TAXES ON INCOME

Income (loss) before taxes on income was as follows (in thousands):



	Years Ended December 31,
	2017			2016		2015
Domestic	$	(39,660	)	$	23,205	$	(15,944	)
Foreign	(21,570		)	12,064		17,159
Total	$	(61,230	)	$	35,269	$	1,215

Provisions for taxes on income (loss) consisted of the following components (in thousands):



	Years Ended December 31,
	2017			2016			2015
Current:
Federal	$	3,764		$	(636	)	$	2,150
Foreign	7,512			3,585			5,600
State	3,351			175			528
Subtotal	14,627			3,124			8,278
Deferred:
Federal	(8,706		)	2,158			218
Foreign	(1,099		)	475			1,382
State	183			352			(673		)
Subtotal	(9,622		)	2,985			927
Total tax provision	$	5,005		$	6,109		$	9,205

Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% to income (loss) before taxes on income as a result of the following (in thousands):



	Years Ended December 31,
	2017			2016			2015
Income taxes (benefit) at U.S. federal statutory tax rate	$	(21,431	)	$	12,344		$	425
Increase (decrease) in taxes resulting from:
Change in the balance of the valuation allowance for deferred tax assets allocated to foreign income tax expense	4,598			1,364			(756		)
Change in the balance of the valuation allowance for deferred tax assets allocated to domestic income tax expense	12,755			(4,202		)	4,834
State income taxes, net of federal income tax benefit	2,270			342			(94		)
Divestitures	—			271			2,269
Meals and entertainment	785			736			761
Changes in taxes previously accrued	(1,339		)	23			(489		)
Foreign tax rate differences	913			(2,559		)	(1,468		)
Goodwill impairment	6,359			—			3,485
Recognition of uncertain tax positions	(62		)	85			24
Deemed mandatory repatriation	10,406			—			—
Release of deferred tax liability on foreign earnings	(7,051		)	—			—
Settlement of escrow arrangement	—			—			(1,115		)
Domestic Production Activities deduction	(1,921		)	(1,017		)	(528		)
Incremental U.S. taxes on undistributed foreign earnings	—			—			2,102
Other matters	(1,277		)	(1,278		)	(245		)
Total tax provision	$	5,005		$	6,109		$	9,205
Effective tax rate	(8.2		)%	17.3		%	757.6		%

On December 22, 2017, the U.S. government enacted the TCJA, which includes significant changes to the U.S. corporate income tax system including: (i) a federal corporate rate reduction from 35% to 21%; (ii) limitations on the deductibility of interest expense and executive compensation; (iii) creation of new minimum taxes such as the Global Intangible Low Taxed Income (“GILTI”) tax and the base erosion anti-abuse tax (“BEAT”); and (iv) the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system, which will result in a one time U.S. tax liability on those earnings that have not previously been repatriated to the U.S.

The transitional tax is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of the Company’s non-U.S. subsidiaries. To determine the amount of the transition tax, the Company must determine the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. Further, the one-time transition tax is based on the amount of those earnings held in cash and other specified assets, either at the end of 2017 or the average of the year end balances for 2015 and 2016. Based on the Company’s initial analysis of the TCJA, it has recorded a provisional estimated net tax expense of $2.4 million, which consists of a charge of $10.4 million for the deemed mandatory repatriation, and reduced by a $7.1 million release of a deferred tax liability on unremitted foreign earnings and $0.9 million of other TCJA related impacts. The Company continues to gather additional information and will further analyze its calculation of the transition tax based on additional technical guidance from U.S. federal and state tax authorities about the application of these new rules.

Net deferred taxes consisted of the following (in thousands):



	December 31,
	2017			2016
Deferred income tax assets:
Foreign tax credit carryforwards	$	466		$	3,426
Net operating loss carryforwards	23,216			26,212
Accrued expenses	12,107			17,366
Other	4,707			8,701
Total gross deferred income tax assets	40,496			55,705
Less valuation allowance	(29,782		)	(15,428		)
Net deferred income tax assets	10,714			40,277
Deferred income tax liabilities:
Property, plant and equipment	(9,482		)	(12,627		)
Intangible assets	(2,201		)	(28,346		)
Undistributed foreign earnings	—			(7,051		)
Other	(6,576		)	(9,237		)
Total deferred income tax liabilities	(18,259		)	(57,261		)
Net deferred income tax liabilities	$	(7,545	)	$	(16,984	)

The Company’s tax assets and liabilities, netted by taxing location, are in the following captions in the balance sheets (in thousands):



	December 31,
	2017			2016
Current deferred income tax assets, net ⁽¹⁾	$	—		$	7,824
Current deferred income tax liabilities, net ⁽¹⁾	—			(3,317		)
Noncurrent deferred income tax assets, net	1,666			1,848
Noncurrent deferred income tax liabilities, net	(9,211		)	(23,339		)
Net deferred income tax liabilities	$	(7,545	)	$	(16,984	)

__________________________


⁽¹⁾	As of January 1, 2017, the Company adopted FASB Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes, which requires all deferred tax assets and liabilities, along with any related valuation allowance, to be presented as non-current. Prior period balances were not retrospectively adjusted.

The Company’s deferred tax assets at December 31, 2017 included $23.2 million in federal, state and foreign net operating loss (“NOL”) carryforwards. These NOLs include $14.6 million, which if not used will expire between the years 2018 and 2037, and $8.6 million that have no expiration dates. The Company also has deferred tax amounts related to foreign tax credit carryforwards of $0.5 million, of which, $0.3 million will expire in 2026 if not used and $0.2 million have no expiration date.

For financial reporting purposes, a valuation allowance of $29.8 million has been recognized to reduce the deferred tax assets related to certain federal, state and foreign net operating loss carryforwards and other assets, for which it is more likely than not that the related tax benefits will not be realized, due to uncertainties as to the timing and amounts of future taxable income. The valuation allowance at December 31, 2016 was $15.4 million.

The increase during 2017 was primarily related to the assessment of positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant component of the objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2017. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2017, a valuation allowance has been recorded to record only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable; however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Activity in the valuation allowance is summarized as follows (in thousands):



	Years Ended December 31,
	2017			2016			2015
Balance, at beginning of year	$	15,428		$	18,897		$	19,353
Additions	19,260			3,095			7,783
Reversals	(183		)	(4,984		)	(5,294		)
Remeasurement of U.S. deferred tax balances	(5,141		)	—			—
Other adjustments	418			(1,580		)	(2,945		)
Balance, at end of year	$	29,782		$	15,428		$	18,897

As a result of the deemed mandatory repatriation provisions in the TCJA, during 2017 the Company included an estimated $210.6 million of undistributed earnings in income subject to U.S. tax at reduced tax rates. The TCJA resulted in certain reassessments of previous indefinite reinvestment assertions with respect to certain jurisdictions. The Company does not intend to distribute earnings in a taxable manner; and therefore, intends to limit distributions to: (i) earnings previously taxed in the U.S.; (ii) earnings that would qualify for the 100 percent dividends received deduction provided in the TCJA; or (iii) earnings that would not result in significant foreign taxes. As a result, the Company has not recognized a deferred tax liability on its investment in foreign subsidiaries as of December 31, 2017. The Company continues to refine its provisional balances under the TCJA and adjustments may be made during the one-year measurement period under SAB 118. The ultimate impact of the TCJA may differ from the current provisional amounts and the adjustments could be material.

As part of the February 2016 acquisition of Underground Solutions, the Company repatriated approximately $29.7 million from foreign subsidiaries to assist in funding the transaction, incurring approximately $3.2 million in additional taxes, an estimate for which was accrued as of December 31, 2015. This was viewed as a one-time, special-use transaction.

FASB ASC 740, Income Taxes (“FASB ASC 740”), prescribes a more-likely-than-not threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASC ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure of uncertain tax positions in financial statements.

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):



	Years Ended December 31,
	2017			2016			2015
Balance, at beginning of year	$	2,465		$	2,410		$	2,672
Additions for tax positions of prior years related to acquisitions	—			148			—
Additions for tax positions of prior years	12			10			10
Lapse in statute of limitations	(274		)	(83		)	(218		)
Foreign currency translation	26			(20		)	(54		)
Balance, at end of year, total tax provision	$	2,229		$	2,465		$	2,410

The total amount of unrecognized tax benefits, if recognized, that would affect the effective tax rate was $0.5 million at December 31, 2017.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2017, 2016 and 2015, approximately $0.3 million was expensed for interest and penalties in each period.

The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will change in 2018. The Company has certain tax return years subject to statutes of limitation that will expire within twelve months. Unless challenged by tax authorities, the expiration of those statutes of limitation is expected to result in the recognition of uncertain tax positions in the amount of approximately $0.4 million.

The Company is subject to taxation in the United States, various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2013.