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Note 13 - Income Taxes
 9 Months Ended
Sep. 30, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 13—Income Taxes

 

For interim financial reporting, management estimates the annual tax rate based on projected pre-tax income (loss) for the full year and records a quarterly income tax provision (benefit) in accordance with accounting guidance for income taxes. As the year progresses, the estimate of the year’s pre-tax income (loss) is refined as new information becomes available. The continual estimation process often results in a change to the expected effective tax rate for the year. When this occurs, the income tax provision (benefit) is adjusted during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the most current expected annual tax rate.

 

Frank's effective tax rate was (35.7)% and (29.9)% for the three months ended September 30, 2021 and 2020, respectively and (29.7)% and 0.1% for nine months ended September 30, 2021 and 2020, respectively. The quarterly sequential variance in effective tax rates is due to a change in the geographical mix of income. The year over year variance in effective tax rates is primarily due to the beneficial impact in the prior year period from the five-year net operating loss carryback provision included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as well as a change in the geographical mix of income. Frank's is subject to tax in many U.S. and non-U.S. jurisdictions. In many non-U.S. jurisdictions Frank's is taxed on bases such as deemed profits or withholding taxes based on revenue. Consequently, the level of correlation between pre-tax income and income tax provision varies from period to period.

 

As a consequence of the Merger, Frank's underwent an ownership change as defined in Internal Revenue Code Section 382, which, based on information currently available, will trigger a substantial limitation on the combined company’s ability to utilize historic net operating losses ("NOLs") and will cause some of Frank’s NOLs incurred prior to January 1, 2018 to expire before the combined company will be able to utilize them.

 

Frank's is under audit by certain non-U.S. jurisdictions for the years 2008 - 2019. Frank's does not expect the results of these audits to have any material effect on its financial statements.

 

An analysis of Frank's uncertain tax positions in the various jurisdictions in which it operates has been performed and management has concluded that the positions are adequately provided for. Frank's provision for uncertain tax positions as of September 30, 2021 and December 31, 2020 included in “Other non-current liabilities” on the condensed consolidated balance sheets was $5.0 million and $3.1 million, respectively.