0		%	35.0		%	35.0		%

Taxes computed at U.S. statutory rate	$	(101.2	)	$	(16.8	)	$	(80.3	)
State income taxes, net of federal benefit	0.9			0.1			(3.6		)
Foreign tax on foreign operations	(3.9		)	(17.2		)	(25.3		)
U.S. tax on foreign operations	46.7			29.0			31.1
Net change in reserve	(8.1		)	(24.1		)	27.5
Change in valuation allowances	83.2			68.4			72.6
Provision for tax on undistributed foreign earnings	(1.0		)	26.8			5.0
Change of tax rate	(19.4		)	11.8			(1.0		)
Impact of transaction costs	—			(24.5		)	40.5
Settlement of Series B Convertible Preferred Stock	—			(34.3		)	—
Goodwill impairment	53.4			6.2			—
Provisional estimate of TCJA	(46.3		)	—			—
Other, net	2.3			3.2			8.6
Income tax expense	$	6.6		$	28.6		$	75.1

Effective tax rate	(2.3		)%	(59.5		)%	(32.8		)%

The Company has provided foreign taxes on previously unremitted earnings of certain foreign subsidiaries from 2015 and for other foreign subsidiaries from 2016. At December 31, 2017, the Company maintains a deferred tax liability of $21.9 million relating to income and withholding taxes upon distribution of earnings from non-U.S. subsidiaries to certain foreign holding companies. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable. Due to the changes associated with the TCJA, the Company is still evaluating its assertion for foreign earnings.

The components of deferred income taxes at December 31, 2017 and 2016 were as follows:



	December 31,
($ amounts in millions)	2017			2016
Deferred tax assets:
Net operating losses	$	323.0		$	355.7
Tax credits	62.0			49.2
Interest carryforward	44.4			34.2
Employee benefits	40.3			56.2
Accrued liabilities	25.9			50.6
Financing activities	24.3			3.5
Goodwill	19.5			31.4
Accounts receivable	19.1			19.8
Research and development costs	10.3			15.2
Inventory	4.6			8.5
Other	20.7			24.1
Total deferred tax assets	594.1			648.4
Valuation allowance	(391.7		)	(383.3		)
Total gross deferred tax assets	202.4			265.1
Deferred tax liabilities:
Intangibles	710.4			831.9
Plant and equipment	24.8			33.9
Undistributed foreign earnings	21.9			36.8
Other	0.4			6.9
Total gross deferred tax liabilities	757.5			909.5
Net deferred tax liability	$	555.1		$	644.4

Deferred tax assets are included in the Consolidated Balance Sheets as "Other assets" at December 31, 2017 and 2016.

The presentation of the deferred tax balances at December 31, 2016 in the above table have been revised to correct immaterial prior year errors primarily related to intangibles, interest carryforward, goodwill, other assets, employee benefits and related valuation allowances. There was no impact to net deferred tax liabilities in the Consolidated Balance Sheet as the net impact of these adjustments was offset with a corresponding $20.1 million adjustment to related valuation allowances.

Valuation allowances reflect the Company's assessment that it is more likely than not that certain federal, state and foreign deferred tax assets, primarily net operating losses, 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 Platform's results of operations. The valuation allowance for deferred tax assets was $392 million and $383 million at December 31, 2017 and 2016, respectively. During 2017, the valuation allowance increased by $8.4 million primarily due to foreign operating losses offset by the reductions in the U.S. valuation allowance following enactment of the TCJA.

At December 31, 2017, the Company had federal, state and foreign net operating loss carryforwards of approximately $591 million, $841 million and $774 million, respectively. The U.S. federal net operating loss carryforwards expire between the years 2021 and 2036. The majority of the state net operating loss carryforwards expire between the years 2018 and 2037. The foreign tax net operating loss carryforwards expire between the years 2018 through 2037 or may be carried forward indefinitely. In addition, at December 31, 2017, the Company had approximately $43.2 million, $17.8 million and $6.5 million of foreign tax credits, research and development credits, and other tax credits, respectively, available for carryforward. These carryforward periods range from ten years to an unlimited period of time.

Section 382 of the Internal Revenue Code imposes an annual limitation on the amount of a corporation's U.S. federal taxable income that can be offset by net operating losses if it experiences an "ownership change." The Company experienced ownership changes in 2013 and 2015 with respect to the acquisition of various companies. Accordingly, the use of the Company's net operating losses generated prior to these ownership changes is subject to an annual limitation. If certain changes in the Company's ownership occur prospectively, there could be an additional annual limitation on the amount of utilizable carryforwards.

Tax Uncertainties

The following table summarizes the activity related to the Company’s unrecognized tax benefits:



	Year Ended December 31,
($ amounts in millions)	2017			2016			2015
Unrecognized tax benefits at beginning of period	$	128.3		$	112.2		$	27.7
Additions based on current year tax positions	6.5			76.2			20.7
Additions based upon prior year tax positions (including acquired uncertain tax positions)	4.0			1.7			72.2
Reductions due to closed statutes	(6.3		)	(9.9		)	(2.9		)
Reductions for prior period positions	(38.0		)	(51.9		)	—
Reductions for settlements and payments	(4.2		)	—			(5.5		)
Total unrecognized tax benefits at end of period	$	90.3		$	128.3		$	112.2

At December 31, 2017, the Company had $90.3 million of total unrecognized tax benefits, of which $39.8 million, if recognized, would impact the Company’s effective tax rate. Due to enactment of the TCJA, the Company recorded a provisional estimate for remeasuring federal unrecognized tax benefits of $28.7 million included in the reductions of prior period positions disclosure above for which the Company expects it will be able to reduce tax attribute carryforwards upon settlement of the uncertain tax position. As noted previously, the Company will continue to assess the impact of the TCJA on its business and its Consolidated Financial Statements, including the impact on the U.S. unrecognized tax benefits. Due to expected settlements and statute of limitations expirations, the Company estimates that $4.2 million 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 (benefit) expense, which totaled $(1.2) million, $(5.5) million and $4.9 million, for 2017, 2016 and 2015, respectively. The Company's accrual for interest and penalties totaled $13.0 million and $13.3 million at December 31, 2017 and 2016, respectively.

At December 31, 2017, the following tax years remained subject to examination by the major tax jurisdictions indicated below:



Major Jurisdictions	Open Years
Belgium	2010	through current
Brazil	2011	through current
Canada	2012	through current
China	2011	through current
France	2011	through current
Germany	2013	through current
Japan	2012	through current
Mexico	2012	through current
Netherlands	2013	through current
South Africa	2013	through current
Taiwan	2012	through current
United Kingdom	2008 and 2015	through current
United States	2015	through current

The Company is subject to taxation in the United States and in various states and foreign jurisdictions. During 2017, the U.S. federal tax authorities concluded their audit of the income tax returns through the tax year ended December 31, 2014. With few exceptions, at December 31, 2017, the Company was no longer subject to state and local or foreign examinations by tax authorities for years before 2010. The Company is currently undergoing tax examinations in several foreign jurisdictions. The Company believes it has appropriately accrued for the expected outcome of uncertain tax matters and believes such liabilities represent a reasonable provision for taxes ultimately expected to be paid. However, the Company's liability may need to be adjusted as new information becomes available and as tax examinations continue to progress.