Income Taxes |
3 Months Ended |
|---|---|
Mar. 31, 2019 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes |
Note 8 - Income Taxes
Income tax expense was $0.7 million and $1.6 million for the three months ended March 31, 2019 and 2018, respectively. The Company’s effective tax rate for the three months ended March 31, 2019 was negative 0.7 percent, which varied from the U.S. statutory rate of 21.0% primarily due to the jurisdictional mix of income and loss during the quarter, our continued inability to recognize the benefits associated with certain losses as a result of valuation allowances, and the income tax impacts of adjustments made as part of Fresh Start Accounting. See Note 3 - Fresh Start Accounting for further details. The Company’s effective tax rate for the three months ended March 31, 2018 was negative 5.9 percent, which varied from the U.S. statutory rate of 21.0% primarily due to the jurisdictional mix of income and loss during the quarter and our continued inability to recognize the benefits associated with certain losses as a result of valuation allowances. Income taxes paid (net of any refunds) during the three months ended March 31, 2019 and 2018 were $1.4 million and $2.0 million, respectively.
We apply the accounting guidance related to accounting for uncertainty in income taxes. This guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. As of March 31, 2019, we had a liability for unrecognized tax benefits of $4.9 million, primarily related to foreign operations, (all of which, if recognized, would favorably impact our effective tax rate.). As of December 31, 2018, we had a liability for unrecognized tax benefits of $5.7 million, all of which would favorably impact our effective tax rate upon recognition. In addition, we recognize interest and penalties that could be applied to uncertain tax positions in periodic income tax expense. As of March 31, 2019 and December 31, 2018, we had approximately $2.2 million and $2.1 million, respectively, of accrued interest and penalties related to uncertain tax positions.
As described in Note 2 - Chapter 11 Emergence, in accordance with the Plan, our 7.50% Notes and 6.75% Notes were canceled and exchanged for Successor Common Stock, the Term Loan, and right to participate in the rights offering. The Internal Revenue Service Code (“IRC”) of 1986, as amended, provides that a debtor in a Chapter 11 bankruptcy case may exclude cancellation of debt income (“CODI”) from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is determined based on the fair market value of the consideration received by the creditors in settlement of outstanding indebtedness. Upon emergence from Chapter 11 bankruptcy proceedings, the CODI may reduce some or all of the amount of prior U.S. tax attributes, which can include net operating losses, capital losses, and tax basis in assets. The actual reduction in tax attributes does not occur until January 1, 2020. The amount of the remaining U.S. deferred tax assets, against which a full valuation exists, will be limited under IRC Section 382 due to the change in control resulting from the Plan.
The Company has evaluated the impact of the reorganization, including the change in control, resulting from its emergence from bankruptcy. The Company believes that the Successor Company will be able to fully absorb the CODI realized by the Predecessor in connection with the reorganization with its net operating losses, capital losses, and tax basis in assets. It is more likely than not that the Successor will not realize future income tax benefits related to its remaining U.S. net deferred tax asset based on the IRC Section 382 limitation, historical results, and expected market conditions known on the date of measurement, and the Company has therefore maintained a full valuation allowance against the remaining U.S. net deferred tax asset. This is periodically reassessed and could change in the future.
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