Provision for Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Provision for Income Taxes

Provision for Income Taxes

Provision for Income Taxes

The effective rates for income taxes were (3.8)% and 26.8% for the three months ended March 31, 2020 and 2019, respectively. The change in the Company's effective tax rate was primarily driven by the proportion of earnings subject to tax in the United States as compared to foreign jurisdictions in each period. The effective tax rate for the three months ended March 31, 2020 includes the impact of recording valuation allowances against the majority of incurred and forecasted 2020 losses in the United States, against all 2020 losses incurred and forecasted in China, and discrete items, including the recording of valuation allowances on certain previously recognized deferred tax assets in the United States and China.

Cares Act

On March 27, 2020 the United States enacted the CARES Act to combat the negative economic impact of the COVID-19 pandemic. The CARES Act includes several provisions aimed at assisting corporate taxpayers, including the allowance of a five-year carryback for net operating losses originating in the 2018, 2019, and 2020 tax years; removal of the taxable income limitation on net operating loss utilization for tax years before 2021; loosening of the interest deduction limitation in the 2019 and 2020 tax years; and correcting the drafting error from the Tax Cuts and Jobs Act related to the tax life for qualified improvement property.

In addition, the Company’s effective tax rate for the three months ended March 31, 2020 includes the income tax accounting impacts of the CARES Act. More specifically, the effective tax rate includes a benefit for the portion of forecasted 2020 net operating losses in the United States federal jurisdiction able to be carried back to

offset taxable income in the five-year carryback period. This benefit partially offsets the impact of recording valuation allowances against the majority of the Company’s deferred tax assets in the United States federal jurisdiction.

Valuation Allowance

The Company evaluates on a quarterly basis whether the deferred tax assets are realizable which requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company's deferred tax assets, which increase income tax expense in the period when such a determination is made.

As noted in the Company's Annual Report on Form 10-K, a significant portion of the Company's deferred tax assets relate to United States federal and state taxing jurisdictions. Realization of these deferred tax assets is dependent on future United States pre-tax earnings. As of December 31, 2019 the Company believed the weight of the positive evidence outweighed the negative evidence regarding the realization of the Company's United States federal deferred tax assets and no valuation allowance was recorded. However, the weight of the negative evidence outweighed the positive evidence regarding the realization of the majority of the Company's United States state deferred tax assets and a valuation allowance was recorded.

Based on developments during the first quarter of 2020, including the negative economic impact of the COVID-19 pandemic and an increase in the range of pre-tax charges forecasted to be incurred in connection with the 2020 Restructuring Plan, the Company no longer believes it is more likely than not that a majority of the Company's U.S. federal deferred tax assets will be realized. As such, we have recorded a valuation allowance on the portion which are not forecasted to be utilized with the 2020 net operating loss carryback. Additionally, based on similar factors, the Company no longer believes it is more likely than not that the China deferred tax assets will be realized and therefore, we have recorded a valuation allowance on these deferred tax assets. We will continue to evaluate the Company's ability to realize the deferred tax assets on a quarterly basis.