Note 10 - Income Taxes

6 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10. Income taxes

The Company accounts for income taxes under ASC Topic 740 – Income Taxes. Under this standard, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company’s tax provision for interim periods is determined using an estimate of the annual effective income tax rate, adjusted for discrete items, if any, that occur in the relevant period. The income tax benefit of $12.6 million for the six months ended June 30, 2021 resulted in an effective income tax rate of 217%. Included in the $12.6 million were discrete tax benefits of $8.5 million related to the Global Cooling acquisition (discussed below) and $3.2 million related to stock compensation windfall tax benefits. The Company’s US effective income tax rate without discrete items was 20%, which is lower than the US federal statutory rate of 21% primarily due to the impact of non-deductible transaction costs and executive compensation offset by state tax benefits and research tax credits. The Company will maintain a valuation allowance on its current losses in the Netherlands due to a lack of earnings history.

In connection with the Global Cooling acquisition on May 3, 2021, the Company recognized a deferred tax liability estimated to be $23.5 million during the quarter. As a result, the Company recorded an income tax benefit of $8.5 million for the full release of the valuation allowance on our existing deferred tax assets as a result of the offset of the deferred tax liabilities established for intangible assets from the acquisition.

Future utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation in the event of a change in ownership as set forth in Section 382 of the Internal Revenue Code of 1986, as amended. It is possible that there have been past changes in ownership as defined under Section 382, which would limit the Company’s ability to utilize NOLs and other tax attributes. The Company is currently in the process a completing a Section 382 study, which may result in adjustments to the accounting for the acquisition of Global Cooling.