Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes consists of provisions for federal, state and foreign income taxes. The effective tax rates for the periods ended September 30, 2021 and September 30, 2020, 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, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in the U.S. The CARES Act included tax changes and financial aid designed to protect the American people from the public health and economic impacts of COVID-19. The tax changes included allowing net operating losses to be carried back five years, suspending the 80% of taxable income limitation on the use of net operating losses, an increase of the EBITDA limitation on the deduction of interest expense from 30% to 50%, excluding any grant income associated with forgiven PPP loans, and the 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 on business interest deductions for tax year 2020, allowing an increase for deductible interest expense in the U.S. In addition, the grant income associated with the PPP loans was non-taxable income in the U.S. for tax year 2020.

The Company's U.S. operations have incurred cumulative taxable losses through September 30, 2021. 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 have become restricted because 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 limits 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, was 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 3 - Related Party Transactions 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 and built-in losses related to future intangible amortization tax deductions. These limitations apply to the corresponding tax attributes and built-in losses incurred before the ownership change.

The effective tax rate for the nine months ended September 30, 2021 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 and losses, offset by certain non-taxable items. For the three months ending September 30, 2021, the decrease in tax expense from reversing some of the valuation allowance on foreign companies was almost fully offset by an increase in the valuation allowances in the United States arising from the change in control and on intercompany eliminations.

The Company's effective tax rate for the three and nine months ended September 30, 2021 was 20.4% and (35.6)%, respectively, compared to the effective tax rate for the three and nine months ended September 30, 2020 of 955.5% and (147.9)%, respectively.