Income Taxes

3 Months Ended

Mar. 31, 2020

For the three months ended March 31, 2019 and 2020, the Company recognized a tax expense of $1.7 million and $0.7 million, respectively, in the consolidated statements of operations and comprehensive income (loss).

The components of the expense for income taxes consisted of the following:



	Three Months Ended March 31,
	2019			2020
				(unaudited)
	(in thousands)
Current:
U.S. Federal and State	$	2,190		$	1,216
Foreign	435			931
Total current expense	2,625			2,147
Deferred:
U.S. Federal and State	(871		)	(1,405		)
Foreign	(35		)	(73		)
Total deferred (benefit)	(906		)	(1,478		)
Total expense	$	1,719		$	669

The expense for income taxes shown on the consolidated statements of operations and comprehensive income (loss) differs considerably from amounts that would result from applying the statutory tax rates to income before taxes primarily due to tax rules and attributes that are available to each of the jurisdictions in which the Company operates. In addition, due to the recent changes in U.S. tax law based on the Tax Cuts and Job Act (the "TCJA") and the CARES Act, there are a number of provisions that impact the Company’s overall tax result, a significant item being the limitation on the deductibility of interest expenses. These new laws may create variability from period to period, especially when the Company is assessing whether its deferred tax assets and liabilities are more likely than not to be realized.

The Company is required to assess its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included:


•	Net operating losses ("NOLs") incurred from the Company’s inception to date


•	Expiration of various federal, state and foreign tax attributes


•	Reversals of existing temporary differences


•	Composition and cumulative amounts of existing temporary differences and


•	Current year forecasted profit before tax

After consideration of all positive and negative evidence, the Company believes that it is more likely than not that a portion of its deferred tax assets will not be realized. The Company has recorded a valuation allowance at December 31, 2019 and March 31, 2020 of $44.1 million and $42.6 million, respectively, against its U.S. deferred tax assets. The decrease in valuation allowance is primarily due to the change in the timing of when the existing temporary differences are expected to reverse in the future. The Company has recorded a valuation allowance at December 31, 2019 against its foreign deferred tax assets of $6.0 million, of which $3.5 million is in the Netherlands, $1.5 million is in Brazil, and $1.0 million is in various other foreign jurisdictions. The Company has recorded a valuation allowance at March 31, 2020 against its foreign deferred tax assets of $5.8 million, of which $3.3 million is in the Netherlands, $1.6 million is in Brazil, and $0.9 million is in various other foreign jurisdictions.

The CARES Act was enacted on March 27, 2020. The CARES Act is an emergency economic stimulus package that includes spending and tax cuts to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted TCJA. As of March 31, 2020, the Company recognized a benefit of $2.1 million as a component of income tax expense from continuing operations related to the CARES Act. Based on the Company's initial assessments, the Company anticipates that the CARES Act will allow the Company to defer its 2020 tax payments; defer the employer portion of its FICA taxes to 2021 and 2022; fully deduct its interest expense for 2019; accelerate a refund if its available alternative minimum tax ("AMT") credits; and increase its permitted level of 2019 federal net operating loss carry-forwards from approximately $26.0 million to $77.0 million. The Company continues to review the tax-related provisions of the CARES Act and its potential impact on the Company.

The Company establishes reserves when the Company believes that certain positions are likely to be challenged despite the Company’s assertion that its tax return positions are fully supportable. The calculation of the Company’s tax liabilities involves significant judgment based on individual facts, circumstances and information available in addition to applying complex tax regulations in various jurisdictions. The Company recognizes, in its consolidated financial statements, the effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company has recorded unrecognized tax benefits at December 31, 2019 and March 31, 2020 of $4.7 million and $5.2 million, respectively, that would affect its effective tax rate. The Company does not expect a significant change in the liability for unrecognized tax benefits in the next 12 months.

As of December 31, 2019, the Company had recorded the following tax attributes available to be carried forward:



Jurisdiction	Amount		Year Loss Carry-forwards Expire
	(in millions)
Domestic
Federal	$	26.9	2037
State	78.0		various dates through 2039
Foreign
China	0.9		2021
Brazil	4.4		indefinite
Netherlands	12.4		2022
India	0.6		2022
Singapore	0.4		indefinite
Total NOL carry-forwards	$	123.6

Domestic
Federal	$	25.2	2034
State	15.5		various dates
Total tax credit carry-forwards	$	40.7

Total tax attributes available	$	164.3

As of December 31, 2019 and March 31, 2020, the Company has recorded interest expense that can be carried forward indefinitely due to provisions of the TCJA, of $114.9 million and $63.1 million, respectively.

The Company files income tax returns in the United States for federal income taxes and in various state jurisdictions. The Company also files in several foreign jurisdictions. In the normal course of business, the Company is subject to examination by tax authorities throughout the world. Since the Company is in a loss carry-forward position, it is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carry-forward is utilized.