Income Taxes

12 Months Ended

Dec. 31, 2018

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


(amounts in thousands)	Year Ended December 31, 2018		Year Ended December 31, 2017		Year Ended December 31, 2016
Domestic	$	(32,982)	$	(1,118)	$	(111,056)
Foreign	4,582		20,101		12,516
Total	$	(28,400)	$	18,983	$	(98,540)

Significant components of income taxes are as follows:


(amounts in thousands)	Year Ended December 31, 2018		Year Ended December 31, 2017		Year Ended December 31, 2016
Currently payable:
Federal	$	(631)	$	1,323	$	—
State and Local	36		$	32	(1)
Foreign	1,281		$	6,581	(771)
Total currently payable	686		$	7,936	(772)

Deferred:
Federal	(2,404)		(14,801)		10,073
State and Local	(66)		256		(482)
Foreign	3,624		2,030		4,201
Total deferred	1,154		(12,515)		13,792
Provision (benefit) for income taxes	$	1,840	$	(4,579)	$	13,020

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


(amounts in thousands)	Year Ended December 31, 2018		Year Ended December 31, 2017		Year Ended December 31, 2016
Tax at Statutory Rate	$	(5,962)	$	6,654	$	(34,490)
State income taxes, net of federal tax benefit	(54)		166		(313)
Effect of Foreign Items	834		2,101		(788)
Goodwill impairment	—		—		21,831
Valuation Allowance and unbenefited losses	6,018		18,452		28,466
U.S. valuation allowance release	—		(15,388)		—
Deferred Tax Rate Changes	240		(17,312)		—
Transaction Costs	531		470		—
Tax Incentives	(91)		(68)		(82)
Warrants	—		168		(1,722)
Other	324		178		118
Provision (benefit) for income taxes	$	1,840	$	(4,579)	$	13,020

Income tax expense for the year ended December 31, 2018, year ended December 31, 2017, and year ended December 31, 2016 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 represents sweeping changes in U.S. tax law. Among other changes in tax law, the TCJA permanently reduced the U.S. corporate income tax rate to 21% beginning in 2018, imposed a one-time repatriation tax on deferred foreign earnings, established a participation exemption system by allowing a 100% dividends received deduction on qualifying dividends paid by foreign subsidiaries, limited deductions for net interest expense, and expanded the U.S. taxation of foreign earned income to include “global intangible low-taxed income” (“GILTI”).

As permitted by Staff Accounting Bulletin No. 118 (“SAB 118”), the net tax benefit recorded in the fourth quarter of 2017 due to the enactment of the TCJA was considered “provisional”, based on reasonable estimates. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. The measurement period ended on December 22, 2018. The Company recorded provisional estimates and have subsequently finalized our accounting analysis based on the guidance, interpretations, and data available as of December 31, 2018. Adjustments made in the fourth quarter of 2018 upon finalization of our accounting analysis were not material to our Consolidated Financial Statements.

The TCJA subjects a U.S. corporation to tax on its GILTI. U.S. GAAP allows companies to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes (“deferred method”). The Company elected to use the period cost method and estimated impacts of the GILTI inclusion to be a $0.1 million tax expense. The Company provided no provisional deferred tax liability related to “BEAT” base erosion and anti-abuse tax (“BEAT”) provisions of the TCJA, as the Company’s average gross receipts are under $500 million. In addition, the Company is not eligible for a benefit for foreign derived intangible income (“FDII”) due to Company’s U.S. net operating loss position in tax year 2018.

For the year ended December 31, 2018, the Company recorded a tax expense of $6.0 million for the increase in valuation allowances related to deferred tax assets that will no longer be able to be realized and other unbenefited losses. The unbenefited losses relate to the elimination of intercompany profit in inventory, resulting in tax expense of $1.0 million. The Company increased the valuation allowance in the U.S. tax jurisdiction $2.8 million as the Company does not have sufficient evidence to support future taxable income to realize the deferred tax asset related to non-deductible net interest expense limited under the TCJA. In addition to the U.S. valuation allowance increase, there was tax expense of $2.2 million recorded due to an increase in foreign valuation allowance in Japan, Netherlands, and Turkey as a result of insufficient sources of future taxable income to support certain deferred tax assets. There was also a reduction of $1.7 million in the valuation allowance recorded due to changes in certain temporary differences and foreign currency translation rates which did not have an impact on tax expense.

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 unbenefited 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.

The tax rate 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.

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, 2018 and December 31, 2017 are as follows:


(amounts in thousands)	December 31, 2018		December 31, 2017
Deferred tax assets:
Pension and other retiree obligations	32		209
Inventory	507		89
Other accruals and reserves	2,856		2,370
Loss and credit carryforwards	14,535		10,932
Interest expense deduction limitation carryforward	2,769		—
Other	—		886
Valuation allowance	(16,367)		(13,061)
Deferred tax assets	4,332		1,425

Deferred tax liabilities:
Intangible assets other than goodwill	(22,443)		(21,753)
Property, plant and equipment	(2,582)		(1,548)
Unrealized foreign currency gains	(2,155)		(1,056)
Other	(52)		—
Deferred tax liabilities	(27,232)		(24,357)
Net deferred tax assets / (liabilities)	$	(22,900)	$	(22,932)

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 $12.5 million for foreign jurisdictions, $53.2 million for U.S. federal, and $7.6 million for U.S. States at December 31, 2018. These operating loss carryforwards related to the 2015, 2016, 2017 and current 2018 tax periods. At December 31, 2018, none of the operating loss carryforwards were subject to expiration in 2019 through 2022. The operating loss carryforwards expiring in years 2023 through 2028 make up $2.5 million of the recorded deferred tax asset. The operating loss carryforwards expiring in years 2029 through 2038 make up $9.1 million of the recorded deferred tax asset. The remaining deferred tax asset relating to operating loss carryforwards of $2.9 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, 2018, 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., Japan, Netherlands, and Turkey 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 2015, 2016, 2017, and 2018 for a total amount of $0.3 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. There is not a gross temporary difference as of December 31, 2018, since the tax basis of investments in foreign subsidiaries is in excess of the financial reporting basis.

Uncertain Tax Positions


(amounts in thousands)	Year Ended December 31, 2018		Year Ended December 31, 2017		Year Ended Year Ended December 31, 2016
Beginning Balance	$	2,884	$	—	$	—
Additions of tax positions of the current year	393		—		—
Additions to tax positions of the prior years	—		2,884		—
Reductions of tax positions of the prior years	(872)		—		—
Reductions related to prior tax positions due to foreign currency	(525)		—		—
Expiration of statutes of limitations	(1)		—		—
Ending Balance	$	1,879	$	2,884	$	—

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. As of December 31, 2018 and 2017, 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 $1.9 million and $2.9 million, respectively. If recognized in the fiscal years ended December 31, 2018 and 2017, $1.9 million and $2.9 million, respectively, of these benefits would have reduced income tax expense and the effective tax rate. Of these amounts, approximately $0.2 million and $0.2 million of the Company's unrecognized tax benefits at December 31, 2018 and 2017, 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 $1.9 million and $2.9 million benefits at December 31, 2018 and 2017, respectively, approximately $0.9 million and $1.1 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 Statements of (Loss) Income. The Company recorded an increase of $0.2 million of interest and penalties as part of "Provision for income taxes" in the Company's Consolidated Statements of (Loss) Income during the period ending December 31, 2018. Cumulative interest and penalties of $0.6 million and $0.5 million are recorded as part of "Income taxes payable" for December 31, 2018 and 2017, respectively.