United states securities and exchange commission

Note 15. Defined Contribution Plan

The Company maintains a 401(k) plan for all of its U.S. employees. Under the 401(k) plan, eligible employees may contribute, subject to statutory limitations, a percentage of their salaries. The Company currently matches 50 percent of the participants’ contributions up to 8 percent of eligible compensation.

Participant vesting occurs in the Company matching contributions according to the schedule below:

 

Years of service		Vesting Percentage
1-year anniversary			34	%
2-year anniversary			66	%
3-year anniversary			100	%

 

The Company’s matching contributions to the 401(k) plan were $0.6 million, $0.3 million and $0.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company’s matching contributions are accrued and recorded as expense during each payroll period. Effective January 1, 2017, the Company changed the 401(k) plan to include an auto enrollment feature, increased the Company match from 25% of the first 8% to 50% of the first 8% and reduced the vesting period from six years to three years.

In Mexico, the Company maintains an annual savings fund, which matches the employee contribution each week, based on the Mexican statutory maximum of 13% of actual minimum salary rates. The savings fund period runs from November to October each year, and is distributed to employees in full, during the first week of November each year. For the years ended December 31, 2017, 2016 and 2015, the Company incurred matched savings expense of $1.3 million, $0.6 million and $0.5 million, respectively.

In Turkey, the Company maintains a retirement fund that is based on a formula of annual salary multiplied by the number of years of service for the Company. The Company accrues a retirement fund liability for this each month. As of December 31, 2017 and 2016, the Company accrued $1.5 million and $1.0 million, respectively, based on the service periods of eligible employees greater than one year.   

F-29


TPI COMPOSITES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 16 . Income Taxes

Geographic sources of income before income taxes are as follows for the years ended December 31:

 

		2017				2016				2015
		(in thousands)
United States		$	2,894			$	5,406			$	(3,165	)
China			41,075				22,826				18,420
Turkey			9,160				(8,564	)			(4,552	)
Mexico			3,641				1,169				956
Total income before income taxes		$	56,770			$	20,837			$	11,659

 

As of December 31, 2017, the Company has not completed its accounting for all of the tax effects associated with the enactment of Tax Reform. However, the Company has, in certain cases made a provisional estimate of the effects on its existing deferred tax balances and the one-time transition tax. Consequently, the Company has adjusted its US gross deferred tax assets for the reduction in the income tax rate and provisionally estimated the impact of the one-time transition tax on earnings. The provisional transition tax required the Company to recognize $74.3 million of previously untaxed foreign earnings in its 2017 U.S. income tax calculation and to include additional indirect foreign tax credits of $7.4 million.  The Company will finalize the provisional amounts within one year from the date of enactment.

As a result of Tax Reform, the Company provisionally recognized a total benefit of approximately $0.1 million (net of valuation allowance) from the reduced income tax rate from 35% to 21% that was applied to certain of the Company’s net deferred tax liabilities and the realization of a benefit from its alternative minimum tax credit carryover. All other material income tax benefits and expenses associated with the enactment of Tax Reform are not reflected in the income tax provision as the Company continues to record a valuation allowance against its U.S. federal and state deferred tax assets.

Because the Company previously asserted permanent reinvestment, it did not record a deferred tax liability related to unremitted foreign earnings. The Company intends to continue to permanently reinvest such earnings. In addition, the Company’s ability to repatriate funds from China to the United States is subject to a number of restrictions imposed by the Chinese government.  As the Company obtains and analyzes information related to the deemed repatriation of foreign earnings under Tax Reform, the Company will finalize the provision within one year of the enactment date. Additionally, there is uncertainty as to what portion, if any, of Tax Reform will be adopted by the U.S. state and local taxing authorities.

The income tax provision includes U.S. federal, state, and local taxes, Turkey, China and Mexico taxes currently payable and those deferred because of temporary differences between the financial statement and the tax bases of assets and liabilities. The components of the income tax provision for the years ended December 31 are as follows:

 

		2017				2016				2015
		(in thousands)
Current:
U.S. federal		$	(49	)		$	—			$	(51	)
U.S. state and local taxes			(3	)			(196	)			55
Foreign			14,200				9,973				4,738
Total current			14,148				9,777				4,742
Deferred:
U.S. federal			(20	)			51				—
U.S. state and local taxes			—				—				—
Foreign			(1,048	)			(2,833	)			(765	)
Total deferred			(1,068	)			(2,782	)			(765	)
Total income tax provision		$	13,080			$	6,995			$	3,977