Income Taxes

3 Months Ended

Mar. 31, 2022

Income Taxes [Abstract]

Income Taxes

7.INCOME TAXES

Income tax expense is recorded relative to the jurisdictions that recognize book earnings. For the three months ended March 31, 2022, the Company recognized income tax expense of $1.4 million on pre-tax earnings of $4.1 million, representing an effective income tax rate of 34.6% compared to income tax expense of $0.1 million on pre-tax loss of ($1.8) million, representing an effective income tax rate of (5.5%) for the same period in 2021. The comparison of pre-tax earnings of $4.1 million for the three months ended March 31, 2022 to the pre-tax loss of ($1.8) million for the three months ended March 31, 2021 should be considered when comparing effective tax rates for the respective periods.

For the three months ended March 31, 2022, the Company computed an annual effective tax rate using forecasted information. Based on current forecasts, the Company’s effective tax rate is expected to be highly sensitive to changes in earnings. The Company concluded that computing its effective tax rate using forecasted information would be appropriate in estimating tax expense for the three months ended March 31, 2022.

A number of items caused the effective income tax rate for the three months ended March 31, 2022 to differ from the US federal statutory income tax rate of 21%, including taxation of global intangible low-tax income (GILTI) in the United States, a 23% statutory tax rate in Canada, certain nondeductible business expenses in Poland, and various exchange rate benefits. As of March 31, 2022, the Company continues to maintain a full valuation allowance on deferred tax assets for CMR, United States, and CRM.

Management continues to monitor the profitability of the US operations, and the valuation allowance in the US may be released within the next 12 months. If management determines the valuation allowance is no longer needed in the US during the current year, the Company will recognize a $10.2 million tax benefit in a subsequent quarter.

Additionally, the Company has unrecognized tax benefits of $0.8 million, of which $0.2 million and $0.5 million are anticipated to be recognized during 2022 and 2023, respectively, due to the lapse of a statute of limitations related to the Company’s ability to utilize pre-acquisition net operating losses.