Entity information:

• Entity registrant name: CommScope Holding Company, Inc.
• CIK: 0001517228
• SEC filing page: http://www.sec.gov/Archives/edgar/data/1517228/000156459018002108/0001564590-18-002108-index.htm
• XBRL Instance: http://www.sec.gov/Archives/edgar/data/1517228/000156459018002108/comm-20171231.xml
• XBRL Cloud Viewer: https://edgardashboard.xbrlcloud.com/flex/viewer/XBRLViewer.html#instance=http://www.sec.gov/Archives/edgar/data/1517228/000156459018002108/comm-20171231.xml
• EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001517228
• Generator: Donnelley Financial Solutions
• Total assets: 7,041,666,000
• Income tax expense (benefit): 15,968,000
• Found reconcilation from statutory to effective rates: True
• Found income tax policy: Coming soon!

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11.    INCOME TAXES

On December 22, 2017, the U.S. government enacted tax reform legislation (U.S. tax reform) that reduced the corporate income tax rate from 35% to 21% and included a broad range of complex provisions affecting the taxation of businesses. Certain effects of the new legislation would generally require financial statement recognition to be completed in the period of enactment; however, in response to the complexities of this new legislation, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118) to provide companies with transitional relief. Specifically, when the initial accounting for items under the new legislation is incomplete, the guidance allows the recognition of provisional amounts when reasonable estimates can be made or the continued application of the prior tax law if a reasonable estimate of the effect cannot be made. The SEC staff has provided up to one year for companies to finalize the accounting for the effects of this new legislation, and the Company anticipates finalizing its accounting within that period. For the items for which the Company was able to determine a reasonable estimate, the amount is included as a component of income tax expense. The Company will continue to make or refine the calculations as additional analysis is completed and as a more thorough understanding of the new tax law is reached. The changes made could be material to income tax expense.

While accounting for the new U.S. tax legislation is incomplete, the Company has made reasonable estimates for certain provisions and has recognized a $22.4 million net tax benefit in the 2017 financial statements. This net benefit is primarily comprised of a $64.2 million provisional deferred tax benefit from revaluing the Company's U.S. deferred tax assets and liabilities to reflect the new U.S. corporate tax rate, partially offset by a $28.5 million provisional charge for the estimated transition tax and a $13.3 million charge for estimated taxes on prior year earnings of foreign subsidiaries that the Company expects to repatriate to the U.S.

The Company's estimate of the $64.2 million deferred tax benefit due to the revaluation of U.S. deferred tax assets and liabilities is a provisional amount under the SEC staff’s guidance. Many of the year-end deferred tax balances include estimated timing differences and estimates of events that have not yet occurred such as payments expected to be made during 2018 that are deductible on 2017 tax returns. These deferred tax assets and liabilities are likely to change as the Company finalizes the effect of the tax rate change.

In general, the transition tax in the new legislation results in the taxation of the Company's accumulated foreign earnings and profits (E&P) at a 15.5% rate on liquid assets and 8.0% on the remaining unremitted foreign E&P, both net of foreign tax credits. At this time, the Company has not finished the complex calculations necessary to finalize the amount of the transition tax. The Company believes that the preliminary calculations result in a reasonable estimate of the transition tax and the related foreign tax credit. As such, the Company has recognized $28.5 million of tax expense for the year ended December 31, 2017. As the Company finalizes the analysis of accumulated foreign E&P, the related foreign taxes paid by entity and the amounts held in cash or other specified assets, the Company will update the provisional estimate of the transition tax. As provided under U.S. tax reform, the Company elected to pay this transition tax over eight years. The current obligation of $2.1 million is reflected in other accrued liabilities on the Consolidated Balance Sheets with the noncurrent portion included within other noncurrent liabilities on the Consolidated Balance Sheets.

Because prior year foreign earnings are subject to U.S. taxation under the transition tax, the Company intends to repatriate a portion of the foreign earnings that were previously considered indefinitely reinvested in its foreign operations. While not subject to additional U.S. taxation, these earnings may be subject to withholding or similar taxes under foreign law and/or state income taxes. The Company recognized a $13.3 million deferred tax provision for estimated taxes on prior year earnings of foreign subsidiaries that the Company expects to repatriate to the U.S. As noted above, the Company has not finalized the E&P analysis to determine its transition tax obligation and in conjunction with this analysis is continuing to evaluate foreign E&P which the Company believes are indefinitely reinvested. No additional income taxes have been provided for any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

 

In addition to the reduction in the corporate tax rate, the legislation also establishes new provisions that will affect the Company’s 2018 results, including a new provision designed to tax certain income from foreign operations (Global Intangible Low-Tax Income or GILTI); a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; a new limitation on deductible interest expense; the repeal of the domestic manufacturing deduction; limitations on the deductibility of certain employee compensation; and a deduction for foreign derived intangible income.

While the new legislation generally eliminates U.S. federal income tax on dividends from foreign subsidiaries, it creates a new requirement that certain income earned by foreign subsidiaries must be included currently in U.S. taxable income with new U.S. expense allocation rules (GILTI inclusion). Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the legislation and the application of U.S. GAAP. Under U.S. GAAP, the Company is allowed to make an accounting policy election and treat taxes due from applying the GILTI tax rules either as a current-period expense when they are incurred or factor such amounts into the measurement of deferred taxes. The Company's selection of an accounting policy with respect to the new GILTI rules will depend, in part, on analyzing the Company's global income to determine whether there is an expectation to have future U.S. inclusions in taxable income related to GILTI and its associated impact. The Company has not yet computed a reasonable estimate of the effect of this provision and, therefore, has not made a policy decision regarding whether to record deferred taxes related to GILTI. Accordingly, no adjustment has been made in the financial statements related to GILTI tax.

Changes in tax regulations in non-U.S. jurisdictions resulted in a tax benefit of $17.1 million, largely related to a deferred tax benefit from revaluing the Company’s Belgian deferred tax liabilities resulting from a corporate rate reduction.

Income (loss) before income taxes includes the results from domestic and international operations as follows:

The components of income tax expense were as follows:

The reconciliation of income taxes calculated at the statutory U.S. federal income tax rate to the Company’s provision for income taxes was as follows:

 

The components of deferred income tax assets and liabilities and the classification of deferred tax balances on the balance sheet were as follows:

The deferred tax asset for federal tax credit carryforwards as of December 31, 2017 relates to U.S. foreign tax credit carryforwards that expire between 2021 and 2025.

The deferred tax asset for state net operating loss and tax credit carryforwards as of December 31, 2017 includes state net operating loss carryforwards (net of federal tax impact) of $18.1 million, which begin to expire in 2018, and state tax credit carryforwards (net of federal tax impact) of $2.1 million which begin to expire in 2018. A valuation allowance of $12.0 million has been established against these state income tax related deferred tax assets.

The deferred tax assets for foreign net operating loss and tax credit carryforwards as of December 31, 2017 includes foreign net operating loss carryforwards (net of federal tax effects) of $53.2 million, which will begin to expire in 2018, and foreign tax credit carryforwards (net of federal tax effects) of $11.9 million, which begin to expire in 2023. Certain of these foreign net operating loss carryforwards are subject to local restrictions limiting their utilization. Valuation allowances of $51.9 million have been established related to these foreign deferred tax assets.

In addition to the valuation allowances detailed above, the Company has also established a valuation allowance of $4.0 million against other deferred tax assets.

As of December 31, 2017, estimated E&P from foreign subsidiaries of $732.4 million were included in the Company’s computation of the provisional transition tax.  The Company has a deferred tax liability of $21.4 million as of December 31, 2017 for the estimated foreign and state tax costs associated with the expected repatriation of the Company’s undistributed foreign earnings. 

The following table reflects a reconciliation of the beginning and end of period amounts of gross unrecognized tax benefits, excluding interest and penalties:

The Company’s liability for unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods was $39.1 million as of December 31, 2017. The Company operates in numerous jurisdictions worldwide and is subject to routine tax audits on a regular basis. The determination of the Company’s unrecognized tax benefits involves significant management judgment regarding interpretation of relevant facts and tax laws in each of these jurisdictions.  

Unrecognized tax benefits are reviewed and evaluated on an ongoing basis and may be adjusted for changing facts and circumstances including the lapse of applicable statutes of limitation and closure of tax examinations. Although the timing and outcome of such events are difficult to predict, the Company estimates that the balance of unrecognized tax benefits, excluding the impact of accrued interest and penalties, may be reduced by up to $28.0 million within the next twelve months.

The Company provides for interest and penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2017 and 2016, the Company had accrued $9.0 million and $8.9 million, respectively, for interest and penalties. During the years ended December 31, 2017, 2016 and 2015 the net expense (credit) for interest and penalties recognized through income tax expense was $0.1 million, $0.4 million and $(0.5) million, respectively.

The Company files federal, state and local tax returns with statutes of limitation generally ranging from 3 to 4 years. The Company is generally no longer subject to federal tax examinations for years prior to 2014 or state and local tax examinations for years prior to 2013. Tax returns filed by the Company’s significant foreign subsidiaries are generally subject to statutes of limitations of 3 to 7 years and are generally no longer subject to examination for years prior to 2012. In many jurisdictions, tax authorities retain the ability to review prior years’ tax returns and to adjust any net operating loss or tax credit carryforwards from these years that are available to be utilized in subsequent periods. During 2017, the Company recognized $10.4 million related to the lapse of applicable statutes of limitations and the conclusion of various domestic and foreign examinations.

The following table presents income tax expense (benefit) related to amounts presented in other comprehensive income (loss):