Income Taxes

9 Months Ended

Sep. 30, 2023

Income Taxes

Income Taxes

6.     Income Taxes

The Company applies an estimated annual effective tax rate (“ETR”) approach for calculating a tax provision for interim periods, as required under GAAP. The Company recorded an income tax expense of $1.8 million and $1.9 million for the three months ended September 30, 2023 and 2022, respectively. The Company recorded an income tax expense of $7.0 million and $5.7 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company's ETR of (8.5)% and (7.6)% for the three and nine months ended September 30, 2023, respectively, differed from the expected U.S. statutory tax rate of 21.0% and was primarily impacted by permanent tax adjustments, state and local current expense, foreign operations, and valuation allowances, including valuation allowances on a portion of the Company’s deferred tax assets on U.S. disallowed interest expense carryforwards created by the provisions of The Tax Cuts and Jobs Act (“TCJA”).

For the three and nine months ended September 30, 2022, the Company's ETR of (2.3)% and (2.7)%, respectively, differed from the expected U.S. statutory tax rate of 21.0% and was primarily impacted by permanent tax adjustments, state and local current expense, foreign operations, and valuation allowances, including valuation allowances on a portion of the Company’s deferred tax assets on U.S. disallowed interest expense carryforwards created by the provisions of the TCJA.

As of September 30, 2023, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the year ended December 31, 2022.

During the three months ended September 30, 2023, the Company entered into an indenture agreement for the Company's New Notes resulting in cancelation of debt income (CODI). Absent an exception, a debtor recognizes CODI upon discharge of its outstanding indebtedness for an amount of consideration that is less than the outstanding debt. The Code provides that a debtor may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of CODI. Pursuant to the US tax rules, the Company computes the final CODI calculation based on the tax basis as of the last day of the fiscal tax year (i.e., December 31, 2023) which includes the date in which the debt transaction occurred. As such, the Company applied its best estimate as of July 12, 2023 (transaction date) to compute the CODI impact knowing that certain amounts will change based on regular business operations. For the period ended September 30, 2023, the Company estimated CODI in the amount of $600 million will be excluded from taxable income and result in a partial reduction in the gross U.S. federal and state net operating losses, on which there is a full valuation allowance and as such there is no financial statement impact. The Company will finalize the tax effects of CODI, including the estimated tax effects of tax basis and attribute reduction recognized as a result of the debt transaction in the final December 31, 2023 financial statements and subsequent tax return filings.