INCOME TAXES

9 Months Ended

Sep. 30, 2020


NOTE 6 – INCOME TAXES

The Company reported income tax expense of $6.5 million for the three months ended September 30, 2020 compared to a benefit of $8.6 million for the three months ended September 30, 2019. The effective tax rates for the three months ended September 30, 2020 and 2019 was an expense of 8.7% and a benefit of 12.7%, respectively. The results for the three months ended September 30, 2020 reflect the impact associated with non-deductible divestiture charges. The effective tax rate for the three months ended September 30, 2019 is principally due to the impact of certain non-deductible impairments of assets held-for-sale and the impact of valuation allowances recognized against current losses in several countries offset by the impact of certain tax reserves adjustments.

The Company reported an income tax benefit of $23.2 million for the nine months ended September 30, 2020 compared to a tax benefit of $8.0 million for the nine months ended September 30, 2019. The effective tax rates for the nine months ended September 30, 2020 and 2019, were 18.1% and 5.9%, respectively. The results for the nine months ended September 30, 2020, reflected a $39.4 million tax benefit related to the U.S. CARES Act (see further description below), the tax impact from divestiture charges which are primarily non-deductible, and discrete tax expense associated with stock-based compensation. The effective tax rate for the nine months ended September 30, 2019, is principally due to the impact of certain non-deductible impairments of assets held-for-sale and goodwill, valuation allowances recognized against current period losses in several countries, partially offset by the impact of certain tax reserves adjustments.

On March 27, 2020, President Donald Trump signed into law the U.S. CARES Act, which is a substantial tax-and-spending package intended to provide additional economic stimulus to address the impact of the COVID-19 pandemic. The U.S. CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. As a result of the U.S. CARES Act tax law changes, in the nine months ended September 30, 2020, we recognized a $39.4 million tax benefit related to our ability to carryback net operating losses to prior years that had higher tax rates. In conjunction with previously recognized net operating losses, the total refunds we anticipate from the U.S. CARES Act in 2020 are approximately $100 million. In July 2020, the Company received approximately half of the expected refund amounts. The impact of the CARES Act in prospective periods may differ from our estimate as of September 30, 2020 due to changes in interpretations and assumptions, guidance that may be issued and actions the Company may take in response to the CARES Act. The CARES Act is highly detailed, and the Company will continue to assess the impact that various provisions will have on its business.

Similar tax provisions and other stimulus measures have been granted either before or after September 30, 2020 by certain foreign and U.S. state jurisdictions, which the Company continues to evaluate and apply, if applicable.

The Company filed a PFA with the IRS related to a claim under Internal Revenue Code Section 1341 concerning the tax rate to be applied to the SQ Settlement on the Company’s 2018 tax return. The IRS has agreed to review the position and discussions are ongoing. As a result of the enactment of the U.S. CARES Act, the Company was able to realize a benefit at the higher tax rate on a portion of the SQ Settlement. In 2020, in consideration of the U.S. CARES Act, we revised the PFA, a portion of the long-term receivable previously established for the Section 1341 claim has been reclassified to a current income tax receivable and the related uncertain tax position has been released as part of the tax benefit for the nine months ended September 30, 2020. Any additional income tax benefit resulting from the claim in a future period may be recognized as appropriate in accordance with the guidance in ASC 740 on the accounting for uncertain tax positions. There can be no assurance that this amount or any amount will be recovered as a result of this claim.

The Company files income tax returns in the U.S., in various states and in certain foreign jurisdictions. The Company has recorded liabilities to cover certain uncertain tax positions. Such uncertain tax positions relate to additional taxes that the Company may be required to pay in various tax jurisdictions. During the course of examinations by various taxing authorities, proposed adjustments may be asserted. The Company evaluates such items on a case-by-case basis and adjusts the accrual for uncertain tax positions as deemed necessary.