XML 37 R25.htm IDEA: XBRL DOCUMENT v3.22.1
Provision for Income Taxes
 3 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAXES
Due to the change in fiscal year end, the Company has computed income taxes for the three months ended March 31, 2022 using actual tax rates for the period. The provision for income taxes for the three months ended March 31, 2021 was computed under the effective tax rate method by applying an estimated annual effective rate applicable for the fiscal year ended December 31, 2021 to the year-to-date earnings. Losses from jurisdictions for which no benefit could be recognized were excluded from the overall computations of the estimated annual effective tax rate and a separate estimated annual effective tax rate was computed and applied to ordinary income or loss in the loss jurisdiction. For the period ended March 31, 2021, the United States and certain other foreign jurisdictions, primarily in Latin America, were considered loss jurisdictions. These jurisdictions were treated discretely and were excluded from the annual effective tax rate computation for purposes of computing the interim tax provision and a separate annual effective rate was computed for each of these jurisdictions and applied against their respective year-to-date ordinary income or loss.
The effective rates for income taxes were (15.7)% and 11.5% for the three months ended March 31, 2022 and 2021, respectively. The change in the Company’s effective tax rate was primarily driven by the recording of valuation allowances against current losses incurred in the United States and China for the three months ended March 31, 2022 and the proportion of earnings subject to tax in the United States as compared to foreign jurisdictions in each period.

Valuation Allowance
The Company evaluates on a quarterly basis whether the deferred tax assets are realizable which requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established
against the Company's deferred tax assets, which increase income tax expense in the period when such a determination is made.
As noted in the Company's Annual Report on Form 10-K for Fiscal 2021, a significant portion of the Company’s deferred tax assets relate to United States federal and state taxing jurisdictions. Realization of these deferred tax assets is dependent on future United States pre-tax earnings. As of March 31, 2022 the Company continues to believe that the weight of the negative evidence outweighs the positive evidence regarding the realization of the Company’s United States federal and the majority of the United States state deferred tax assets. Accordingly, the Company continues to maintain valuation allowances on these deferred tax assets. Furthermore, consistent with prior periods, valuation allowances have also been recorded against select foreign deferred tax assets in jurisdictions where the weight of negative evidence outweighs the positive evidence regarding the realization of deferred tax assets.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The Company's current forecasts for the United States indicate that it is probable that additional deferred taxes could be realizable during the next 12 months based on near term trend towards three-year cumulative taxable earnings. The actualization of these forecasted results may potentially outweigh the negative evidence, resulting in a reversal of all or a portion of previously recorded valuation allowances in the United States. The release of valuation allowances would result in a benefit to income tax expense in the period the release is recorded, which could have a material impact on net income. The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective pre-tax earnings in the United States. The Company will continue to evaluate its ability to realize its net deferred tax assets on a quarterly basis.