Quarterly report pursuant to Section 13 or 15(d)

Note 12 - Income Taxes

v3.20.1
Note 12 - Income Taxes
 6 Months Ended
Apr. 30, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
Note
12.
Income Taxes
 
For the 
second
fiscal quarter ended
April 30, 2020,
the Company recorded an income tax benefit of $
2.2
million on a pretax loss of $
61.2
million, resulting in an effective tax rate of
3.6%.
For the same quarter a year ago, the Company recorded income tax expense of
$1.6
million on a pretax loss of
$8.1
million. For the
first
six
months of
2020,
the Company recorded an income tax benefit of $
3.4
million on a pretax loss of $
65.1
million, resulting in an effective tax rate of
5.2%.
For the Successor period from
December 6, 2018
to
April 30, 2019,
the Company recorded an income tax benefit of
$1.2
million on a pretax loss of
$14.5
million, resulting in an effective tax rate of
8.3%.
For the Predecessor period from
November 1, 2018
to
December 5, 2018,
the Company recorded an income tax benefit of
$4.2
million on a pretax loss of
$26.8
million, resulting in an effective tax rate of
15.7%.
 
The factors impacting comparability between our effective tax rates for the periods discussed above are as follows:
 
 
(
1
)
The Predecessor recorded tax expense of
$1.4
million for the period ended
December 5, 2018
related to nondeductible transaction related costs;
 
(
2
)
The Successor included
$0.8
million of tax expense in the estimated annual effective rate for the period ended
April 30, 2019
related to foreign income inclusions compared to
$0.1
million for the period ended
April 30, 2020
and
$0.0
for the Predecessor period ended
December 5, 2018;
 
(
3
)
The Successor included
$0.9
million of tax expense related to the increase in the deferred statutory U.K. corporate tax rate from
17%
to
19%
in the period ended
April 30, 2020;
  (
4
)		 Of the
$57.9
million of impairments recorded for goodwill and intangibles by the Company, only
$11.9
million was deductible for tax purposes (
$2.9
million tax benefit to the Company) as the remaining impairment was related to nondeductible goodwill; and
 
(
5
)
Differences in our estimated full year income before tax and the related impact on our estimated full year effective tax rate that was applied to year to date losses for the Successor periods ended
April 30, 2020
and
April 30, 2019.
 
At
April 30, 2020
and
October 31, 2019,
we had deferred tax liabilities, net of deferred tax assets, of
$65.3
million and
$69.0
million, respectively. The decrease in our net deferred tax liability is primarily due to current year operating results and reversal of existing deferred tax assets and liabilities during the period ended
April 30, 2020.
The Company has a valuation allowance of
$0.1
million as of both
April 30, 2020
and
October 31, 2019
related to foreign tax credit carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist.
 
The Company had unrecognized tax benefits of
$1.7
million as of
April 30, 2020
and
October 31, 2019.
If recognized,
none
of these benefits would favorably impact the Company's income tax expense.
 
On
March 27, 2020,
President Trump signed the Coronavirus Aid, Relief, and Economic Security “CARES” Act into law. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL”) and allow businesses to carry back NOLs arising in
2018,
2019
and
2020
to the
five
prior years, accelerate refunds of previously generated corporate alternative minimum tax credits, generally loosen the business interest limitation under IRC section
163
(j) from
30
percent to
50
percent among other technical corrections included in the Tax Cuts and Jobs Act tax provisions. The Company has performed the analysis of the CARES Act and has concluded that there is
no
impact as of
April 30, 2020.
The Company will continue to evaluate how the CARES Act
may
impact future periods. Also, refer to Note
13.
 
On
March 17, 2020,
the House of Commons passed a Budget Resolution under the Provisional Collection of Taxes Act of
1968.
The Budget Resolution substantively enacted an increase in the U.K. corporate tax rate for tax periods after
March 31, 2020
from
17%
to
19%.
As a result of the Budget Resolution, the Company recorded tax expense of
$0.9
million related to the remeasurement of deferred tax assets and liabilities to reflect the increase in the U.K. corporate tax rate.
 
The Company received a demand letter on
March 31, 2020
alleging that the Company is required to apply for and remit to the Predecessor’s shareholders certain tax refunds from carrying back certain tax net operating loss carryforwards that were made available as a result of the recent passage of the CARES Act.
No
complaint against the Company has been filed alleging any claims with respect to this matter. The outcome of this issue is still
not
determinable at this time because the matter is still under review and
no
action has been taken by the Company with regards to these potential refunds under the CARES Act.