Income Taxes

9 Months Ended

Sep. 30, 2020

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 a $7.6 million net tax benefit in the nine-month period ended September 30, 2020, consisting of a $18.9 million current tax benefit and a $11.3 million deferred tax expense. This $7.6 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.

During the nine-month period ended September 30, 2020, we migrated two of our foreign subsidiaries into our U.S. consolidated tax group. Subsequent to the migration, these subsidiaries are disregarded and no longer subject to certain branch profits taxes. Consequently, we recognized net deferred tax benefits of $8.3 million due to the reduction in the overall tax rate associated with these subsidiaries.

Our estimated annual effective tax rate, adjusted for discrete tax items, is applied to our near break-even pre-tax loss for the nine-month period ended September 30, 2020 as we have determined that a return to the annualized effective tax rate method is 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 rates for the three-month periods ended September 30, 2020 and 2019 were 17.6% and 10.1%, respectively. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as our carrying back certain net operating losses to prior periods with higher income tax rates. The effective tax rate for the nine-month period ended September 30, 2020 was significantly higher than the U.S. statutory rate primarily due to our recognition of discrete benefits during the period related to the restructuring of certain foreign subsidiaries and our carrying back certain net operating losses to prior periods with higher income tax rates under tax law changes associated with the CARES Act whereas we had only nominal pre-tax losses. The effective tax rate for the nine-month period ended September 30, 2019 was 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 (dollars in thousands):


	Three Months Ended September 30,														Nine Months Ended September 30,
	2020						2019						2020				2019

Taxes at U.S. statutory rate	$	6,232	21.0	%	$	7,384	21.0	%	$	(35)	21.0	%	$	11,866	21.0	%
Foreign tax provision	1,088		3.7		(3,574)		(10.1)		(28)		17.0		(5,488)		(9.7)
CARES Act	(2,362)		(8.0)		—		—		(7,596)		4,603.6		—		—
Subsidiary restructuring	—		—		—		—		(8,333)		5,050.3		—		—
Other	274		0.9		(271)		(0.8)		(140)		85.1		361		0.6
Income tax provision (benefit)	$	5,232	17.6	%	$	3,539	10.1	%	$	(16,132)	9,777.0	%	$	6,739	11.9	%

- 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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