INCOME TAXES |
9 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES |
NOTE 9: INCOME TAXES
For the Successor period, the Company’s provision for income taxes consists of U.S., state and local, and foreign taxes. The Company has significant operations in various locations outside the U.S. The annual effective tax rate is a composite rate reflecting the earnings in the various locations at their applicable statutory tax rates.
For the Predecessor period, income taxes as presented herein attribute current and deferred income taxes of the Company’s financial statements in a manner that is systematic, rational, and consistent with the asset and liability method described by ASC 740, “Income Taxes.” Accordingly, the Company’s income tax provision during the predecessor period was prepared following the separate return method. The separate return method applies ASC 740 to the stand-alone financial statements of each member of the consolidated group as if the group member were a separate taxpayer and a stand-alone enterprise. Use of the separate return method may result in differences when the sum of the amounts allocated to stand-alone tax provisions are compared with amounts presented in consolidated financial statements. In that event, the related deferred tax assets and liabilities could be significantly different from those presented herein. The consolidated financial statements reflect the Company’s portion of income taxes payable as if the Company had been a separate taxpayer.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k) (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhanced recoverability of alternative minimum tax credit carryforwards. The income tax provisions of the CARES Act had limited applicability to the Company and did not have a material impact on the Company’s consolidated financial statements.
The Successor’s income tax provision was $1.7 million for the three months ended September 30, 2020. The effective tax rate for the three months ended September 30, 2020 was an income tax provision of (146.3%) on a pretax loss of $1.2 million which differs from the statutory federal rate of 21% primarily due to the U.S. tax effect of international operations including Global Intangible Low-Taxed Income (“GILTI”) recorded during the period. The Predecessor’s income tax provision for the three months ended September 30, 2019 was $1.6 million. The effective tax rate for the three months ended September 30, 2019 was an income tax provision of 23.6% on pretax income of $6.9 million.
The Successor’s income tax provision was $1.7 million for the period from June 26, 2020 through September 30, 2020. The effective tax rate for the period from June 26, 2020 through September 30, 2020 was computed by applying an estimate of the annual effective tax rate for the Successor period to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. The Successor’s effective tax rate was an income tax provision of (102.9%) on a pretax loss of $1.6 million for the period from June 26, 2020 through September 30, 2020 which differs from the statutory federal rate of 21% primarily due to the U.S. tax effect of international operations including GILTI recorded during the period. The Predecessor’s income tax provision was an income tax benefit of $3.5 million for the period from January 1, 2020 through June 25, 2020. The effective tax rate for the period from January 1, 2020 through June 25, 2020 was computed using a discrete method as if the Company closed its books and records, The Predecessor’s effective tax rate was 9.3% for the period from January 1, 2020 to June 25, 2020 which differs from the statutory federal rate of 21% primarily due to the impact of the impairment charges of non-deductible goodwill and the U.S. tax effect of international operations including GILTI recorded during the period.
The Predecessor’s income tax provision was $5.2 million for the nine months ended September 30, 2019. The Predecessor’s effective tax rate for the nine months ended September 30, 2019 was 22.6% on pretax income of $23.2 million which differs from the statutory federal rate of 21% primarily due to state and local taxes and the U.S. tax effect of international operations.
As of September 30, 2020, the Company had an uncertain tax position liability of $1.0 million, including interest and penalties. The unrecognized tax benefits include amounts related to various foreign tax issues.
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