Income Taxes

6 Months Ended

Jun. 30, 2020

Note 8 — Income Taxes

We believe that our recorded deferred tax assets and liabilities are reasonable. However, tax laws and regulations are subject to interpretation, and the outcomes of tax disputes are inherently uncertain; therefore, our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.

The CARES Act, which was signed into law on March 27, 2020, is an economic stimulus package designed to aid in offsetting the economic damage caused by the ongoing COVID-19 pandemic and includes various changes to U.S. income tax regulations. The CARES Act permits the carryback of certain net operating losses, which previously had been required to be carried forward, at the tax rates applicable in the relevant carryback year. As a result of these changes, we recognized an estimated $5.2 million net tax benefit in the six-month period ended June 30, 2020, consisting of a $15.8 million current tax benefit and a $10.6 million deferred tax expense. This $5.2 million net tax benefit resulted from our deferred tax assets related to our net operating losses in the U.S. being utilized at the previous higher income tax rate applicable to the carryback periods.

We adopted the discrete effective tax rate method for recording income taxes for the three- and six-month periods ended June 30, 2020. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. We believe that the use of the discrete method is more appropriate than the annual effective tax rate method because of the current high degree of uncertainty in estimating annual pretax earnings created by uncertainty in future market conditions caused by the ongoing COVID-19 pandemic as well as uncertainty in the oil and gas market. We will re-evaluate our use of this method each quarter until such time as a return to the annualized effective tax rate method is deemed appropriate.

Income taxes are provided based on the U.S. statutory rate and the local statutory rate for each foreign jurisdiction adjusted for items that are required for federal and foreign income tax reporting purposes. The effective tax rate for the three-month period ended June 30, 2020 was negative primarily due to the earnings mix between our higher and lower tax rate jurisdictions. The effective tax rate for the six-month loss period ended June 30, 2020 was higher than the U.S. statutory rate primarily due to our carrying back certain net operating losses to prior periods with higher income tax rates as well as the restructuring of certain foreign subsidiaries. The effective tax rates for the three- and six-month periods ended June 30, 2019 were lower than the U.S. statutory rate primarily due to a significant portion of our earnings being generated in certain jurisdictions with lower tax rates.

The primary differences between the income tax provision (benefit) at the U.S. statutory rate and our actual income tax provision (benefit) are as follows:


	Three Months Ended June 30,														Six Months Ended June 30,
	2020						2019						2020				2019

Taxes at U.S. statutory rate	$	1,087	21.0	%	$	4,137	21.0	%	$	(6,267)	21.0	%	$	4,482	21.0	%
Foreign tax provision	(2,166)		(41.8)		(1,664)		(8.4)		(1,116)		3.7		(1,914)		(9.0)
CARES Act	580		11.2		—		—		(5,234)		17.6		—		—
Subsidiary restructuring	—		—		—		—		(8,333)		27.9		—		—
Other	228		4.4		403		2.0		(414)		1.4		632		3.0
Income tax provision (benefit)	$	(271)	(5.2)	%	$	2,876	14.6	%	$	(21,364)	71.6	%	$	3,200	15.0	%

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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