Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesThe provision for income taxes consists of provisions for federal, state and foreign incomes taxes. The effective tax rates for the periods ended September 30, 2020 and September 30, 2019, reflect the Company’s expected tax rate on reported income (loss)

from continuing operations before income tax and tax adjustments. The Company operates in a global environment with significant operations in the U.S. and various other jurisdictions outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the Company’s earnings and the applicable tax rates in the various jurisdictions where the Company operates.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act includes tax changes and financial aid designed to protect the American people from the public health and economic impacts of COVID-19. The tax changes include allowing net operating losses to be carried back five years, suspending the 80% of taxable limitation on the use of net operating losses, an increase of the 30% of EBITDA limitation on the deduction of interest expense to 50%, and acceleration of the refund for alternative minimum tax credits granted under the 2017 Tax Cuts and Jobs Act (“TCJA”). Most significant to the Company are the modifications on the limitation of business interest deductions for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% to 50% of adjusted taxable income.

The Company's U.S. operations have incurred cumulative taxable losses through September 30, 2020. The Company’s U.S. net operating loss carry forwards and carry forwards of other tax attributes are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. The utilization of the tax attributes may become restricted in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of the tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will generally be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. Please refer to Note 4 regarding the ownership change in the quarter ended September 30, 2020. The Company completed a Section 382 study and determined the ownership change gave rise to the restrictions that will limit the realizability of certain U.S. tax attributes.

Typically, the Company has calculated its provision for income taxes during its interim reporting periods by applying an estimate of the annual effective tax rate for the full year "ordinary" income or loss for the respective reporting period. For the nine months ended September 30, 2020, the Company has computed its provision for income taxes under the discrete method which allows the Company to calculate its tax provision based upon the actual effective tax rate for the year-to-date. The discrete method was determined to be an appropriate method for estimating its tax provision for the nine months ended September 30, 2020 as it provides a reliable estimate as opposed to changes in estimated "ordinary" income or loss which would have resulted in significant fluctuations when estimating the annual effective tax rate.

The effective tax rate for the nine months ended September 30, 2020 differs from the U.S. statutory tax rate of 21%, primarily because of changes in valuation allowance positions related to the United States and certain foreign jurisdictions and by foreign exchange currency gains, offset by foreign provision to return tax benefits, primarily in France. The Company recorded an increase of $24.7 million in the valuation allowance for the three months ended September 30, 2020, primarily as a result of the ownership change that will limit the realizability of certain U.S. tax attributes.

The Company's effective tax rate for the three and nine months ended September 30, 2020 was 743.9% and (111.7)%, respectively, compared to the effective tax rate for the three and nine months ended September 30, 2019 of 214.0% and 28.2%, respectively.