Income Taxes

(Loss) income before income taxes consists of the following components:



	Successor									Predecessor
(amounts in thousands)	Year Ended December 31, 2017			Year Ended December 31, 2016			August 1, 2015 Through December 31, 2015			January 1, 2015 Through July 31, 2015
Domestic	$	(1,118	)	$	(111,056	)	$	(34,139	)	$	29,053
Foreign	20,101			12,516			470			(32,261		)
Total	$	18,983		$	(98,540	)	$	(33,669	)	$	(3,208	)

Significant components of income taxes are as follows:



	Successor									Predecessor
(amounts in thousands)	Year Ended December 31, 2017			Year Ended December 31, 2016			August 1, 2015 Through December 31, 2015			January 1, 2015 Through July 31, 2015
Currently payable:
Federal	$	1,323		$	—		$	—		$	14,370
State and Local	32			(1		)	8			305
Foreign	6,581			(771		)	646			392
Total currently payable	7,936			(772		)	654			15,067

Deferred:
Federal	(14,801		)	10,073			(18,308		)	(4,115		)
State and Local	256			(482		)	(789		)	(57		)
Foreign	2,030			4,201			(789		)	(46		)
Total deferred	(12,515		)	13,792			(19,886		)	(4,218		)
Provision (benefit) for income taxes	$	(4,579	)	$	13,020		$	(19,232	)	$	10,849

A reconciliation of income tax expense at the U.S. Federal statutory income tax rate to actual income tax provision is as follows:



	Successor									Predecessor
(amounts in thousands)	Year Ended December 31, 2017			Year Ended December 31, 2016			August 1, 2015 Through December 31, 2015			January 1, 2015 Through July 31, 2015
Tax at Statutory Rate	$	6,654		$	(34,490	)	$	(11,785	)	$	(1,123	)
State income taxes, net of federal tax benefit	166			(313		)	(508		)	141
Effect of Foreign Items	2,101			(788		)	(411		)	2,315
Goodwill impairment	—			21,831			—			—
Valuation Allowance and unbenefited losses	18,452			28,466			(2,004		)	9,321
U.S. valuation allowance release	(15,388		)	—			—			—
Deferred Tax Rate Changes	(17,312		)	—			—			—
Transaction Costs	470			—			—			—
Tax Incentives	(68		)	(82		)	(34		)	—
Warrants	168			(1,722		)	(4,557		)	—
Other	178			118			67			195
Provision (benefit) for income taxes	$	(4,579	)	$	13,020		$	(19,232	)	$	10,849

Income tax expense for the twelve months ended December 31, 2017, twelve months ended December 31, 2016, five months ended December 31, 2015, and seven months ended July 31, 2015 include certain discrete tax items for changes in valuation allowances, non-deductible U.S. goodwill impairment, foreign effective rate items and other rate modifying items.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted in the U.S. The TCJA significantly revised the U.S. federal corporate income tax by, among other things, lowering the corporate income tax rate to 21%, implementing a territorial tax system, and imposing a repatriation tax on earnings of foreign subsidiaries that are deemed to be repatriated to the U.S.

U.S. GAAP accounting for income taxes requires that the Company records the impacts of any tax law change on deferred income taxes in the quarter that the tax law change is enacted. Due to the complexities involved in accounting for the enactment of TCJA, SEC Staff Accounting Bulletin (“SAB”) 118 allows the Company to provide a provisional estimate of the impacts of the TCJA in its earnings for the fourth quarter and year ending December 31, 2017. Accordingly, based on currently available information, the Company recorded a net benefit of $17.0 million in the Consolidated and Combined Statements of Income (Loss) as a component of “Provision (benefit) for income taxes”. The $17.0 million net benefit consisted of a $17.5 million benefit resulting from the remeasurement of the Company’s net deferred tax liabilities in the U.S. based on the new lower corporate income tax rate and, is in part, offset by a $0.5 million expense relating to the one-time, repatriation tax on previously deferred earnings of certain non-U.S. subsidiaries that are owned either wholly or partially by a U.S. subsidiary of the Company.

Although the $17.0 million net benefit represents what the Company believes is a reasonable estimate of the impact of the income tax effects of the TCJA on the Company’s consolidated financial statements as of December 31, 2017, it should be considered provisional. It will require adjustments as additional guidance from the U.S. Department of Treasury is provided and once the Company finalizes certain tax positions when the Company files its 2017 U.S. tax return, the Company will be able to conclude whether any further adjustments are required to its net deferred tax liability balance in the U.S. of $25.4 million as of December 31, 2017, as well as to the liability associated with the one-time, repatriation tax. Any adjustments to these provisional amounts will be reported as a component of tax expense in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018. The Company is still evaluating the potential future impacts of the global intangible low-taxed income (“GILTI”) and base erosion and anti-abuse tax (“BEAT”) provisions of the TCJA, and no provisional deferred tax liability has been provided as the Company currently believes that these minimum tax regimes will not have a material impact on future tax liabilities.

For the year ended December 31, 2017, the Company recorded a tax benefit of $17.3 million for the remeasurement of deferred income tax assets and liabilities related to tax legislation enactments like the TCJA in the U.S. and other foreign tax legislation enactments. In addition, the Company recorded an income tax expense of $18.5 million for the increase in net valuation allowances for certain tax attributes and other unbenefited losses. The unbenefitted losses related to the elimination of intercompany profit in inventory. In addition the company released the valuation allowance in the U.S. tax jurisdiction of $15.4 million as sufficient deferred income tax liabilities exist such that the deferred tax assets are more likely than not to be realized.

For the year ended December 31, 2016, the Company recorded a tax benefit of $1.7 million for the non-taxable marked to market gains from Private Placement Warrants. In addition, the Company recorded an income tax expense of $28.5 million for the increase in valuation allowances for certain tax attributes, including net operating losses. The increase in valuation allowance occurred in the quarter ended December 31, 2016, following the Company's assessment that it will not be able to realize its deferred tax assets in the U.S. in the time horizon required by U.S. GAAP to carry them as assets. During the quarter ended December 31, 2016, the Company impaired its goodwill asset resulting in a permanent item of $21.8 million, as the impairment is not deductible for tax purposes.

The tax rate for the five months ended December 31, 2015, was unfavorably impacted by the non-taxable marked to market gains from Private Placement Warrants of $4.6 million in the U.S. and by the release of the valuation allowance in the U.S. of $2.0 million.

The tax rate for the seven months ended July 31, 2015 was unfavorably impacted by the increase of valuation allowances of $9.3 million primarily in Canada and South Africa and by losses in multiple foreign jurisdictions with tax rates less than 35% of $2.3 million.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and December 31, 2016 are as follows:



(amounts in thousands)	December 31, 2017			December 31, 2016
Deferred tax assets:
Intangible assets other than goodwill	$	—		$	5,208
Pension and other retiree obligations	209			547
Inventory	89			46
Other accruals and reserves	2,370			2,546
Loss and credit carryforwards	10,932			27,682
Other	886			952
Valuation allowance	(13,061		)	(27,732		)
Deferred tax assets	1,425			9,249

Deferred tax liabilities:
Intangible assets other than goodwill	(21,753		)	—
Property, plant and equipment	(2,604		)	(790		)
Deferred tax liabilities	(24,357		)	(790		)
Net deferred tax assets / (liabilities)	$	(22,932	)	$	8,459

The Company makes significant judgments regarding the realizability of its deferred tax assets (principally net operating losses). The carrying value of deferred tax assets is based on the Company’s assessment that it is more likely than not that the Company will realize these assets after consideration of all available positive and negative evidence.

Gross operating loss carryforwards amounted to $7.0 million for foreign jurisdictions, $42.4 million for U.S. federal, and $6.5 million for U.S. States at December 31, 2017. These operating loss carryforwards related to the 2015, 2016 and current 2017 tax periods. At December 31, 2017, none of the operating loss carryforwards were subject to expiration in 2017 through 2019. The operating loss carryforwards expiring in years 2021 through 2027 make up $0.9 million of the recorded deferred tax asset. The operating loss carryforwards expiring in years 2030 through 2038 make up $9.2 million of the recorded deferred tax asset. The remaining deferred tax asset relating to operating loss carryforwards of $1.3 million have an indefinite expiration. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.

As of December 31, 2017, management determined that sufficient negative evidence exists to conclude that it is more-likely-than-not that the certain income tax assets in the U.S. and Korea are not realizable, and therefore, increased the valuation allowance accordingly.

The Company has recorded tax credits in the U.S. for research and development expenditures that were generated in in 2015, 2016, and 2017 for a total amount of $0.2 million. These credits will expire beginning in 2035.

U.S. income and foreign withholding taxes have not been recognized for the difference between the financial reporting and tax basis of the investments in foreign subsidiaries that are indefinitely reinvested outside the U.S. This amount may be recognized upon a sale or liquidation of the subsidiary.

Uncertain Tax Positions



	Successor						Predecessor
(amounts in thousands)	Year Ended December 31, 2017		Year Ended December 31, 2016		August 1, 2015 Through December 31, 2015		January 1, 2015 Through July 31, 2015
Beginning Balance	$	—	$	—	$	—	$	—
Additions of tax positions of the current year	—		—		—		—
Additions to tax positions of the prior years	2,884		—		—		—
Reductions of tax positions of the prior years	—		—		—		—
Settlements with taxing authorities	—		—		—		—
Expiration of statutes of limitations	—		—		—		—
Provision (benefit) for income taxes	2,884		—		—		—

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company started its operations on July 31, 2015, and has no history of U.S. federal, state and local, and foreign income tax examinations by tax authorities for any open statutes. As of December 31, 2017 and 2016, the Company had unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company's financial statements, of $2.9 million and $0.0 million, respectively. If recognized in the fiscal years ended December 31, 2017 and 2016, $2.9 million and $0.0 million, respectively, of these benefits would have reduced income tax expense and the effective tax rate. Of these amounts, approximately $0.2 million and $0.0 million of the Company's unrecognized tax benefits at December 31, 2017 and 2016, respectively, are indemnified and the release of the indemnification asset will have an offsetting impact to the effective tax rate of the Company. Of the $2.9 million and $0.0 million benefits at December 31, 2017 and 2016, respectively, approximately $1.1 million and $0.0 million have been recorded as a reduction to the related deferred tax asset for the net operating loss in accordance with Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists for all periods. The total amount of unrecognized tax benefits is not expected to change within 12 months of the reporting date. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefit within the provision for income taxes in the Consolidated and Combined Statements of Income (Loss). The Company recorded an increase of $0.5 million of interest and penalties as part of "Provision for income taxes" in the Company's Consolidated and Combined Statements of Income (Loss) during the period ending December 31, 2017. Cumulative interest and penalties of $0.5 million and $0.0 million are recorded as part of "Income taxes payable" for December 31, 2017 and 2016, respectively.