Income Taxes (Notes)

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

The process for calculating the Company’s income tax expense involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability and whether a valuation allowance is necessary.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and negative evidence. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.

Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the activity surrounding our prior earnings history including the forward losses previously recognized in the U.S., the Company recorded an incremental valuation allowance of $67.2 for the period ended March 31, 2022. As of March 31, 2022, the total net U.S. deferred tax asset before the valuation allowance was $364.5 and the total U.S. valuation allowance was $363.4. The net U.S. deferred tax asset after valuation allowances was $1.1. The change from December 31, 2021 is additional valuation allowance recognized on the deferred tax assets generated from the 2022 activity.

The Company has determined a valuation allowance on certain U.K. deferred tax assets is needed based upon cumulative losses generated in the U.K. Decreases in the valuation allowances recorded against U.K. deferred tax assets in the period ended March 31, 2022 were $10.4. This is comprised of ($0.6) related to OCI and $11.0 from continuing operations, including utilization of net operating losses (NOLs). As of March 31, 2022, the total net U.K. deferred tax asset before the valuation allowance was $236.6 and the total net U.K. valuation allowance was $230.2. The net U.K. deferred tax asset after valuation allowance was $6.4.

The Company files income tax returns in all jurisdictions in which it operates. The Company establishes reserves to provide for additional income taxes that may be due upon audit. These reserves are established based on management’s assessment as to the potential exposure attributable to permanent tax adjustments and associated interest. All tax reserves are analyzed quarterly and adjustments made as events occur that warrant modification.

In general, the Company records income tax expense each quarter based on its estimate as to the full year’s effective tax rate. Certain items, however, are given discrete period treatment and the tax effects for such items are therefore reported in the quarter that an event arises. Events or items that may give rise to discrete recognition include excess tax benefits with respect to share-based compensation, finalizing amounts in income tax returns filed, finalizing audit examinations for open tax years and expiration of statutes of limitations, and changes in tax law.

The 17.4% effective tax rate for the three months ended March 31, 2022 differs from the 1.0% effective tax rate for the same period of 2021 primarily due the release of valuation allowance on projected NOL utilization in the U.S. and U.K., state and research and development ("R&D") credits generated, net of valuation allowance, and nondeductible executive compensation. The 17.4% effective tax rate for the three months ended March 31, 2022 represents an income tax benefit given that the Company incurred a pre-tax loss. As the Company is reporting a pre-tax loss for the three months ended March 31, 2022, an increase in the effective tax rate results in an increase of income tax benefits while a decrease in the rate results in a reduction of income tax benefit.

As of March 31, 2022, the Company had deferred $16.5 of employer payroll taxes, as allowed by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is required to be deposited by December 2022. As of March 31,

2022, the Company has recorded an estimated pre-tax employee retention credit of approximately $18.8 related to calendar year 2020. The Company is evaluating its eligibility to continue with the employee retention credit. In addition, as of March 31, 2022, the Company has fully paid $31.8 of VAT payments that were deferred under the United Kingdom deferral scheme.

The Company's federal audit for the 2020 tax year is substantially complete under the Internal Revenue Service Compliance Assurance Program ("CAP"). The Company will continue to participate in the CAP program for the 2021 and 2022 tax years. The CAP program’s objective is to resolve issues in a timely, contemporaneous manner and eliminate the need for a lengthy post-filing examination. The Company has an open tax audit in the Kingdom of Morocco for the tax years ended prior to the Company's ownership of the Moroccan legal entity. There are ongoing audits in other jurisdictions that are not material to the financial statements and the Company believes appropriate provisions for all outstanding tax issues have been made for all jurisdictions and years.